<PAGE>
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 3)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
GENSIA, INC.
- -------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
N/A
- -------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01
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2) Aggregate number of securities to which transaction applies:
29,500,000
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
$4.28125 per share based on the high and low reported sales prices on
December 9, 1996.
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4) Proposed maximum aggregate value of transaction:
$126,296,870
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5) Total fee paid:
$25,260
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
O-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
LOGO
GENSIA, INC.
9360 TOWNE CENTRE DRIVE
SAN DIEGO, CALIFORNIA 92121
January 15, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of the stockholders of
Gensia, Inc. ("Gensia"), to be held at the offices of Gensia, 9360 Towne
Centre Drive, San Diego, California, on Wednesday, February 26, 1997, at 1:00
p.m., local time.
At this important meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Stock Exchange Agreement, dated as of
November 12, 1996, as amended on December 16, 1996 (the "Stock Exchange
Agreement"), between Gensia and Rakepoll Finance N.V., a corporation organized
under the laws of the Netherlands Antilles ("Rakepoll Finance"), and the
transactions contemplated thereby, including the Stock Exchange and the
Shareholder's Agreement (each as defined below), pursuant to which Gensia will
acquire all of the outstanding shares of capital stock of Rakepoll Holding
B.V., a corporation organized under the laws of the Netherlands ("Rakepoll
Holding") and a wholly-owned subsidiary of Rakepoll Finance, in exchange for
29,500,000 shares of Gensia common stock, $.01 par value ("Gensia Common
Stock") and $100,000 in cash (the "Stock Exchange"). As a result of the Stock
Exchange, Rakepoll Holding would become a wholly-owned subsidiary of Gensia.
In addition, pursuant to a Shareholder's Agreement, dated as of November 12,
1996, as amended December 21, 1996 (the "Shareholder's Agreement"), between
Rakepoll Finance and Gensia, if the Stock Exchange is consummated and if
Rakepoll Finance maintains certain Gensia stock ownership levels, Rakepoll
Finance will be entitled to designate three of Gensia's 10 directors who will
in turn designate (jointly with two executive officer directors of Gensia)
five additional directors. The consent of the Rakepoll Finance appointed
directors will be required for Gensia to take certain actions, such as a
merger or sale of all or substantially all of the business or assets of Gensia
and certain issuances of securities.
You will also be asked to consider and vote upon proposals to (i) amend and
restate Gensia's Restated Certificate of Incorporation ("Certificate of
Incorporation") to (a) change the name of Gensia to "Gensia Sicor Inc.", (b)
increase the number of authorized shares of Gensia Common Stock from
75,000,000 to 125,000,000 and (c) increase the number of authorized shares of
Gensia preferred stock designated as Series I Participating Preferred Stock,
$.01 par value, from 100,000 to 125,000; and (ii) adopt a new stock plan, the
Gensia 1997 Long-Term Incentive Plan (the "1997 Stock Plan"). Approval of the
amendment and restatement of Gensia's Certificate of Incorporation is
necessary in order to consummate the Stock Exchange, as Gensia does not
otherwise have enough authorized and unreserved shares of Gensia Common Stock.
The accompanying Proxy Statement describes in detail the Stock Exchange
Agreement and the transactions contemplated thereby, including the Stock
Exchange and the Shareholder's Agreement, and the proposed amendment and
restatement of Gensia's Certificate of Incorporation and adoption of the 1997
Stock Plan. Please review carefully the information in the attached Proxy
Statement.
THE BOARD OF DIRECTORS OF GENSIA HAS DETERMINED THAT THE CONSIDERATION TO BE
PAID BY GENSIA IN THE PROPOSED STOCK EXCHANGE IS FAIR TO GENSIA FROM A
FINANCIAL POINT OF VIEW AND THAT THE STOCK EXCHANGE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE STOCK EXCHANGE AND THE
SHAREHOLDER'S AGREEMENT, ARE FAIR TO, AND IN THE BEST INTERESTS OF, GENSIA AND
ITS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL AND
ADOPTION OF THE STOCK EXCHANGE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE STOCK EXCHANGE AND THE SHAREHOLDER'S AGREEMENT. THE
BOARD OF DIRECTORS OF GENSIA ALSO UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE PROPOSALS TO AMEND AND RESTATE GENSIA'S CERTIFICATE OF
INCORPORATION AND TO ADOPT THE 1997 STOCK PLAN.
<PAGE>
Whether or not you plan to attend the meeting in person and regardless of
the number of shares you own, your vote is important. Accordingly, I encourage
you to review carefully the enclosed materials and then please sign, date and
mail the enclosed proxy promptly in the postage-paid envelope that has been
provided to you for your convenience. If you wish to vote in accordance with
the recommendations of the Board of Directors of Gensia, it is not necessary
to specify your choices; you may merely sign, date and return the enclosed
proxy. If you attend the meeting, you may revoke your proxy by voting in
person. Your prompt cooperation is greatly appreciated.
Sincerely,
/s/ DAVID F. HALE
-----------------
David F. Hale
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
GENSIA, INC. NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 26, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of the stockholders of Gensia,
Inc. ("Gensia") will be held at the offices of Gensia, 9360 Towne Centre
Drive, San Diego, California, on Wednesday, February 26, 1997, at 1:00 p.m.,
local time (the "Special Meeting"), for the following purposes, as more fully
described in the accompanying Proxy Statement:
1. To consider and vote upon a proposal to approve and adopt the Stock
Exchange Agreement, dated as of November 12, 1996, as amended on December
16, 1996 (the "Stock Exchange Agreement"), between Gensia and Rakepoll
Finance N.V., a corporation organized under the laws of the Netherlands
Antilles ("Rakepoll Finance"), and the transactions contemplated thereby,
including the Stock Exchange and the Shareholder's Agreement (each as
defined below), pursuant to which Gensia will acquire all of the
outstanding shares of stock of Rakepoll Holding B.V., a corporation
organized under the laws of the Netherlands ("Rakepoll Holding") and a
wholly-owned subsidiary of Rakepoll Finance, in exchange for 29,500,000
shares of Gensia common stock, $.01 par value ("Gensia Common Stock") and
$100,000 in cash (the "Stock Exchange"). As a result of the Stock Exchange,
Rakepoll Holding would become a wholly-owned subsidiary of Gensia. In
addition, pursuant to a Shareholder's Agreement, dated as of November 12,
1996, as amended December 21, 1996 (the "Shareholder's Agreement"), between
Rakepoll Finance and Gensia, if the Stock Exchange is consummated and if
Rakepoll Finance maintains certain Gensia stock ownership levels, Rakepoll
Finance will be entitled to designate three of Gensia's 10 directors who
will in turn designate (jointly with two executive officer directors of
Gensia) five additional directors. The consent of the Rakepoll Finance
appointed directors will be required for Gensia to take certain actions,
such as a merger or sale of all or substantially all of the business or
assets of Gensia and certain issuances of securities.
2. To consider and vote upon a proposal to amend and restate Gensia's
Restated Certificate of Incorporation ("Certificate of Incorporation") to
(a) change the name of Gensia to "Gensia Sicor Inc.", (b) increase the
number of authorized shares of Gensia Common Stock, from 75,000,000 to
125,000,000 and (c) increase the number of authorized shares of Gensia
preferred stock designated as Series I Participating Preferred Stock, $.01
par value, from 100,000 to 125,000. Approval of the amendment and
restatement of Gensia's Certificate of Incorporation is necessary in order
to consummate the Stock Exchange, as Gensia does not otherwise have enough
authorized and unreserved shares of Gensia Common Stock.
3. To consider and vote upon a proposal to adopt a new stock plan, the
Gensia 1997 Long-Term Incentive Plan (the "1997 Stock Plan").
4. To act upon any other matters properly coming before the Special
Meeting and at any adjournment or postponement thereof.
The accompanying Proxy Statement describes in detail the Stock Exchange
Agreement and the transactions contemplated thereby, including the Stock
Exchange and the Shareholder's Agreement, and the proposed amendment and
restatement of Gensia's Certificate of Incorporation and adoption of the 1997
Stock Plan. Please review carefully the information in the attached Proxy
Statement.
The Board of Directors of Gensia has fixed the close of business on January
13, 1997 as the record date for the determination of the holders of Gensia
Common Stock entitled to receive notice of, and to vote at, the Special
Meeting and any adjournment or postponement thereof.
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING.
EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID RETURN
ENVELOPE. THIS WILL NOT LIMIT YOUR RIGHT TO ATTEND OR VOTE AT THE MEETING.
By order of the Board of Directors.
/s/ WESLEY N. FACH
------------------
Wesley N. Fach
Secretary
<PAGE>
LOGO
GENSIA, INC.
----------------
This Proxy Statement is being furnished to the stockholders of Gensia, Inc.
("Gensia") in connection with the solicitation of proxies by the Board of
Directors of Gensia for use at a Special Meeting of the stockholders of Gensia
to be held at the offices of Gensia, 9360 Towne Centre Drive, San Diego,
California, on Wednesday, February 26, 1997, at 1:00 p.m., local time (the
"Special Meeting"), and at any adjournment or postponement thereof. The
Special Meeting is being held to consider and vote upon a proposal to approve
and adopt the Stock Exchange Agreement, dated as of November 12, 1996, as
amended on December 16, 1996 (the "Stock Exchange Agreement"), between Gensia
and Rakepoll Finance N.V., a corporation organized under the laws of the
Netherlands Antilles ("Rakepoll Finance"), and the transactions contemplated
thereby, including the Stock Exchange and the Shareholder's Agreement (defined
below), pursuant to which Gensia will acquire all of the outstanding shares of
stock of Rakepoll Holding B.V., a corporation organized under the laws of the
Netherlands ("Rakepoll Holding"), a wholly-owned subsidiary of Rakepoll
Finance, in exchange for 29,500,000 shares of Gensia common stock, $.01 par
value ("Gensia Common Stock"), and $100,000 in cash (the "Stock Exchange"). As
a result of the Stock Exchange, Rakepoll Holding would become a wholly-owned
subsidiary of Gensia. In addition, pursuant to a Shareholder's Agreement,
dated as of November 12, 1996, as amended December 21, 1996 (the
"Shareholder's Agreement"), between Rakepoll Finance and Gensia, if the Stock
Exchange is consummated and if Rakepoll Finance maintains certain Gensia stock
ownership levels, Rakepoll Finance will be entitled to designate three of
Gensia's 10 directors who will in turn designate (jointly with two executive
officer directors of Gensia) five additional directors. The consent of the
Rakepoll Finance appointed directors will be required for Gensia to take
certain actions, such as a merger or sale of all or substantially all of the
business or assets of Gensia and certain issuances of securities.
At the Special Meeting, Gensia stockholders will also be asked to consider
and vote upon proposals to (i) amend and restate Gensia's Restated Certificate
of Incorporation ("Certificate of Incorporation") to (a) change the name of
Gensia to "Gensia Sicor Inc.," (b) increase the number of authorized shares of
Gensia Common Stock from 75,000,000 to 125,000,000 and (c) increase the number
of authorized shares of Gensia preferred stock designated as Series I
Participating Preferred Stock, $.01 par value, from 100,000 to 125,000; and
(ii) adopt a new stock plan, the Gensia 1997 Long-Term Incentive Plan (the
"1997 Stock Plan"). Approval of the amendment and restatement of Gensia's
Certificate of Incorporation is necessary in order to consummate the Stock
Exchange, as Gensia does not otherwise have enough authorized and unreserved
shares of Common Stock.
This Proxy Statement and the accompanying form of proxy are first being
mailed to the stockholders of Gensia on or about January 15, 1997.
On January 10, 1997, the last reported sale price of a share of Gensia
Common Stock on the Nasdaq National Market ("NNM") was $4 17/32.
----------------
THE MATTERS DESCRIBED ABOVE ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT.
THE PROPOSED STOCK EXCHANGE IS A COMPLEX TRANSACTION. GENSIA STOCKHOLDERS ARE
STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT IN ITS
ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO UNDER "RISK FACTORS" COMMENCING
ON PAGE 16.
----------------
THE DATE OF THIS PROXY STATEMENT IS JANUARY 15, 1997
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of Gensia are incorporated by reference in this
Proxy Statement: (i) Annual Report on Form 10-K for the year ended December
31, 1995, (ii) Proxy Statement, dated May 22, 1996, filed in connection with
Gensia's 1996 Annual Meeting of Stockholders and (iii) Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1996, June 30, 1996, as amended,
and September 30, 1996.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. A COPY OF SUCH DOCUMENTS (EXCLUDING
EXHIBITS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO
THE INFORMATION INCORPORATED HEREIN) WILL BE PROVIDED WITHOUT CHARGE TO EACH
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A PROXY STATEMENT IS
DELIVERED, UPON ORAL OR WRITTEN REQUEST OF ANY SUCH PERSON. REQUESTS SHOULD BE
DIRECTED TO WESLEY N. FACH, SECRETARY, GENSIA, INC., 9360 TOWNE CENTRE DRIVE,
SAN DIEGO, CALIFORNIA 92121 (TELEPHONE (619) 546-8300). IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, ANY REQUEST
SHOULD BE MADE AT LEAST TWO WEEKS BEFORE THE DATE OF THE SPECIAL MEETING.
All reports and definitive proxy or information statements filed by Gensia
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") subsequent to the date of this Proxy
Statement and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference into this Proxy Statement from the dates of filing
of such documents. Any statement contained in a document incorporated or
deemed to be incorporated in this Proxy Statement shall be deemed to be
modified or superseded for purposes of this Proxy Statement to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference modifies or supersedes
such statement.
---------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION, OTHER THAN AS CONTAINED IN THIS PROXY STATEMENT, IN CONNECTION
WITH THE SOLICITATION MADE BY THIS PROXY STATEMENT AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY GENSIA. THE INFORMATION SET FORTH IN THIS PROXY STATEMENT
CONCERNING RAKEPOLL HOLDING AND ITS SUBSIDIARIES HAS BEEN PROVIDED BY RAKEPOLL
FINANCE. THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY
IN ANY JURISDICTION IN WHICH SUCH SOLICITATION MAY NOT LAWFULLY BE MADE. THE
DELIVERY OF THIS PROXY STATEMENT SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF GENSIA OR RAKEPOLL
HOLDING SINCE THE DATE HEREOF.
---------------
GenESA(R) is a trademark of Gensia. This Proxy Statement also includes trade
names and trademarks of companies other than Gensia.
---------------
FORWARD LOOKING STATEMENTS
THIS PROXY STATEMENT CONTAINS FORWARD LOOKING STATEMENTS WITH RESPECT TO THE
FINANCIAL CONDITION AND BUSINESSES OF GENSIA AND RAKEPOLL HOLDING BEFORE AND
AFTER THE STOCK EXCHANGE. SEE "SUMMARY--GENSIA'S REASONS FOR THE STOCK
EXCHANGE; PURPOSE OF THE STOCK EXCHANGE"; "THE STOCK EXCHANGE--GENSIA'S
REASONS FOR THE STOCK EXCHANGE; PURPOSE OF THE STOCK EXCHANGE"; "--CONDUCT OF
BUSINESS AFTER THE STOCK EXCHANGE; BENEFITS AND DETRIMENTS OF THE STOCK
EXCHANGE"; "--CONDUCT OF BUSINESS IF STOCK EXCHANGE IS NOT CONSUMMATED"; "--
EFFECT ON RESEARCH PROGRAMS"; "GENSIA"; "RAKEPOLL HOLDING"; AND "RAKEPOLL
HOLDING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS". THESE FORWARD LOOKING STATEMENTS INVOLVE RISK AND
UNCERTAINTIES. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS,
THE FOLLOWING: (1) FAILURE TO RAISE ADDITIONAL CAPITAL SUFFICIENT TO FUND
OPERATIONS (2) FAILURE TO DEVELOP AND INTRODUCE NEW MULTISOURCE PRODUCTS IN A
TIMELY MANNER (3) COMPETITIVE PRESSURES (4) GREATER THAN EXPECTED COSTS OR
DIFFICULTIES IN INTEGRATING THE GENSIA AND RAKEPOLL HOLDING OPERATIONS AND (5)
LOSS OF KEY PERSONNEL. FURTHER INFORMATION ON THESE AND OTHER RISKS WHICH
COULD ADVERSELY AFFECT GENSIA AFTER THE STOCK EXCHANGE IS INCLUDED HEREIN AND
IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN, IN PARTICULAR SEE "RISK
FACTORS" BEGINNING AT P. 16.
2
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TABLE OF CONTENTS
<TABLE>
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 2
SUMMARY................................................................... 6
Gensia.................................................................. 6
Rakepoll Holding and the Rakepoll Subsidiaries.......................... 6
Special Meeting of Stockholders of Gensia............................... 7
Risk Factors............................................................ 7
The Stock Exchange...................................................... 7
Recommendation of the Gensia Board of Directors......................... 8
Opinion of Gensia's Financial Advisor................................... 8
Gensia's Reasons for the Stock Exchange; Purpose of the Stock Exchange.. 8
Interests of Certain Persons in the Stock Exchange...................... 9
Closing Date............................................................ 9
Conditions to Consummation of the Stock Exchange........................ 9
Accounting Treatment.................................................... 10
Certain Federal Income Tax Consequences................................. 11
Gensia Rights Agreement Amendment....................................... 11
Market Price Information................................................ 11
Recent Developments..................................................... 11
Selected Historical and Pro Forma Combined Financial Data............... 11
Per Share Data.......................................................... 15
RISK FACTORS.............................................................. 16
Future Capital Needs; Uncertainty of Additional Funding................. 16
Loss History; Uncertainty of Future Profitability....................... 16
Competition............................................................. 16
Potential Inability to Obtain Raw Materials or Manufacture Products..... 17
Uncertainty of Protection of Patents and Proprietary Technology......... 17
Dependence Upon Successful Integration of the Companies................. 17
Uncertainty of Pharmaceutical Pricing, Reimbursement and Related
Matters................................................................ 18
Product Liability Exposure; Inadequacy or Unavailability of Product
Liability Insurance.................................................... 18
Uncertainty Regarding Mexican Economic Factors, Government Policies and
Inflation.............................................................. 19
Risks Related to International Operations............................... 19
Environmental Matters................................................... 19
Currency Fluctuations................................................... 19
Control by Rakepoll Finance............................................. 19
Potential Loss of Customers or Suppliers................................ 20
Effect of Certain Anti-Takeover Provisions.............................. 20
INFORMATION CONCERNING THE SPECIAL MEETING................................ 21
Time, Date, Place and Purpose of Special Meeting........................ 21
Record Date, Quorum and Vote Required................................... 21
Recommendation of the Gensia Board of Directors......................... 21
Proxies................................................................. 22
Proxy Solicitation...................................................... 22
THE STOCK EXCHANGE........................................................ 23
Background of the Stock Exchange........................................ 23
Recommendations of the Gensia Board of Directors........................ 24
Gensia's Reasons for the Stock Exchange; Purpose of the Stock Exchange.. 24
Opinion of Gensia's Financial Advisor................................... 26
Interests of Certain Persons in the Stock Exchange...................... 32
</TABLE>
3
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<S> <C>
Conduct of Business After the Stock Exchange; Benefits and Detriments
of the Stock Exchange................................................. 33
Conduct of Business if Stock Exchange Is Not Consummated............... 34
Exchange Act and Listing Requirements.................................. 34
Regulatory Matters..................................................... 34
Certain Federal Income Tax Consequences................................ 34
Accounting Treatment................................................... 35
Source and Amount of Fees and Expenses................................. 35
Effect on Research Programs............................................ 36
THE STOCK EXCHANGE AGREEMENT............................................. 37
The Stock Exchange..................................................... 37
Representations, Warranties and Covenants.............................. 37
Conditions............................................................. 41
Termination; Effect of Termination..................................... 43
THE SHAREHOLDER'S AGREEMENT.............................................. 44
Standstill; Lock-Up; Anti-Dilution Provisions.......................... 45
Composition of Board of Directors...................................... 45
Management of the Company.............................................. 46
Approval of Certain Actions by Investor Directors...................... 46
Registration Rights.................................................... 47
Representations and Warranties......................................... 47
MARKET PRICE AND DIVIDEND INFORMATION.................................... 48
GENSIA................................................................... 49
Business............................................................... 49
Gensia Laboratories.................................................... 49
Proprietary Medical Products........................................... 51
GenESA System.......................................................... 52
Feedback Controlled Heparin System..................................... 54
Research Activities.................................................... 55
Patents, Trademarks and Trade Secrets.................................. 55
Competition............................................................ 57
Government Regulation.................................................. 58
Manufacturing.......................................................... 61
Health Care Reform and Third-Party Reimbursement....................... 61
RAKEPOLL HOLDING......................................................... 61
RAKEPOLL HOLDING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................... 67
Nine Months Ended September 30, 1996 and 1995.......................... 67
Years Ended December 31, 1995 and 1994................................. 68
Years Ended December 31, 1994 and 1993................................. 70
Liquidity and Capital Resources........................................ 71
Impact of Foreign Currency Risk and Inflation.......................... 72
PRO FORMA CONSOLIDATED COMBINED CONDENSED FINANCIAL STATEMENTS........... 73
PROPOSAL TO AMEND AND RESTATE GENSIA'S CERTIFICATE OF INCORPORATION...... 79
PROPOSAL TO ADOPT THE GENSIA 1997 LONG-TERM INCENTIVE PLAN............... 80
Purpose................................................................ 80
Shares Subject to 1997 Stock Plan...................................... 80
The 1990 Stock Plan.................................................... 80
Description of 1997 Stock Plan......................................... 82
Federal Income Tax Consequences........................................ 84
1997 Stock Plan Benefits............................................... 85
</TABLE>
4
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<TABLE>
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OWNERSHIP OF GENSIA........................................................ 86
INDEX TO RAKEPOLL FINANCIAL STATEMENTS..................................... F-1
ANNEXES
Annex A--Stock Exchange Agreement, as Amended............................ A-1
Annex B--Opinion of Financial Advisor to Gensia, Inc..................... B-1
Annex C--Amended and Restated Certificate of Incorporation............... C-1
Annex D--Gensia, Inc. 1997 Long-Term Incentive Plan...................... D-1
</TABLE>
5
<PAGE>
SUMMARY
The following is a summary of certain of the information contained elsewhere
in this Proxy Statement. This summary is not intended to be complete and is
qualified in all respects by reference to the more detailed information
contained elsewhere or incorporated by reference in this Proxy Statement and
the Annexes hereto. Gensia stockholders are strongly urged to read and consider
carefully this Proxy Statement and the Annexes hereto in their entirety,
particularly the matters referred to under "Risk Factors."
GENSIA
Gensia is a healthcare company focused on the development, manufacture and
marketing of products for acute care in hospital and alternate site markets.
Gensia's commercial businesses include Gensia Laboratories, Ltd. ("Gensia
Laboratories" or "GLL"), a manufacturer of multisource injectable drugs, as
well as a proprietary medical products business. GLL is a specialty
pharmaceutical company which develops, manufactures and markets injectable
products with a primary emphasis on oncology, anesthesiology and other key
multisource pharmaceuticals. In addition, GLL provides contract manufacturing
support and services to other pharmaceutical and biotechnology companies.
Gensia's proprietary medical products business currently markets the
Laryngeal Mask Airway ("LMA") product line, used in airway management, to
anesthesiology departments in the United States. This group also markets
Brevibloc(R), an intravenous cardiovascular drug, and the GenESA System, a
proprietary pharmacologic stress testing system, either directly or through
distributors in a number of European countries. The GenESA System is currently
under regulatory review in the United States, and if approved, would be
marketed by the Gensia medical products sales organization. Gensia is also
developing a Feedback Controlled Heparin System ("FCHS") which is being
designed to better control dosing of heparin, a widely used anticoagulant.
Gensia also has a basic research group which is involved in four primary
areas: pain, inflammation, diabetes, and cardiovascular disease. Its research
program in pain is being performed pursuant to a collaboration with Pfizer Inc.
Gensia is also in discussions with pharmaceutical companies about a similar
collaboration for its diabetes research program.
Gensia is a Delaware corporation with its principal executive offices located
at 9360 Towne Centre Drive, San Diego, California 92121. Its telephone number
is (619) 546-8300.
RAKEPOLL HOLDING AND THE RAKEPOLL SUBSIDIARIES
Rakepoll Holding is a Netherlands holding company which owns a group of three
specialty pharmaceutical companies (the "Rakepoll Operating Group") comprised
of a company located in Italy, SICOR-Societa Italiana Corticosteroidi S.p.A.
("Sicor"), and two companies located in Mexico, Lemery, S.A. de C.V.
("Lemery"), and Sintesis Lerma, S.A. de C.V. ("Sintesis Lerma"). Sicor and
Sintesis Lerma manufacture specialty bulk drug substances. Lemery produces oral
and injectable finished multisource drug products (also called finished dosage
forms) utilizing specialty bulk drug substances produced by the other companies
in the Rakepoll Operating Group and/or purchased from third parties.
The specialty bulk drug substances manufactured by the Rakepoll Operating
Group are almost entirely destined for parenteral or topical administration,
including inhalation therapy, and almost all belong to one of three categories:
(i) oncolytic agents, (ii) steroids or (iii) non-depolarizing muscle relaxants.
The oncolytic agents are anti-cancer drugs. The steroids are either progestins
used in contraceptives or corticosteroids used in a variety of anti-
inflammatory preparations, including preparations used in the treatment of
asthma, allergies and certain dermatological conditions. Certain progestins
also have oncolytic applications. The muscle relaxants are used in conjunction
with anesthetics during surgery.
6
<PAGE>
The principal markets for the Rakepoll Operating Group's specialty bulk drug
substances are the United States and Canada, the European Union ("EU") and
Japan. The finished multisource drug products manufactured by the Rakepoll
Operating Group are sold primarily to the national health program in Mexico and
exported to certain countries in Central and South America, North Africa, the
Middle East and Eastern Europe. In addition, export of such drug products to
China is also currently expected by Rakepoll Holding to commence in 1997.
SPECIAL MEETING OF STOCKHOLDERS OF GENSIA
TIME, DATE, PLACE AND PURPOSE OF SPECIAL MEETING. The Special Meeting will be
held at the offices of Gensia, 9360 Towne Centre Drive, San Diego, California,
on Wednesday, February 26, 1997, at 1:00 p.m., local time. At the Special
Meeting, including any adjournment or postponement thereof, the stockholders of
Gensia will consider and vote upon a proposal to approve and adopt the Stock
Exchange Agreement and the transactions contemplated thereby, including the
Stock Exchange and the Shareholder's Agreement. A copy of the Stock Exchange
Agreement is attached hereto as Annex A. Gensia stockholders will also consider
and vote upon proposals to amend and restate Gensia's Certificate of
Incorporation and adopt the 1997 Stock Plan. Copies of the proposed Amended and
Restated Certificate of Incorporation and 1997 Stock Plan are attached hereto,
respectively, as Annexes C and D. See "Information Concerning the Special
Meeting."
RECORD DATE; QUORUM. The Board of Directors of Gensia has fixed the close of
business on January 13, 1997 as the Record Date. Only holders of record of
Gensia Common Stock on the Record Date will be entitled to receive notice of
and to vote at the Special Meeting, or of any postponement or adjournment
thereof. As of the Record Date, 40,227,507 shares of Gensia Common Stock were
outstanding and entitled to vote at the Special Meeting. The presence, either
in person or by properly executed proxy, of the holders of a majority of the
outstanding shares of Gensia Common Stock entitled to vote at the Special
Meeting is necessary to constitute a quorum.
VOTE REQUIRED. The affirmative vote of a majority of the quorum at the
Special Meeting is required to approve and adopt the Stock Exchange Agreement
and the transactions contemplated thereby, including the Stock Exchange and the
Shareholder's Agreement, and to adopt the 1997 Stock Plan. The affirmative vote
of a majority of the outstanding shares of Gensia Common Stock as of the Record
Date is required to adopt the amendment and restatement of the Certificate of
Incorporation. Approval of the amendment and restatement of Gensia's
Certificate of Incorporation is necessary in order to consummate the Stock
Exchange, as Gensia does not otherwise have enough authorized and unreserved
shares of Gensia Common Stock.
APPRAISAL RIGHTS. Gensia stockholders will not be entitled to any appraisal
rights in connection with the Stock Exchange.
RISK FACTORS
Gensia stockholders should consider carefully the matters set forth herein
under "Risk Factors" commencing on page 16, as well as the other information
contained or incorporated by reference in this Proxy Statement.
THE STOCK EXCHANGE
If the Stock Exchange is consummated, pursuant to the terms of the Stock
Exchange Agreement, Gensia will acquire all of the outstanding shares of
capital stock of Rakepoll Holding, a wholly-owned subsidiary of Rakepoll
Finance, in exchange for 29,500,000 shares of Gensia Common Stock and $100,000
in cash. As a result of the Stock Exchange, Rakepoll Holding would become a
wholly-owned subsidiary of Gensia. In addition, pursuant to the Shareholder's
Agreement, if the Stock Exchange is consummated and if Rakepoll Finance
7
<PAGE>
maintains certain ownership levels, Rakepoll Finance will be entitled to
designate three of Gensia's 10 directors who will in turn designate (jointly
with two executive officer directors of Gensia) five additional directors. The
consent of the Rakepoll Finance appointed directors will be required for Gensia
to take certain actions, such as a merger or sale of all or substantially all
of the business or assets of Gensia and for certain issuances of securities.
RECOMMENDATION OF THE GENSIA BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF GENSIA HAS DETERMINED THAT THE CONSIDERATION TO BE
PAID BY GENSIA IN THE PROPOSED STOCK EXCHANGE IS FAIR TO GENSIA FROM A
FINANCIAL POINT OF VIEW AND THAT THE STOCK EXCHANGE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE STOCK EXCHANGE AND THE
SHAREHOLDER'S AGREEMENT, ARE FAIR TO, AND IN THE BEST INTERESTS OF, GENSIA AND
ITS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF GENSIA COMMON
STOCK VOTE FOR APPROVAL AND ADOPTION OF THE STOCK EXCHANGE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE STOCK EXCHANGE AND THE
SHAREHOLDER'S AGREEMENT. For a discussion of the factors on which the Gensia
Board of Directors' recommendation is based, see "The Stock Exchange--
Recommendation of the Gensia Board of Directors." THE BOARD OF DIRECTORS OF
GENSIA ALSO UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF GENSIA COMMON STOCK VOTE
FOR APPROVAL OF THE PROPOSALS TO AMEND AND RESTATE GENSIA'S CERTIFICATE OF
INCORPORATION AND TO ADOPT THE 1997 STOCK PLAN.
OPINION OF GENSIA'S FINANCIAL ADVISOR
On November 12, 1996, CS First Boston Corporation ("CS First Boston")
delivered to the Gensia Board of Directors its written opinion to the effect
that, as of the date of such opinion and based upon and subject to certain
matters set forth therein, the consideration to be paid by Gensia in the
proposed Stock Exchange is fair to Gensia from a financial point of view. The
full text of CS First Boston's written opinion, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached hereto as Annex B. See "The Stock Exchange--Opinion of Gensia's
Financial Advisor." Stockholders of Gensia are urged to read the opinion of CS
First Boston in its entirety.
GENSIA'S REASONS FOR THE STOCK EXCHANGE; PURPOSE OF THE STOCK EXCHANGE
The Gensia Board of Directors (hereinafter sometimes referred to as the
"Gensia Board"), in the course of reaching its decision to approve the Stock
Exchange Agreement and the transactions contemplated thereby, including the
Stock Exchange and the Shareholder's Agreement, considered a number of factors,
including, among others: (i) the terms and conditions of the Stock Exchange
Agreement, (ii) its belief that the Stock Exchange will create a diversified
specialty pharmaceutical company with a vertically-integrated capability, able
to compete effectively in the global market for low-cost, high quality
multisource injectable pharmaceutical products, (iii) its view that, following
the Stock Exchange, Gensia expects to have a broad line of oncology products
available worldwide and will be well positioned to compete in the international
oncology market, (iv) the existing assets, financial condition and resources,
including current assets and liquidity, contingent liabilities, prospects and
business operations of Gensia without, and as combined with, Rakepoll Holding,
(v) the business advantages expected to result from a combination of the
businesses of Gensia and Rakepoll Holding, (vi) the current and historical
market prices of Gensia Common Stock, (vii) the extensive negotiations that had
occurred between the parties concerning the terms of the Stock Exchange, and
(viii) the presentation of Gensia's financial advisor, CS First Boston, and the
written opinion of such advisor that, as of the date of such opinion and
subject to certain matters set forth therein, the consideration to be paid by
Gensia in the proposed Stock Exchange is fair to Gensia from a financial point
of view.
THE BOARD OF DIRECTORS OF GENSIA HAS DETERMINED THAT THE CONSIDERATION TO BE
PAID BY GENSIA IN THE PROPOSED STOCK EXCHANGE IS FAIR TO GENSIA FROM A
FINANCIAL POINT OF VIEW AND THAT THE STOCK EXCHANGE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE STOCK EXCHANGE AND THE
8
<PAGE>
SHAREHOLDER'S AGREEMENT, ARE FAIR TO, AND IN THE BEST INTERESTS OF, GENSIA AND
ITS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT GENSIA STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE STOCK EXCHANGE AGREEMENT, AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE STOCK EXCHANGE AND THE SHAREHOLDER'S
AGREEMENT.
INTERESTS OF CERTAIN PERSONS IN THE STOCK EXCHANGE
In considering the recommendation of Gensia's Board of Directors with respect
to the Stock Exchange Agreement, Gensia stockholders should be aware that
certain officers and directors of Gensia (or their affiliates) have interests
in the Stock Exchange that are different from and in addition to the interests
of Gensia's stockholders generally. These interests include, but are not
limited to, the fact that (i) each of the executive officers and directors of
Gensia currently holds options to acquire Gensia Common Stock, which will
become fully vested upon the consummation of the Stock Exchange; and (ii)
Gensia has executed agreements with its officers and certain key employees of
Gensia, including David Hale, Chairman, President and Chief Executive Officer
of Gensia, which provide, among other things, that, in the event of a change in
control, including the Stock Exchange, if consummated, each of such individuals
would be entitled to certain benefits, including salary continuation and
healthcare coverage upon, within a certain period of time, their resignation
for good reason, including, without limitation, changes in job authority or
responsibility or employer's physical location, or termination of their
employment for other than cause or disability. Also, in November 1996, the
Gensia Board of Directors (with David Hale absent) agreed to forgive, upon
consummation of the Stock Exchange, a loan made by Gensia to Mr. Hale in April
1995, upon terms to be determined by Gensia's Compensation Committee. The
outstanding principal and interest on such loan was approximately $150,000. In
addition, Gensia and Rakepoll Finance have each agreed, from and after the date
of execution of the Stock Exchange Agreement, to cause Gensia to (a) maintain
and perform in the same manner as prior to the execution date of the Stock
Exchange Agreement Gensia's existing indemnification provisions with respect to
its present and former directors and officers for acts or omissions or alleged
acts or omissions occurring at or prior to the Closing Date (defined below),
subject to certain limitations, (b) to provide, maintain and perform in the
same manner as prior to the execution date of the Stock Exchange Agreement
Gensia's existing indemnification provisions with respect to its present and
future directors and officers for acts or omissions or alleged acts or
omissions occurring after the Closing Date, subject to certain limitations, and
(c) maintain for a period of no less than three years after the Closing Date,
directors and officers liability coverage with limits, terms and conditions no
less advantageous than Gensia had in effect as of the execution date of the
Stock Exchange Agreement. The Gensia Board of Directors was aware of these
interests and took these interests into account in approving the Stock Exchange
Agreement and the transactions contemplated thereby, including the Stock
Exchange and the Shareholder's Agreement. See "The Stock Exchange--Interests of
Certain Persons in the Stock Exchange."
CLOSING DATE
The closing of the Stock Exchange will be held on a date (the "Closing Date")
specified by Gensia and Rakepoll Finance, which date will be as soon as
practicable, but in any event within two business days following the date upon
which all conditions set forth in the Stock Exchange Agreement have been
satisfied or waived, as the case may be, or at such other time as Gensia and
Rakepoll Finance may mutually agree. See "Stock Exchange Agreement--
Conditions."
CONDITIONS TO CONSUMMATION OF THE STOCK EXCHANGE
Consummation of the Stock Exchange is subject to the satisfaction of certain
conditions, including, among others, (i) absence of any effective temporary
restraining order, preliminary or permanent injunction or other order or decree
which prevents the consummation of the Stock Exchange or statute, rule or
regulation which prevents the consummation of the Stock Exchange, provided,
however, that reasonable best efforts are used by Gensia and Rakepoll Finance
to cause any such decree, ruling, injunction or other order to be vacated or
lifted, (ii) expiration or termination of all applicable waiting periods (and
any extensions thereof) under the Hart-Scott-
9
<PAGE>
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and
applicable Mexican law and consummation of the transactions contemplated by the
Stock Exchange Agreement shall be permitted thereunder, (iii) receipt of
approval from Gensia's stockholders of the issuance of Gensia Common Stock to
be issued in the Stock Exchange and the transactions contemplated by the Stock
Exchange Agreement, (iv) approval of the Securities and Exchange Commission
(the "Commission") of the Proxy Statement and absence of any stop order or
similar restraining order entered or threatened by the Commission or any state
securities administrator prohibiting the Stock Exchange, (v) absence of any
outstanding action instituted by any governmental authority, including under
the HSR Act or Section 721 of the U.S. Defense Production Act of 1950, as
amended (the "Exon-Florio Amendment"), which seeks to prevent consummation of
the Stock Exchange or which seeks material damages in connection with the
transactions contemplated by the Stock Exchange Agreement and (vi) the
Shareholder's Agreement shall be in full force and effect and appointment of
the directors contemplated therein shall have been made in accordance
therewith.
Further, the obligations of either party to the Stock Exchange Agreement to
consummate the Stock Exchange are subject to certain additional conditions,
including, among others, (i) the representations and warranties of the other
party being true and correct in all material respects on the date of the Stock
Exchange Agreement and on and as of the Closing Date as though made on and as
of such date (except for those made as of a specified date which need only be
true and correct as of such date), except for such inaccuracies which have not
had and would not reasonably be expected to have in the reasonably foreseeable
future a material adverse effect on such party and its subsidiaries taken as a
whole, (ii) the other party's performance in all material respects of each of
its obligations and agreements under the Stock Exchange Agreement, (iii) the
other party's compliance in all material respects with each of its covenants to
be performed and complied with under the Stock Exchange Agreement, (iv) the
other party's provision of an officer's certificate to the effect that certain
provisions set forth in the Stock Exchange Agreement have been satisfied and
(v) the other party's provision of certain legal opinions. See "The Stock
Exchange--Interests of Certain Persons in the Stock Exchange," "The Stock
Exchange--Regulatory Matters," "The Stock Exchange Agreement--Representations,
Warranties and Covenants" and "The Stock Exchange Agreement--Conditions."
Prior to consummation of the Stock Exchange, Gensia shall have eliminated its
net use of cash for ongoing research activities (other than ongoing property
lease related expenses) either (i) as a result of Gensia having obtained cash
or contractually committed payments for such research activities from third
parties in the form of research collaborations or otherwise, or (ii) by the
termination of such research activities; provided, however, that in any event,
Gensia shall be permitted to expend such amounts on research as are required
for Gensia to fulfill its obligations under its agreement with Pfizer Inc.,
dated as of May 1, 1996 (the "Pfizer Agreement"). It is further understood by
Gensia and Rakepoll Finance that Gensia will not borrow money in order to
eliminate the net use of cash as described in subclause (i) above. In the event
that such net use of cash has been eliminated pursuant to subclause (i) above,
it is the intent of Gensia and Rakepoll Finance that, subsequent to the Closing
Date, they will use their best efforts to present to the Board of Directors of
Gensia a plan to effectuate the spinoff of the research activities of Gensia
into an independent company, so long as such spinoff is reasonably feasible.
Such spinoff plan shall include as assets of the company to be spunoff the
$5,000,000 cash contribution contemplated by the funding plan agreed to by
Gensia and Rakepoll Finance and other cash received (and unspent) or to be
received under research collaborations between third parties and Gensia. If
there has been no such spinoff within six months after the Closing Date, any
such research activities not fully paid for by third parties will be
terminated, so that no such research activities will produce losses. If Gensia
terminates such research activities pursuant to clause (ii) above, Gensia
estimates that the costs of eliminating such research activities, including
severance payments and related costs, would be approximately $2,600,000. See
"Stock Exchange--Effect on Research Programs."
ACCOUNTING TREATMENT
If the Stock Exchange is consummated, Gensia intends to account for the Stock
Exchange as a purchase for accounting purposes. See "The Stock Exchange--
Accounting Treatment."
10
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Stock Exchange will not be a taxable event to either Gensia or its
stockholders, and accordingly, no gain or loss will be recognized by Gensia or
its stockholders for United States income tax purposes. Gensia believes that
the Stock Exchange, when considered with other previous transactions and
contemplated financings, is likely to result in an ownership change of Gensia.
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"),
imposes limitations on the amount of "pre-change" losses and deductions that
may be used to offset "post-change" taxable income. Similarly, Section 383 of
the Code limits the amount of pre-change tax credits that may be used to reduce
the post-change tax liability of a corporation which undergoes an ownership
change.
GENSIA RIGHTS AGREEMENT AMENDMENT
In connection with the execution of the Stock Exchange Agreement, Gensia and
ChaseMellon Shareholder Services L.L.C. (as successor to First Interstate Bank)
(the "Rights Agent") executed Amendment No. 1 to Rights Agreement, dated as of
November 12, 1996, amending the Rights Agreement, dated as of March 16, 1992
(the "Rights Agreement"), between Gensia and the Rights Agent, so as to provide
that none of Rakepoll Finance and its affiliates will become an "Acquiring
Person" and that no "Stock Exchange Date" or "Distribution Date" (as such terms
are defined in the Rights Agreement) will occur as a result of the execution of
the Stock Exchange Agreement or the consummation of the Stock Exchange or the
acquisition or transfer of shares of Gensia Common Stock by Rakepoll Finance
pursuant to the Shareholder's Agreement. Gensia also represented and warranted
under the Stock Exchange Agreement that the Rights Agreement will remain so
amended and that no replacement plan will be adopted.
MARKET PRICE INFORMATION
Gensia Common Stock is traded on the NNM under the symbol GNSA. All of the
shares of Rakepoll Holding are held by Rakepoll Finance. The following table
sets forth the last reported sales price per share for Gensia Common Stock as
reported on the NNM on November 12, 1996, the last full trading day prior to
the date of the public announcement of the execution of the Stock Exchange
Agreement, and January 10, 1997, the latest practicable trading day before the
printing of this Proxy Statement.
<TABLE>
<CAPTION>
GENSIA
COMMON STOCK
PRICE
------------
<S> <C>
November 12, 1996.................................................. $5.375
January 10, 1997................................................... $4.531
</TABLE>
For information relating to market prices of and dividends on Gensia Common
Stock during the current fiscal year and the past two fiscal years, see "Market
Price and Dividend Information." GENSIA STOCKHOLDERS ARE URGED TO OBTAIN
CURRENT QUOTATIONS FOR GENSIA COMMON STOCK.
RECENT DEVELOPMENTS
During the last week of December 1996 and the first two weeks of January 1997
Gensia sold, in several private placements, an aggregate of 2,060,000 shares of
Gensia Common Stock to certain existing Gensia stockholders, for aggregate
consideration of $8,240,000. As part of the transactions, Gensia agreed to use
its best efforts to file with the Commission, and have declared effective by
March 31, 1997, a registration statement covering resale of the shares so
purchased.
11
<PAGE>
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
GENSIA SELECTED HISTORICAL FINANCIAL DATA
The selected consolidated financial data set forth below for each of the
three years in the period ended December 31, 1995 and as of December 31, 1994
and 1995 are derived from Gensia's consolidated financial statements that have
been audited by Ernst & Young LLP, independent auditors, which are incorporated
by reference herein in this Proxy Statement and are qualified by reference to
such consolidated financial statements and the notes related thereto. The
selected financial data set forth below for the years ended December 31, 1991
and 1992, and as of December 31, 1991, 1992 and 1993 are derived from audited
consolidated financial statements not incorporated by reference in this Proxy
Statement. The selected consolidated financial data set forth below for the
nine-month periods ended September 30, 1995 and 1996 and as of September 30,
1995 and 1996 are derived from Gensia's unaudited consolidated financial
statements incorporated by reference in this Proxy Statement and include all
adjustments, consisting of only normal recurring adjustments, which Gensia
considers necessary for a fair presentation of its consolidated financial
position and results of operations for such periods. Operating results for the
nine months ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 1996. The
data set forth below should be read in conjunction with the consolidated
financial statements and related notes thereto of Gensia incorporated by
reference in this Proxy Statement.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
-------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Product sales.......... $ 3,252 $ 11,039 $ 17,106 $ 51,830 $ 53,464 $ 37,749 $ 39,379
Contract research and
license fees.......... 5,391 19,740 11,910 17,956 11,062 10,456 2,479
Interest income........ 2,624 4,326 4,350 2,022 2,086 1,246 1,784
License restructuring
fee................... -- -- -- -- 50,000 -- --
Sale of investment..... -- -- -- -- 5,359 -- --
-------- --------- --------- --------- --------- --------- ---------
Total revenues....... 11,267 35,105 33,366 71,808 121,971 49,451 43,642
Cost and expenses:
Cost of sales.......... 5,338 16,045 20,759 30,937 33,183 23,504 29,247
Manufacturing start-up
costs................. 2,974 -- -- -- -- -- --
Research and
development........... 23,361 40,353 54,341 61,201 38,762 28,657 24,756
Selling, general and
administrative........ 7,914 15,519 20,602 29,006 31,137 23,097 23,663
Interest and other..... 511 1,125 968 782 872 777 632
Provision for
restructuring......... -- -- -- -- 1,092 1,092 --
Litigation
settlement............ -- -- -- -- 4,000 4,000 --
Write-off of in-
process technology.... -- -- -- -- 18,269 -- --
-------- --------- --------- --------- --------- --------- ---------
Total costs and
expenses............ 40,098 73,042 96,670 121,926 127,315 81,127 78,298
-------- --------- --------- --------- --------- --------- ---------
Loss before income tax-
es..................... (28,831) (37,937) (63,304) (50,118) (5,344) (31,676) (34,656)
Provision for income
taxes.................. -- -- -- -- (550) -- --
-------- --------- --------- --------- --------- --------- ---------
Net loss................ $(28,831) $ (37,937) $ (63,304) $ (50,118) $ (5,894) $ (31,676) $ (34,656)
Dividends on preferred
stock.................. -- -- (4,544) (6,000) (6,000) (4,496) (4,496)
-------- --------- --------- --------- --------- --------- ---------
Net loss applicable to
common shares.......... $(28,831) $ (37,937) $ (67,848) $ (56,118) $ (11,894) $ (36,172) $ (39,152)
======== ========= ========= ========= ========= ========= =========
Net loss per common
share.................. $ (1.25) $ (1.36) $ (2.40) $ (1.89) $ (.36) $ (1.10) $ (1.08)
======== ========= ========= ========= ========= ========= =========
Shares used in computing
per share amounts...... 23,084 27,954 28,294 29,670 33,231 32,840 36,196
======== ========= ========= ========= ========= ========= =========
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
---------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
-------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $107,241 $ 68,207 $ 78,609 $ 47,439 $ 67,687 $ 27,853 $ 35,459
Total assets........... 140,279 104,162 136,431 109,866 118,560 78,513 89,977
Long-term obligations,
less current
maturities............ 5,366 3,479 3,119 71 46 18 136
Accumulated deficit.... (62,084) (100,021) (163,325) (213,443) (219,337) (245,119) (253,993)
Stockholders' equity... 123,943 89,149 112,859 83,778 102,303 62,381 73,641
</TABLE>
12
<PAGE>
RAKEPOLL HOLDING SELECTED HISTORICAL FINANCIAL DATA
The selected financial data set forth below for each of the three years in
the period ended December 31, 1995 and as of December 31, 1994 and 1995 are
derived from Rakepoll Holding's combined financial statements that have been
audited by KPMG Accountants N.V., independent auditors, which are included in
this Proxy Statement and are qualified by reference to such financial
statements and the notes related thereto. The selected combined financial data
set forth below for each of the years ended December 31, 1991 and 1992 and as
of December 31, 1991, 1992 and 1993 are derived from Rakepoll Holding's
unaudited combined financial statements which are not included in this Proxy
Statement. The selected combined financial data set forth below for the nine-
month periods ended September 30, 1995 and 1996 and as of September 30, 1995
and 1996 are derived from Rakepoll Holding's unaudited combined financial
statements included in this Proxy Statement and include all adjustments,
consisting of only normal recurring adjustments, which Rakepoll Holding
considers necessary for a fair presentation of its combined financial position
and results of operations for such periods. Operating results for the nine
months ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 1996. The data set
forth below should be read in conjunction with the financial statements and
related notes thereto of Rakepoll Holding included herein.
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ---------------------
1991 1992 1993 1994 1995 1995 1996
-------- --------- ------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Product sales.......... $ 26,496 $ 32,144 $43,799 $ 50,516 $ 60,736 $ 45,144 $ 56,499
Interest income........ 209 114 511 111 308 209 215
Foreign exchange
gains, net............ -- -- -- -- -- -- 2,687
Other income, net...... 564 45 84 346 162 65 383
-------- --------- ------- -------- -------- ---------- ---------
Total revenues.......... 27,269 32,303 44,394 50,973 61,206 45,418 59,784
Cost and expenses:
Cost of sales.......... 23,782 25,876 32,853 35,808 46,198 33,470 35,760
Research and develop-
ment.................. 717 781 315 1,677 3,132 2,092 4,922
Selling, general and
administrative........ 4,418 4,638 6,489 7,809 8,761 6,776 9,483
Interest expense....... 1,063 1,208 1,472 1,456 3,084 2,290 2,729
Foreign exchange loss-
es, net............... 416 1,835 1,258 2,958 1,592 734 --
Special charges:
Provision for contam-
ination settlement.. -- -- -- -- 2,701 2,400 --
Provision for
Farmitalia lawsuit.. -- 4,869 -- -- -- -- --
-------- --------- ------- -------- -------- ---------- ---------
Total costs and ex-
penses................. 30,396 39,207 42,387 49,708 65,468 47,762 52,894
-------- --------- ------- -------- -------- ---------- ---------
Income (loss) before
minority interest and
income taxation........ (3,127) (6,904) 2,007 1,265 (4,262) (2,344) 6,890
Minority interest....... -- -- -- -- 150 135 --
-------- --------- ------- -------- -------- ---------- ---------
Income (loss) before in-
come taxation.......... (3,127) (6,904) 2,007 1,265 (4,112) (2,209) 6,890
Income tax benefit (ex-
pense)................. 873 1,388 (1,476) (1,960) 1,727 1,466 (3,623)
-------- --------- ------- -------- -------- ---------- ---------
Net income (loss)....... $ (2,254) $ (5,516) $ 531 $ (695) $ (2,385) $ (743) $ 3,267
======== ========= ======= ======== ======== ========== =========
Net income (loss) per
share.................. $(56,350) $(137,900) $13,275 $(17,375) $(59,625) $ (18,575) $ 81,675
======== ========= ======= ======== ======== ========== =========
Average number of shares
outstanding............ 40 40 40 40 40 40 40
======== ========= ======= ======== ======== ========== =========
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
------------------------------------------------ ---------------------
1991 1992 1993 1994 1995 1995 1996
-------- --------- ------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $ 1,580 $ (3,911) $(3,302) $ (2,929) $ (4,350) $ (3,622) $ (2,855)
Total assets........... 41,281 38,376 41,670 55,079 77,022 73,710 103,577
Long-term obligations,
less current
maturities............ 8,885 7,811 8,583 14,703 24,236 22,447 24,092
Retained earnings (ac-
cumulated deficit).... 7,378 (5,256) (589) (1,464) (3,849) (2,207) (583)
Stockholders' equity... 13,169 6,079 6,750 6,327 5,076 5,405 10,930
</TABLE>
13
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The selected unaudited pro forma combined financial data of Gensia and
Rakepoll Holding for the year ended December 31, 1995 and for and as of the
nine-month period ended September 30, 1996 are derived from the unaudited pro
forma consolidated combined condensed financial statements included elsewhere
herein, and should be read in conjunction with such pro forma consolidated
combined condensed financial statements and the notes thereto. The pro forma
information is presented for informational purposes only, and is not
necessarily indicative of the operating results or financial position that
would have occurred if the Stock Exchange had been consummated at the beginning
of the periods presented, nor is it necessarily indicative of future operating
results or financial position.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
1995 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales........................... $111,547 $ 94,170
Contract research and license fees...... 11,062 2,479
Interest and other income, net.......... 2,556 2,382
Foreign exchange gains, net............. -- 2,687
License restructuring fee............... 50,000 --
Sale of investment...................... 5,359 --
-------- --------
Total revenues.......................... 180,524 101,718
-------- --------
Cost and expenses:
Cost of sales........................... 77,228 63,674
Research and development................ 26,042 21,624
Selling, general and administrative..... 40,898 33,145
Amortization of goodwill................ 4,368 3,276
Foreign exchange losses, net............ 1,592 --
Interest and other...................... 3,148 2,643
Provision for restructuring............. 1,092 --
Special charge--Provision for
contamination settlement............... 2,701 --
Litigation settlement................... 4,000 --
Write-off of in-process technology...... 18,269 --
-------- --------
Total costs and expenses................ 179,338 124,362
-------- --------
Income (loss) before taxes, minority
interest and dividends.................. 1,186 (22,644)
Income tax benefit (expense)............ 1,177 (3,623)
-------- --------
Income (loss) before minority interest
and dividends........................... 2,363 (26,267)
Minority interest....................... 150 --
-------- --------
Income (loss) before dividends........... 2,513 (26,267)
Dividends on preferred stock............ (6,000) (4,496)
-------- --------
Net loss applicable to common shares..... $ (3,487) $(30,763)
======== ========
Net loss per common share................ $ (.06) $ (.47)
======== ========
Shares used in computing per share
amounts................................. 62,731 65,696
======== ========
<CAPTION>
AS OF
SEPTEMBER 30, 1996
------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ 24,544
Total assets............................ 307,653
Long-term obligations, less current
maturities............................. 15,557
Accumulated deficit..................... (273,993)
Stockholders' equity.................... 200,256
</TABLE>
14
<PAGE>
PER SHARE DATA
The following table sets forth historical per share data for Gensia and pro
forma per share data for Gensia giving effect to the Stock Exchange. The
information presented should be read in conjunction with the historical
financial statements and notes thereto of Gensia and the unaudited pro forma
consolidated combined condensed financial statements and related notes thereto,
included or incorporated by reference in this Proxy Statement. Pro forma and
equivalent pro forma per share data reflect the consolidated results of Gensia
and Rakepoll Holding, after giving effect to the Stock Exchange. The pro forma
per share data is not necessarily indicative of actual results had the Stock
Exchange occurred on such dates or of future expected results. See
"Incorporation of Certain Documents by Reference" and "Pro Forma Consolidated
Combined Condensed Financial Statements."
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
-------------------- ---------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Gensia:
Loss per common share(1)......... $ (.36) $ (.06) $ (1.08) $ (.47)
Book value per common share at
period end(2)................... $ .51 N/A $ (.38) $ 1.70
Rakepoll Holding:
Profit (loss) per common
share(1)(3)..................... $(59,625) $(44,250) $ 81,675 $ (346,625)
Book value per common share at
period end(2)(3)................ $126,900 N/A $273,250 $1,253,750
</TABLE>
- --------
(1) The number of shares used to compute the historical net loss per share is
based upon the weighted average number of shares outstanding.
(2) Computed by dividing historical or pro forma stockholders' equity (adjusted
for the liquidation preference and cumulative dividends in arrears of the
preferred stock) by the historical or pro forma number of common shares
outstanding at the end of the period or year presented.
(3) Pro forma amounts are calculated by multiplying the pro forma Gensia
amounts by the exchange ratio of 737,500, representing 29,500,000 shares of
Gensia Common Stock issued in exchange for 40 shares of Rakepoll Holding.
15
<PAGE>
RISK FACTORS
In addition to the other information regarding Gensia, Rakepoll Holding and
the Stock Exchange contained in this Proxy Statement, the following factors
should be considered carefully by Gensia stockholders before voting on the
Stock Exchange.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
Gensia believes that its capital resources will be sufficient to fund its
current and planned operations into the second quarter of 1997, if the Stock
Exchange is not consummated. However, Gensia will require substantial
additional funds to continue its planned operations beyond such time. In
addition, while Rakepoll Holding anticipates that its current operating
results, expectations for improvements in such results and existing
commitments from third parties for additional borrowings will enable it to
finance its operating requirements and planned capital expenditures during the
next 12 to 18 months, there can be no assurance that current operating results
will be maintained or that expected improvements will be achieved. Further,
Rakepoll Holding has not in recent periods generated sufficient liquidity from
operations to meet its cash needs. Consequently, if the Stock Exchange is
consummated, Gensia plans to raise $25 to $35 million to fund planned
operations of the combined entities. Gensia is pursuing a number of options
(primarily involving the possible issuance of additional equity securities) to
raise funds. To the extent that additional capital is raised through the sale
of equity securities, the issuance of such securities could result in dilution
to Gensia's existing stockholders. Additional funds may not be available on
acceptable terms or at all. If additional funding is not obtained, Gensia,
whether or not the Stock Exchange is consummated, will be required to
significantly curtail its operations.
LOSS HISTORY; UNCERTAINTY OF FUTURE PROFITABILITY
Gensia was founded in 1986, has never made an annual profit, and has never
had positive annual cash flow from operations. As of September 30, 1996,
Gensia had an accumulated deficit of approximately $254.0 million. For the
years ended December 31, 1993, 1994 and 1995 and the nine months ended
September 30, 1995 and 1996, Gensia had net losses applicable to common shares
of $67.8 million, $56.1 million, $11.9 million, $36.2 million and $39.2
million, respectively. Even if the Stock Exchange is consummated, Gensia may
incur additional losses in the future. If the Stock Exchange is not
consummated, Gensia expects that its near term losses will continue. Gensia
may never achieve profitable operations.
COMPETITION
Gensia and the Rakepoll Operating Group companies are engaged in a rapidly
evolving field. Competition from large pharmaceutical companies, biotechnology
companies, medical device companies and other companies is intense and
expected to increase. Many of these companies have substantially greater
financial resources and experience in developing, manufacturing and marketing
pharmaceutical products than Gensia or any of the Rakepoll Operating Group
companies. There can be no assurance that competitors will not succeed in
developing technologies and products that are more effective or that would
render the technology and products of Gensia or any of the Rakepoll Operating
Group companies obsolete or noncompetitive. Gensia Laboratories and the
Rakepoll Operating Group companies compete in the highly competitive
multisource (generic) injectable drug industry with numerous other
pharmaceutical manufacturers, many of which are established companies with
greater financial and other resources than Gensia or any of the Rakepoll
Operating Group companies. Although Gensia and Rakepoll Holding anticipate
that, if the Stock Exchange is completed, the competitive position of Gensia
and the Rakepoll Operating Group companies may improve, there can be no
assurance that Gensia Laboratories or any of the Rakepoll Operating Group
companies will be able to continue to compete effectively in this market.
Because selling prices of multisource injectable drug products typically
decline as competition intensifies, the profitability of Gensia Laboratories
and the Rakepoll Operating Group companies will depend in part on their
ability to develop and introduce selected new products to the market in a
timely manner, to obtain raw materials at competitive prices and to improve
the efficiency of their production capability. The development and
commercialization process is time consuming and costly. Delays in any part of
the process or the inability of
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<PAGE>
Gensia or the Rakepoll Operating Group companies to obtain regulatory approval
for their products could adversely affect the combined company. During 1995
and early 1996, a number of competitors received FDA approval to market
injectable etoposide, which was Gensia Laboratories' largest product in 1994
and 1995. These approvals have had and are expected to continue to have a
material adverse impact on Gensia's sales of, and gross profits from,
etoposide.
POTENTIAL INABILITY TO OBTAIN RAW MATERIALS OR MANUFACTURE PRODUCTS
Gensia depends on third party manufacturers, including Sicor, for bulk raw
materials for its products. These raw materials are generally available from a
limited number of sources, and certain raw materials are available only from
foreign sources. In addition, Gensia Laboratories utilizes sole sources of
supply for certain raw materials used in the manufacture of its products and
certain packaging components. Any disruption in one or more of these supply
sources could have a material adverse effect on Gensia. Gensia anticipates
that if the Stock Exchange is consummated this risk will be reduced, but not
eliminated.
DEPENDENCE ON KEY PERSONNEL
The success of Gensia and the Rakepoll Operating Group companies depends in
large part upon their ability to attract and retain qualified scientific,
manufacturing, marketing and management personnel. Gensia and the Rakepoll
Operating Group companies face competition for such personnel from other
companies, academic institutions, government entities and other organizations.
In addition, if the Stock Exchange is consummated, the success of the combined
business will be dependent upon certain key personnel associated with Gensia
and the Rakepoll Operating Group. The loss of any such personnel may have a
material adverse effect on the combined business.
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY TECHNOLOGY
The success of Gensia and the Rakepoll Operating Group will depend, in part,
on their ability to obtain patents, maintain trade secret protection and
operate without infringing on the proprietary rights of third parties. There
can be no assurance that the patent applications of Gensia or any of the
Rakepoll Operating Group companies will be approved, that Gensia or any of the
Rakepoll Operating Group companies will develop additional proprietary
products that are patentable, that any issued patents will provide Gensia or
any of the Rakepoll Operating Group companies with any competitive advantages
or will not be challenged by any third parties, or that the patents of others
will not have an adverse effect on the ability of Gensia or any of the
Rakepoll Operating Group companies to develop their products. Certain
technologies that may be used to develop products of Gensia or any of the
Rakepoll Operating Group companies are not covered by any patent or patent
application. To the extent that such products are not covered by valid
patents, there can be no assurance that others will not independently develop
similar products or duplicate any of such products or that trade secrets can
be maintained. The protections afforded by patents will depend upon their
scope and validity, and others may be able to design around any patented
products developed by Gensia or any of the Rakepoll Operating Group companies.
In addition, Gensia or any of the Rakepoll Operating Group companies may be
required to obtain licenses to patents or other proprietary rights of third
parties which may not be available on acceptable terms. If Gensia or any of
the Rakepoll Operating Group companies does not obtain such licenses, product
introductions could be delayed or foreclosed. There can be no assurance that
Gensia or any of the Rakepoll Operating Group companies will have sufficient
funds to obtain, maintain and enforce patents on its products or its
technology, to obtain licenses that may be required in order to develop and
commercialize its products, to contest patents obtained by third parties, or
to defend against suits brought by third parties.
DEPENDENCE UPON SUCCESSFUL INTEGRATION OF THE COMPANIES
Gensia and Rakepoll Finance have entered into the Stock Exchange Agreement
with the expectation that the Stock Exchange will result in certain business
advantages. See "Gensia's Reasons for the Stock Exchange--Purpose of the Stock
Exchange." Achieving the anticipated benefits of the Stock Exchange will
depend in part upon whether the integration of the two companies' businesses
is accomplished in an efficient and effective
17
<PAGE>
manner, and there can be no assurance that this will occur. The combination of
Gensia and the Rakepoll Operating Group companies will require, among other
matters, integration of each of the combining companies' respective
development, administrative, finance, sales, product support, distribution and
marketing organizations, as well as the integration of each such companies'
product offerings and development activities. Of particular significance to
successful integration of the combining companies' businesses will be
reassuring Gensia's and the Rakepoll Operating Group companies' customers that
product support and distribution will continue uninterrupted. There can be no
assurance that such integration will be accomplished smoothly or successfully.
Further, there can be no assurance that the operations, managements or
personnel of the combining companies will be compatible or that Gensia,
Rakepoll Holding and the Rakepoll Operating Group companies will not
experience loss of key personnel. The difficulties of such integration may be
increased by the necessity of coordinating organizations located in different
countries. The integration of certain operations following the Stock Exchange
will require the dedication of management resources which may temporarily
distract from the day-to-day business of the combined company. Additionally,
the costs incurred and difficulties encountered in the transition process may,
at least in the short term, have an adverse impact on the combined company's
operations. The inability of management to integrate the operations of the
companies successfully could have a material adverse effect on the business
and results of operations of the combined company.
UNCERTAINTY OF PHARMACEUTICAL PRICING, REIMBURSEMENT AND RELATED MATTERS
The levels of revenues and profitability of pharmaceutical companies will be
affected by the continuing efforts of governmental and third party payors to
contain or reduce the costs of health care through various means. For example,
in certain foreign markets pricing or profitability of prescription
pharmaceuticals is subject to government control. In the United States, there
have been, and Gensia and Rakepoll Holding expect that there will continue to
be, a number of federal and state proposals to implement government controls.
While Gensia and Rakepoll Holding cannot predict whether any such legislative
or regulatory proposals or reforms will be adopted or the effect such
proposals or reforms may have on their businesses, the announcement of such
proposals or reforms could have a material adverse effect on Gensia's and
Rakepoll Holding's ability to raise capital and the adoption of such proposals
or reforms could have a material adverse effect on Gensia's and Rakepoll
Holding's businesses, financial condition and profitability. In addition, in
both the United States and elsewhere, sales of prescription pharmaceuticals
are dependent in part on the availability of reimbursement to the consumer
from third party payors, such as government and private insurance plans. Third
party payors are increasingly challenging the prices charged for medical
products and services. There can be no assurance that any of the products of
Gensia or the Rakepoll Operating Group will be considered cost effective and
that reimbursement to the consumer will be available or will be sufficient to
allow Gensia or the Rakepoll Operating Group to sell its products on a
competitive basis.
PRODUCT LIABILITY EXPOSURE; INADEQUACY OR UNAVAILABILITY OF PRODUCT LIABILITY
INSURANCE
Both Gensia and Lemery, as manufacturers of finished drug products, face an
inherent exposure to product liability claims in the event that the use of any
of their respective technology or products is alleged to have resulted in
adverse effects. This exposure exists even with respect to those products that
receive regulatory approval for commercial sale, as well as those undergoing
clinical trials. While Gensia and Lemery have taken and will continue to take
what they believe are appropriate precautions, there can be no assurance that
they will avoid significant product liability exposure. Adequate insurance
coverage might not be available at acceptable costs, if at all, and product
liability claims could adversely affect the business or financial condition of
Gensia.
In addition, as manufacturers of bulk drug substances, Sicor and Sintesis
Lerma supply other pharmaceutical companies with active ingredients which are
contained in finished products. The ability of Sicor and Sintesis Lerma to
avoid significant product liability exposures depends upon their ability to
negotiate appropriate commercial terms and conditions with their customers and
their customers' manufacturing, quality control and quality assurance
practices. There is no assurance that adequate insurance coverage will be
available at acceptable costs, if at all, to insure against such exposures or
that Sicor and Sintesis Lerma will be able to negotiate satisfactory terms and
conditions with their customers. During 1995, Sicor received claims from
certain
18
<PAGE>
of its customers in connection with the shipment of contaminated products. See
Note 19 of Notes to Rakepoll Holding Combined Financial Statements.
UNCERTAINTY REGARDING MEXICAN ECONOMIC FACTORS, GOVERNMENT POLICIES AND
INFLATION
The Mexican Government has exercised and continues to exercise significant
influence over many aspects of the Mexican economy. Accordingly, Mexican
Government actions could have a significant effect on Lemery and Sintesis
Lerma, and on market conditions and prices in Mexico. Further, on a cumulative
basis, the inflation rate has exceeded 100% in Mexico over the three-year
period ended December 1996. There can be no assurance that actions by the
Mexican Government, future developments in the Mexican economy or Mexico's
political, social or economic situation will not adversely affect the
operations of Lemery and Sintesis Lerma.
RISKS RELATED TO INTERNATIONAL OPERATIONS
During 1995 and the first nine months of 1996 a significant percentage of
Rakepoll Holding's revenues were derived from sales by the Rakepoll Operating
Group of pharmaceuticals outside of Western Europe, Japan and the United
States. Rakepoll Holding's operations outside of Western Europe, Japan and the
United States are subject in varying degrees to risks involved in doing
business abroad such as war, civil disturbances, adverse governmental actions
(which may disrupt or impede operations and markets, restrict the movement of
funds, impose limitations on foreign exchange transactions or result in the
expropriation of assets) and economic and governmental instability. There can
be no assurance that Rakepoll Holding will not experience material adverse
developments with respect to its operations outside of Western Europe, Japan
and the United States and that such developments, if they were to occur, would
not have a material adverse effect on the results of operations and financial
conditions of Rakepoll Holding.
ENVIRONMENTAL MATTERS
Gensia and the Rakepoll Operating Group companies are subject to numerous
environmental regulations in the jurisdictions in which they operate,
including regulations relating to the handling, transport and disposal of
hazardous materials and the protection of the environment. In certain of these
jurisdictions, protection of the environment is becoming an area of increased
governmental scrutiny and surveillance. While Gensia and the Rakepoll
Operating Group companies have implemented practices to comply with applicable
regulations, the cost of doing so in the future may become prohibitive and may
have a significant adverse impact on their operations. There is no assurance
that Gensia and the Rakepoll Operating Group companies will, in fact, be able
to comply with all applicable laws and regulations or that such laws and
regulations will not have a material adverse impact on the companies'
operations.
In addition, Sicor maintains liability insurance for certain environmental
risks which its management believes to be appropriate and in accordance with
industry practice. There can be no assurance, however, that Sicor will not
incur liabilities beyond the limits or outside the coverage of its insurance.
CURRENCY FLUCTUATIONS
Subsequent to the Stock Exchange, Gensia and Rakepoll Holding will have
significant operations in several countries, including the United States,
Italy, and Mexico. In addition, purchases and sales will be made in a large
number of other countries. As a result, the business will be subject to the
risk and uncertainties of foreign currency fluctuations. While Gensia plans to
adopt policies and strategies to minimize this risk, there can be no assurance
that such policies and strategies will be effective in preventing significant
negative financial adjustments in the future.
CONTROL BY RAKEPOLL FINANCE
If the Stock Exchange is consummated, Rakepoll Finance will own 29,500,000
shares of Gensia Common Stock and pursuant to the Shareholder's Agreement will
initially have the right to designate three of Gensia's
19
<PAGE>
ten directors, who will in turn designate (jointly with two executive officer
directors of Gensia) five additional directors. In addition, the consent of
the Rakepoll Finance designated directors will be required for Gensia to take
certain actions, such as a merger or sale of all or substantially all of the
business or assets of Gensia and certain issuances of securities. As a result
of its ownership of Gensia Common Stock, Rakepoll Finance may be able to
control substantially all matters requiring approval by the stockholders of
Gensia, including the election of directors and the approval of mergers or
other business combination transactions.
POTENTIAL LOSS OF CUSTOMERS OR SUPPLIERS
If the Stock Exchange is consummated, certain customers may elect not to
continue to purchase bulk pharmaceuticals from Sicor because of Sicor's
relationship with GLL and, further, certain suppliers of GLL may not continue
to supply GLL with bulk drug substances because of GLL's relationship with
Sicor. Such contract terminations may have a material adverse effect on
Sicor's and GLL's sales.
POSSIBLE VOLATILITY OF STOCK PRICE; DIVIDEND POLICY
The market price of the shares of Gensia Common Stock, like that of the
common stock of many other life sciences companies, has been and is likely to
continue to be highly volatile, and the market for securities of such
companies has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. The market price of Gensia Common Stock could be subject to
significant fluctuations in response to variations in Gensia's anticipated or
actual operating results, sales of substantial amounts of Gensia Common Stock,
other issuances of substantial amounts of Gensia Common Stock pursuant to pre-
existing obligations, announcements concerning Gensia or its competitors,
including the results of testing, technological innovations or new commercial
products or services, developments in patent or other proprietary rights of
Gensia or its competitors, including litigation, conditions in the life
sciences or pharmaceuticals industries, governmental regulation, health care
legislation, public concern as to the safety of Gensia's products, changes in
estimates of Gensia's performance by securities analysts, market conditions
for life sciences stocks in general, and other events or factors.
Gensia has never paid cash dividends on Gensia Common Stock. Gensia
presently intends to retain earnings, if any, for the development of its
businesses and does not anticipate paying any cash dividends on Gensia Common
Stock in the foreseeable future. Unless full cumulative dividends are paid on
Gensia's outstanding $3.75 Convertible Exchangeable Preferred Stock, $.01 par
value ("Convertible Preferred Stock"), cash dividends may not be paid or
declared and set aside for payment on Gensia Common Stock. Through November
1996, Gensia has approximately $7.5 million in undeclared cumulative preferred
dividends on such Convertible Preferred Stock. Gensia did pay quarterly cash
dividends in the aggregate amount of $3.0 million on Convertible Preferred
Stock in September and December of 1996. If Gensia chooses not to declare
dividends for six cumulative quarters, the holders of Convertible Preferred
Stock, voting separately as a class, will be entitled to elect two additional
directors until the dividend in arrears has been paid.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
Gensia's Certificate of Incorporation and Bylaws include provisions that
could discourage potential takeover attempts and make attempts by its
stockholders to change management more difficult. The approval of 66-2/3% of
Gensia's voting stock is required to approve certain transactions and to take
certain stockholder actions, including the calling of a special meeting of
stockholders and the amendment of any of the anti-takeover provisions
contained in Gensia's Certificate of Incorporation. Further, pursuant to the
terms of its stockholder rights plan, Gensia has distributed a dividend of one
right for each outstanding share of Gensia Common Stock. These rights will
cause a substantial dilution to a person or group that attempts to acquire
Gensia on terms not approved by the Gensia Board of Directors and may have the
effect of deterring hostile takeover attempts.
20
<PAGE>
INFORMATION CONCERNING THE SPECIAL MEETING
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Gensia of proxies in the accompanying form to be used at
the Special Meeting and any adjournment or postponement of the Special
Meeting.
TIME, DATE, PLACE AND PURPOSE OF SPECIAL MEETING
The Special Meeting will be held at the offices of Gensia, 9360 Towne Centre
Drive, San Diego, California, on Wednesday, February 26, 1997, at 1:00 p.m.,
local time. At the Special Meeting, including any adjournment or postponement
thereof, the stockholders of Gensia will consider and vote upon a proposal to
approve and adopt the Stock Exchange Agreement and the transactions
contemplated thereby, including the Stock Exchange and the Shareholder's
Agreement. Gensia stockholders will also consider and vote upon proposals to
amend and restate Gensia's Certificate of Incorporation and adopt the 1997
Stock Plan, all as further described in this Proxy Statement.
RECORD DATE, QUORUM AND VOTE REQUIRED
The Board of Directors of Gensia has fixed the close of business on January
13, 1997 as the Record Date. Only holders of record of Gensia Common Stock on
the Record Date will be entitled to receive notice of and to vote at the
Special Meeting or any adjournment or postponement thereof. As of the Record
Date, 40,227,507 shares of Gensia Common Stock were outstanding and entitled
to vote at the Special Meeting. As of January 1, 1997 there were approximately
730 holders of record of Gensia Common Stock.
Each holder of Gensia Common Stock is entitled to one vote for each share
held as of the Record Date. The presence, either in person or by properly
executed proxy, of the holders of a majority of the outstanding shares of
Gensia Common Stock entitled to vote at the Special Meeting is necessary to
constitute a quorum. The affirmative vote of a majority of the quorum at the
Special Meeting is required to approve and adopt the Stock Exchange Agreement
and the transactions contemplated thereby, including the Stock Exchange and
the Shareholder's Agreement and to adopt the 1997 Stock Plan. The affirmative
vote of a majority of the outstanding shares of Gensia Common Stock as of the
Record Date is required to adopt the amendment and restatement of Gensia's
Certificate of Incorporation. Approval of the amendment and restatement of
Gensia's Certificate of Incorporation is necessary in order to consummate the
Stock Exchange, as Gensia does not otherwise have enough authorized and
unreserved shares of Gensia Common Stock. Abstentions with respect to any
matter submitted to the stockholders for a vote are treated as shares present
or represented and entitled to vote on that matter and thus have the same
effect as negative votes. If shares are not voted by the broker who is the
record holder of the shares, or if shares are not voted in other circumstances
in which proxy authority is defective or has been withheld with respect to any
matter, these non-voted shares are not deemed to be present or represented for
purposes of determining whether stockholder approval of that matter has been
obtained.
RECOMMENDATION OF THE GENSIA BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF GENSIA HAS DETERMINED THAT THE CONSIDERATION TO BE
PAID BY GENSIA IN THE PROPOSED STOCK EXCHANGE IS FAIR TO GENSIA FROM A
FINANCIAL POINT OF VIEW AND THAT THE STOCK EXCHANGE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE STOCK EXCHANGE AND THE
SHAREHOLDER'S AGREEMENT, ARE FAIR TO, AND IN THE BEST INTERESTS OF, GENSIA AND
ITS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF GENSIA COMMON
STOCK VOTE FOR APPROVAL AND ADOPTION OF THE STOCK EXCHANGE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE STOCK EXCHANGE AND THE
SHAREHOLDER'S AGREEMENT. For a discussion of the factors on which the Gensia
Board of Directors' recommendation is based, see "The Stock Exchange--
Recommendation of the Gensia Board of Directors." THE BOARD OF DIRECTORS OF
GENSIA ALSO UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF GENSIA COMMON STOCK
VOTE FOR APPROVAL OF THE PROPOSALS TO AMEND AND RESTATE GENSIA'S CERTIFICATE
OF INCORPORATION AND TO ADOPT THE 1997 STOCK PLAN.
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<PAGE>
PROXIES
Shares represented by properly executed proxies received prior to or at the
Special Meeting in response to this solicitation and not revoked will be voted
at the Special Meeting. A proxy may be revoked at any time before it is
exercised by filing with the Secretary of Gensia, 9360 Towne Centre Drive, San
Diego, California 92121, a written revocation or a duly executed proxy bearing
a later date or by voting in person at the Special Meeting. Attendance in
person at the Special Meeting will not in itself constitute the revocation of
a proxy. On the matters coming before the Special Meeting for which a choice
has been specified by a stockholder by means of the ballot on the proxy, the
shares will be voted accordingly. If no choice is specified, the shares will
be voted FOR the approval and adoption of the Stock Exchange Agreement and the
transactions contemplated thereby, including the Stock Exchange and the
Shareholder's Agreement, the amendment and restatement of Gensia's Certificate
of Incorporation and the 1997 Stock Plan. Management of Gensia does not know
of any matters other than those referred to in this Proxy Statement which will
be brought before the Special Meeting. If, however, other matters are properly
presented, the persons named as proxies in the form of proxy will vote in
accordance with their judgment with respect to such matters; provided,
however, that such discretionary authority will only be exercised to the
extent permissible under applicable federal and state securities and
corporation laws. The grant of a proxy will also confer discretionary
authority on the persons named in the proxy to vote on matters incident to the
conduct of the Special Meeting.
Any stockholder or stockholder's representative who, because of a
disability, may need special assistance or accommodation to allow him or her
to participate at the Special Meeting may request reasonable assistance or
accommodation from Gensia by contacting the Secretary of Gensia, 9360 Towne
Centre Drive, San Diego, California, (619) 546-8300. To provide Gensia
sufficient time to arrange for reasonable assistance or accommodation, please
submit all requests at least two weeks before the date of the Special Meeting.
PROXY SOLICITATION
The expense of printing and mailing this Proxy Statement and accompanying
proxy materials will be borne by Gensia. In addition to the solicitation of
proxies by mail, solicitation may be made by certain directors, officers, and
other employees of Gensia by personal interview, telephone, or electronic
mail. No additional compensation will be paid to such persons for such
solicitation. Gensia will reimburse brokerage firms and others for their
reasonable expenses in forwarding solicitation materials to beneficial owners
of Gensia Common Stock. Gensia has retained Georgeson & Company Inc. to
solicit proxies at an anticipated fee of approximately $10,000 plus reasonable
out-of-pocket expenses.
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THE STOCK EXCHANGE
BACKGROUND OF THE STOCK EXCHANGE
Gensia and Sicor, the primary operating subsidiary of Rakepoll Holding, have
a long-standing business relationship. Sicor's bulk pharmaceutical
manufacturing and supply business is a supplier to Gensia's multisource
injectable business conducted through its wholly-owned subsidiary Gensia
Laboratories. This relationship extends back to January 1991, when Gensia
acquired GLL. In 1993, Carlo Salvi, beneficial owner of a controlling interest
in Rakepoll Holding, approached Gensia regarding a possible collaboration
between Gensia and Rakepoll Holding's Mexican operations. The discussions
between Gensia and Mr. Salvi were terminated, however, without any agreement
having been reached. Other than such discussions, prior to the execution of
the Stock Exchange Agreement, Gensia and Rakepoll Holding had never sought to
enter into any type of business combination.
Since Gensia became a publicly traded company in June 1990, the Gensia Board
of Directors has followed a long-term strategic objective of internal growth
and diversification of Gensia as a public company. However, beginning in 1993,
Gensia engaged in regular and serious discussions with a number of third
parties regarding possible transactions and financing alternatives. These
discussions were terminated in each case by mutual consent without any
agreement having been reached. In October 1994, due to disappointing results
from a confirmatory clinical trial of its lead product in development, Gensia
began to shift its business strategy to building its commercial operations. As
part of such strategy, commencing in 1995, Gensia engaged in discussions with
various third parties regarding various business combination and restructuring
alternatives. In May 1995, Gensia engaged CS First Boston as its financial
advisor on the terms set forth in CS First Boston's engagement letter. See
"The Stock Exchange--Opinion of Gensia's Financial Advisor."
In February 1996, while Carlo Salvi and Michael Cannon, an officer and
director of Sicor, were in Irvine, California visiting their customer, GLL,
these individuals met with David Hale, Chairman, President and Chief Executive
Officer of Gensia, and Patrick Walsh, President and Chief Operating Officer of
GLL. The purpose of this meeting was to introduce Mr. Hale to Messrs. Salvi
and Cannon and to discuss how Gensia and Sicor might expand their business
relationships. At this meeting, however, the discussions turned to a possible
business combination. The representatives expressed a mutual interest in
pursuing further discussions. After this meeting, a representative of Gensia
indicated to a representative of Rakepoll Holding that the parties should not
enter into additional discussions unless a mutually acceptable confidentiality
agreement was entered into that would permit Gensia and Rakepoll Holding to
exchange information about their respective businesses. Such an agreement was
then entered into in March 1996.
At its February 22, 1996 meeting, the Gensia Board was advised of the
preliminary discussions with Messrs. Salvi and Cannon concerning a possible
business combination. On February 28 and 29, 1996, representatives of Gensia
met in Lugano, Switzerland with representatives of Rakepoll Holding and its
financial advisor, Lehman Brothers International. Representatives of Gensia
and Rakepoll Holding met again in New York in mid-March 1996, along with their
respective financial advisors to pursue the possibility of a business
combination.
At a meeting of the Gensia Board held on April 8, 1996, the Gensia Board
discussed the further contacts with Rakepoll Holding and the subject matter of
the discussions. At this meeting, the Gensia Board authorized management to
continue exploratory discussions with Rakepoll Holding as well as pursuing
other strategic alternatives. The Gensia Board again discussed a possible
transaction with Rakepoll Holding on April 24 and June 25, 1996.
During the period from early July 1996 through November 12, 1996,
representatives of Gensia and Rakepoll Holding and their respective advisors
met a number of times to discuss the possibility of a business combination and
the terms thereof and conducted substantial due diligence of each other's
businesses and operations. During this period, because Rakepoll Holding's
principal operating subsidiaries, Sicor, Lemery and Sintesis Lerma, were
foreign private companies, substantial financial and accounting work was
performed to produce financial statements that would conform to U.S. Generally
Accepted Accounting Principles and would be denominated in U.S. dollars rather
than Italian lire and Mexican pesos.
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As a result of the discussions between July and November of 1996,
representatives of Gensia and Rakepoll Holding indicated to each other that
Gensia would be willing to issue certain Gensia Common Stock in exchange for
all of the issued and outstanding stock of Rakepoll Holding. In addition to
discussions regarding the requirements for certain financial statements of
Rakepoll Holding, and certain continued due diligence requirements, the
representatives of Rakepoll Holding noted their requirement for the inclusion
of certain terms regarding the corporate governance of a combined company. In
particular, there were discussions regarding the composition of a combined
company's Board of Directors and senior management of the combined company as
well as its principal operating subsidiaries.
The Gensia Board held meetings on August 12, August 20 and October 4, 1996,
at which times the Board received an update from officers and advisors of
Gensia on the status of discussions with Rakepoll Holding and diligence being
conducted on Rakepoll Holding and the Rakepoll Subsidiaries.
In preparation for its meeting on November 8, 1996, the Gensia Board
received a preliminary report on Gensia's due diligence review and the
continuing discussions with Rakepoll Holding. At the November 8, 1996 meeting,
the Gensia Board considered the salient terms of a possible transaction with
Rakepoll Holding. Based upon its review at the meeting, the Gensia Board
authorized its representatives to continue to pursue a potential business
combination with Rakepoll Holding, subject to finalization of a definitive
stock exchange agreement and shareholder's agreement and related documents and
other terms satisfactory to the Board.
A special meeting of the Gensia Board was held in New York City on November
11, 1996 to consider the terms of a proposed transaction with Rakepoll
Holding. At this meeting, Gensia's Board discussed in detail the terms of the
possible transaction with Gensia's management and legal, financial and
accounting advisors. The Gensia Board authorized its representatives to
proceed with finalizing the detailed terms and provisions of a stock exchange
agreement, a shareholder's agreement and related documents.
RECOMMENDATION OF THE GENSIA BOARD OF DIRECTORS
At a telephonic board meeting the following day, November 12, 1996,
following further discussions with Gensia's management and its advisors, the
Gensia Board discussed CS First Boston's written opinion, dated the same date,
to the effect that, as of the date of such opinion and based upon and subject
to certain matters set forth therein, the consideration to be paid by Gensia
in the Stock Exchange is fair to Gensia from a financial point of view.
Following further discussion, the Gensia Board took the following actions, it
(i) determined that the consideration to be paid by Gensia in the proposed
Stock Exchange is fair to Gensia from a financial point of view and that the
Stock Exchange Agreement and the transactions contemplated thereby, including
the Stock Exchange and the Shareholder's Agreement, are fair to, and in the
best interest of, Gensia and its stockholders, (ii) unanimously approved the
Stock Exchange Agreement and the transactions contemplated thereby, including
the Stock Exchange and the Shareholder's Agreement, subject to the approval of
the transactions by Rakepoll Holding, and (iii) unanimously recommended that
Gensia stockholders approve and adopt the Stock Exchange Agreement and the
transactions contemplated thereby, including the Stock Exchange and the
Shareholder's Agreement. See "--Gensia's Reasons for the Stock Exchange;
Purpose of the Stock Exchange."
GENSIA'S REASONS FOR THE STOCK EXCHANGE; PURPOSE OF THE STOCK EXCHANGE
The Gensia Board of Directors, in the course of reaching its decision to
approve the Stock Exchange Agreement and the transactions contemplated
thereby, including the Stock Exchange and the Shareholder's Agreement,
considered a number of factors, including among others:
(i) the terms and conditions of the Stock Exchange Agreement;
(ii) its belief that the Stock Exchange will create a diversified
specialty pharmaceutical company with a vertically-integrated capability
able to compete effectively in the global market for low-cost, high quality
multisource injectable pharmaceutical products;
(iii) its view that, following the Stock Exchange, Gensia expects to have
a broad line of oncology products available worldwide and will be well
positioned to compete in the international oncology market;
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(iv) the existing assets, financial condition and resources, including
current assets and liquidity, contingent liabilities, prospects and
business operations of Gensia without, and as combined with, Rakepoll
Holding;
(v) the business advantages expected to result from a combination of the
businesses of Gensia and Rakepoll Holding;
(vi) the current and historical market prices of Gensia Common Stock;
(vii) the extensive negotiations that had occurred between the parties
concerning the terms of the Stock Exchange; and
(viii) the presentation of Gensia's financial advisor, CS First Boston,
and the written opinion of such advisor that, as of the date of such
opinion and based upon and subject to certain matters set forth therein,
the consideration to be paid by Gensia in the proposed Stock Exchange is
fair to Gensia from a financial point of view.
Gensia believes that the strategic combination of Gensia and Sicor, Sintesis
Lerma and Lemery will create a specialty pharmaceutical company ("Gensia
Sicor") with a major focus on the worldwide oncology market. Gensia believes
this is important because industry estimates indicate that this market may
grow at 10-15% per year over the next 10 years as the population of the world
ages and as new regimens for the treatment of cancer are introduced. Gensia
Sicor would have a vertically-integrated capability enabling it to compete
effectively in the global market for low-cost, high quality multisource
injectable pharmaceutical products. As part of its international marketing
strategy, Gensia Sicor would seek to introduce pharmaceutical products in
countries where these products are not subject to patent protection prior to
the introduction of these products in the United States or EU countries, where
the length of patent protection can be significantly extended by law.
In addition to having a broad line of multisource anti-cancer products,
Gensia Sicor plans to have a comprehensive strategy for addressing the
oncology market. Due to the difficulty in producing many of these compounds,
Gensia Sicor also expects to be first to the market with certain of these
anti-cancer products and, with some products, to be the only competitor in the
United States with the innovator product for an extended period of time;
however, there can be no assurance that Gensia Sicor will be the first to
market with any product or that it will be the only competitor in the United
States with any innovator product. In addition, because of Gensia Sicor's
vertically-integrated position with respect to anti-cancer products, Gensia
expects that gross margins from the sale of these anti-cancer products to be,
on average, higher than for many multisource injectable pharmaceutical
products which are less difficult to produce. Gensia Sicor also plans to
develop enhanced features for oncology products that increase the safety and
convenience of handling of anti-cancer drugs, which can be very toxic. These
enhanced features may include drugs formulated in solution as opposed to
lyophilized formulations (to avoid the need for mixing) and offering oncology
products in break resistant polymer packaging versus breakable glass vials. In
addition, Gensia Sicor will seek to develop value added drug delivery systems
for certain oncology products, such as the ATRIGEL Drug Delivery System for
leuprolide acetate which is under development through a collaboration between
Gensia and Atrix Laboratories Inc. Gensia Sicor will also seek to acquire the
rights to novel oncology products, such as UK 101, an in-licensed compound
that Sicor currently is developing and for which clinical trials in patients
utilizing such compound in the treatment of colon and breast cancer are
currently scheduled to begin in early 1997.
Gensia Sicor will also have an expanded capability to perform contract
manufacturing support and services for pharmaceutical or biotechnology
companies developing new oncology products. GLL is currently building a
dedicated manufacturing facility in Irvine, California to manufacture finished
dosage forms of injectable oncology drugs. This facility is planned for
completion and validation in the second half of 1997. When this manufacturing
capability is combined with the bulk drug substance sourcing and development
capabilities of the Rakepoll Operating Group, Gensia Sicor will be able to
offer potential partners a full range of manufacturing services including
pilot and commercial quantities of bulk materials, formulation development and
pilot and commercial scale manufacturing of finished dosage forms. Gensia
believes that this expanded capability will be attractive to companies
developing oncology products. Further, given Gensia Sicor's marketing and
distribution
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capabilities for oncology products both domestically and internationally, the
combined company may be an attractive marketing partner for such companies.
In addition to its strength in oncology products, Gensia Sicor will continue
to follow a strategy of being first to market after patent expiry on products
which are difficult to produce. GLL received the first United States
multisource product approvals on dobutamine and etoposide, two of the largest
injectable products to go off patent in the United States in the last few
years. Sicor has also developed a reputation for being the bulk pharmaceutical
supplier to the multisource companies receiving the first U.S. regulatory
approvals on products that are difficult to produce, such as etoposide (with
GLL), bleomycin, pancuronium and vecuronium. Sicor has filed over 30 Drug
Master files with the United States Food and Drug Administration (the "FDA")
and has significant experience working with health regulatory agencies
worldwide.
Gensia believes that by combining its operations with those of Rakepoll
Holding, Gensia Sicor will have sophisticated bulk pharmaceutical development,
formulation and final manufacturing capabilities for difficult to manufacture
products in Italy and the United States as well as lower cost production
facilities for both bulk pharmaceutical production and final formulation and
manufacturing in Mexico. Gensia believes this will allow it to compete
effectively in the global injectable pharmaceutical marketplace with products
that are both high quality and low cost, and will help leverage the products
resulting from GLL's development efforts.
In addition to the strategic reasons for the acquisition described above,
Gensia received, on November 12, 1996, the date the Stock Exchange Agreement
was signed, the written opinion of CS First Boston, its financial advisor, to
the effect that, as of the date of such opinion and based upon and subject to
certain matters set forth therein, the consideration to be paid by Gensia in
the proposed Stock Exchange is fair to Gensia from a financial point of view.
See "--Opinion of Gensia's Financial Advisor."
OPINION OF GENSIA'S FINANCIAL ADVISOR
CS First Boston has acted as financial advisor to Gensia in connection with
the proposed Stock Exchange. CS First Boston was selected by Gensia based on
CS First Boston's experience and expertise. CS First Boston is an
internationally recognized investment banking firm and is regularly engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate, estate and other purposes.
In connection with CS First Boston's engagement, Gensia requested that CS
First Boston evaluate the fairness from a financial point of view to Gensia of
the consideration to be paid by Gensia in the proposed Stock Exchange. On
November 11, 1996, representatives of CS First Boston presented to the Gensia
Board certain information concerning the proposed transaction. On November 12,
1996, at a meeting of the Board of Directors of Gensia held to evaluate the
proposed Stock Exchange, CS First Boston rendered to the Gensia Board of
Directors its written opinion to the effect that, as of such date and based
upon and subject to certain matters stated in such opinion, the consideration
to be paid by Gensia in the proposed Stock Exchange is fair to Gensia from a
financial point of view. See also, "The Stock Exchange--Background of the
Stock Exchange."
In arriving at its opinion, CS First Boston reviewed the Stock Exchange
Agreement, the Shareholder's Agreement and certain publicly available business
and financial information relating to Gensia. CS First Boston also reviewed
certain other information, including financial forecasts, provided to CS First
Boston by Gensia and Rakepoll Holding and met with the respective management
of Gensia and Rakepoll Holding to discuss the business and prospects of Gensia
and Rakepoll Holding and compared that data with similar data for other
publicly held companies in businesses similar to those of Gensia and Rakepoll
Holding and considered, to the extent publicly available, the financial terms
of certain other business combinations and other transactions recently
effected. CS First Boston also considered such other information, financial
studies, analyses and investigations and financial, economic and market
criteria which CS First Boston deemed relevant.
In connection with its review, CS First Boston did not assume any
responsibility for independent verification of any of the information provided
to or otherwise reviewed by CS First Boston and relied upon such information
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being complete and accurate in all material respects. With respect to the
financial forecasts, CS First Boston assumed that such forecasts were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of Gensia and Rakepoll Holding as to the
future financial performance of Gensia and Rakepoll Holding, respectively. In
addition, CS First Boston did not make an independent evaluation or appraisal
of the assets or liabilities (contingent or otherwise) of Gensia or Rakepoll
Holding, nor was CS First Boston furnished with any such evaluations or
appraisals. CS First Boston's opinion was necessarily based on information
available to it and financial, stock market and other conditions as they
existed and could be evaluated on the date of its opinion. In connection with
its engagement, CS First Boston was requested to approach third parties to
solicit indications of interest in a possible sale of Gensia and held
discussions with certain of these parties prior to the date of its opinion.
See "The Stock Exchange--Background of the Stock Exchange." Although CS First
Boston evaluated the Stock Exchange consideration from a financial point of
view, CS First Boston was not requested to, and did not, recommend the
specific consideration payable by Gensia in the Stock Exchange, which
consideration was determined through negotiation between Gensia and Rakepoll
Holding. No other limitations were imposed by Gensia on CS First Boston with
respect to the investigations or procedures followed by CS First Boston in
rendering its opinion.
THE FULL TEXT OF CS FIRST BOSTON'S WRITTEN OPINION TO THE BOARD OF DIRECTORS
OF GENSIA DATED NOVEMBER 12, 1996, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS
ANNEX B TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE.
STOCKHOLDERS OF GENSIA ARE URGED TO READ THIS OPINION CAREFULLY IN ITS
ENTIRETY. CS FIRST BOSTON'S OPINION IS DIRECTED ONLY TO THE FAIRNESS TO GENSIA
OF THE STOCK EXCHANGE CONSIDERATION FROM A FINANCIAL POINT OF VIEW, DOES NOT
ADDRESS ANY OTHER ASPECT OF THE PROPOSED STOCK EXCHANGE OR ANY RELATED
TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY GENSIA STOCKHOLDER
AS TO HOW SUCH GENSIA STOCKHOLDER SHOULD VOTE AT THE SPECIAL MEETING. THE
SUMMARY OF THE OPINION OF CS FIRST BOSTON SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In preparing its opinion to the Board of Directors of Gensia, CS First
Boston performed a variety of financial and comparative analyses, including
those described below. The summary of CS First Boston's analyses set forth
below does not purport to be a complete description of the analyses underlying
CS First Boston's opinion. The preparation of a fairness opinion is a complex
analytic process involving various determinations as to the most appropriate
and relevant methods of financial analysis and the application of those
methods to the particular circumstances and, therefore, such an opinion is not
readily susceptible to summary description. In arriving at its opinion, CS
First Boston made qualitative judgments as to the significance and relevance
of each analysis and factor considered by it. Accordingly, CS First Boston
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and factors, without considering all analyses and
factors, could create a misleading or incomplete view of the processes
underlying such analyses and its opinion. In its analyses, CS First Boston
made numerous assumptions with respect to Gensia and Rakepoll Holding,
industry performance, regulatory, general business, economic, market and
financial conditions and other matters, many of which are beyond the control
of Gensia and Rakepoll Holding. In valuing the business of Gensia, CS First
Boston excluded the operations of Gensia's research and development
operations. No company, business or transaction used in such analyses as a
comparison is identical to Gensia, Rakepoll Holding or the proposed Stock
Exchange, nor is an evaluation of the results of such analyses entirely
mathematical; rather, it involves complex considerations and judgments
concerning financial and operative characteristics and other factors that
could affect the acquisition, public trading or other values of the companies,
business segments or transactions being analyzed. The estimates contained in
such analyses, and the ranges of valuations resulting from any particular
analysis are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable
than those suggested by such analyses. In addition, analyses relating to the
value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty. CS First Boston's opinion and financial analyses were only one of
many factors considered by the Gensia Board in its evaluation of the proposed
Stock Exchange and should not be viewed as determinative of the views of the
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Gensia Board or Gensia management with respect to the Stock Exchange
consideration or the proposed Stock Exchange.
The following is a summary of the material analyses performed by CS First
Boston in connection with its opinion and financial presentation made to the
Gensia Board of Directors on November 12, 1996.
CS First Boston determined a reference enterprise value for Rakepoll Holding
and compared it to the total consideration being paid by Gensia based on the
price of Gensia Common Stock prior to the public announcement of the Stock
Exchange. CS First Boston determined a reference equity value for Gensia on a
stand alone basis (excluding Gensia's research activities) and compared it to
59% of the reference equity value of the combined entity on a pro forma basis
after giving effect to the Stock Exchange to be owned by the current holders
of Gensia Common Stock ("Gensia Sicor"). CS First Boston also determined the
relative contribution of Gensia and Rakepoll Holding to pro forma Gensia Sicor
revenues, earnings before interest and taxes ("EBIT") and earnings before
interest, taxes, depreciation and amortization ("EBITDA") for 1996 and 1997.
CS First Boston analyzed the pro forma effect of the Stock Exchange on
Gensia's fully diluted earnings per share for the 1997-2000 period based on
the Gensia Sicor Management Case (defined below). CS First Boston compared the
projected financial results of Rakepoll Holding under two different scenarios:
(i) a case prepared by the management of Rakepoll Holding through fiscal 1999
and by Gensia management for fiscal 2000 and 2001 that assumes Rakepoll
Holding operates as a stand-alone entity during that period and assumes
moderate revenue growth throughout the period offset somewhat by price
compression consistent with recent trends (the "Rakepoll Management Case");
and (ii) a case prepared by the managements of Gensia and Rakepoll Holding
through fiscal 2001 that assumes that Rakepoll Holding operates as a stand-
alone entity during that period and assumes lower margins and revenue growth
as compared with the Rakepoll Management Case (the "Rakepoll Conservative
Case"). CS First Boston compared the projected financial results of Gensia
under two scenarios: (x) a case prepared by the management of Gensia through
fiscal 2000 and by CS First Boston for 2001 that assumes that Gensia operates
as a stand-alone entity during that period and significant revenue and income
growth are driven by new product introductions (the "Gensia Management Case");
and (y) a case prepared by CS First Boston using the Gensia Management Case
but including more conservative assumptions with respect to new product
introduction that may result from, among other things, lower industry margins
and revenue growth ("Gensia Revised Case"). CS First Boston compared the
combined projected financial results of Gensia and Rakepoll Holding after the
consummation of the Stock Exchange under two different scenarios: (x) a case
that combines the results of the Gensia Management Case with the results of
the Rakepoll Conservative Case (the "Gensia Sicor Management Case"); and (y) a
case that combines the results of the Gensia Revised Case with the results of
the Rakepoll Conservative Case (the "Gensia Sicor Revised Case").
Rakepoll Holding Valuation Analysis. CS First Boston arrived at estimated
valuation ranges for Rakepoll Holding using three valuation methodologies: a
comparable acquisition analysis, a comparable company analysis and a
discounted cash flow analysis. These valuation methodologies are discussed
below:
Rakepoll Holding Comparable Acquisition Analysis
CS First Boston reviewed acquisitions of companies in the specialty and fine
chemicals industry over the past six years, specifically the acquisition of
Sterling Organics Inc. by Seprachem Inc., the acquisition of OSI Specialties,
Inc. by Witco Corporation, the acquisition of Hampshire Chemical Corp. by
Sentrachem US, Inc., the acquisition of J.T. Baker Inc. by Mallinckrodt Inc.,
the acquisition of Elf Sanofi's bioindustrial business by SKW Trostberg AG,
the acquisition of Nobel's pharma chemistry business by Cambrex Corporation,
the acquisition of ChemDesign Corp. by Miles Inc., the acquisition of Sequa
Corporation by Investor Group, the acquisition of Hach Company by Lawter
International, Inc., the acquisition of Merck's Calgon Water Management
subsidiary by English China Clays plc, the acquisition of Hexcel Corp.'s fine
chemicals business by Cambrex Corporation, the acquisition of Schering AG's
industrial and organic chemical operations by Witco Corporation, the
acquisition of Alberta Natural Gas Company, Ltd.'s Angus Fine Chemicals Ltd by
Hickson International PLC, the acquisition of John Ross, Inc. by MTM PLC, the
acquisition of Imperial Chemical Industry PLC's stakes in Catoleum (Pty.)
Ltd., Alchem Inc. and Nalfloc Ltd. by Nalco Chemical Company, the
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acquisition of Amersham Corporation by Eastman Kodak, and the acquisition of
Ethyl Corp.'s Hardwicke Chemical Company by MTM PLC. For each of the
comparable transactions, CS First Boston analyzed such transactions in terms
of the relationship between (i) equity purchase price and last twelve months
("LTM") net income and (ii) between enterprise value (the equity purchase
price plus debt and redeemable preferred stock minus cash and cash
equivalents) and LTM sales (revenue), LTM EBIT and LTM EBITDA. CS First Boston
then derived an equity value as a multiple of net income of 14.0x-18.0x and
applied this range to Rakepoll Holding's 1997 net income as projected in the
Rakepoll Conservative Case. CS First Boston also derived a range of multiples
of enterprise value to sales (revenue) (2.0x-3.0x), EBIT (12.0x-14.0x) and
EBITDA (8.0x-12.0x) and applied these multiples to the financial data of
Rakepoll Holding for fiscal year 1996 as estimated under the Rakepoll
Conservative Case. The enterprise value and equity value of Rakepoll Holding
derived from this analysis ranged from $225 million to $300 million and $186
million to $261 million, respectively.
Rakepoll Holding Comparable Company Analysis
CS First Boston reviewed certain financial results of selected public
companies in the specialty and fine chemicals industry, which is the industry
in which Rakepoll Holding operates. The companies examined by CS First Boston
were Cambrex Corporation, Chirex Inc., Sigfried, Great Lakes Chemical
Corporation, Lawter International, Inc., Mallinckrodt Group Inc., Penwest,
Ltd. and Sigma-Aldrich Corp. Using publicly available financial and stock
price data, CS First Boston determined the relationship for these companies
between enterprise value (equity value plus debt and redeemable preferred
stock minus cash and cash equivalents) and LTM sales (revenue), LTM EBIT and
LTM EBITDA. CS First Boston also determined price to earnings multiples for
fiscal 1996 and 1997. CS First Boston then derived a range of multiples of
sales (1.5x-2.5x), EBIT (10.0x-15.0x) and EBITDA (8.0x-10.0x) and applied them
to Rakepoll Holding's fiscal 1996 financial data as projected in the Rakepoll
Conservative Case. CS First Boston also derived equity value as a multiple of
net income by applying the multiple ranges of 11.0x-13.1x to Rakepoll
Holding's 1997 net income under the Rakepoll Conservative Case. The reference
ranges of enterprise value and equity value of Rakepoll Holding derived from
this comparable company analysis were $190 million to $260 million and $151
million to $221 million, respectively.
No company or transaction used in the comparable company and comparable
acquisitions analyses is identical to Rakepoll Holding or the Stock Exchange.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the acquisition, public trading or other values of
the companies, businesses or transactions to which they are being compared.
Rakepoll Holding Discounted Cash Flow Analysis
CS First Boston also performed discounted cash flow analyses of Rakepoll
Holding based on both the Rakepoll Management Case and the Rakepoll
Conservative Case. For each case, CS First Boston estimated the unlevered
"free cash flow" that Rakepoll Holding was expected to generate for the 1997-
2001 forecast period and discounted these cash flows at discount rates ranging
from 18%-20%. This discount rate range was derived by taking into account the
11%-14% weighted average cost of capital for the comparable companies and
adjusting it upward to reflect Rakepoll Holding's specific risk factors,
including its foreign domicile, its privately held status, and the fact that
some of its assets are in Mexico. To estimate the terminal value of Rakepoll
Holding in the year 2001, CS First Boston applied multiples of 8.0x-10.0x to
EBITDA in fiscal 2001, as estimated under the Rakepoll Conservative Case. The
terminal values were then discounted to present value using the range of
discount rates described above. CS First Boston derived a reference range of
enterprise value and equity value of Rakepoll Holding of $332 million to $426
million and $293 million to $387 million, respectively, under the Rakepoll
Management Case. Under the Rakepoll Conservative Case, CS First Boston derived
a reference range of enterprise value and equity value of Rakepoll Holding of
$291 million to $375 million and $252 million to $336 million, respectively.
BASED ON THE RAKEPOLL HOLDING COMPARABLE ACQUISITION ANALYSIS, RAKEPOLL
HOLDING COMPARABLE COMPANY ANALYSIS AND THE RAKEPOLL HOLDING DISCOUNTED CASH
FLOW ANALYSIS, CS FIRST BOSTON DERIVED AN
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OVERALL REFERENCE RANGE OF ENTERPRISE VALUE AND EQUITY VALUE FOR RAKEPOLL
HOLDING, EXCLUDING SYNERGIES, OF $224 MILLION TO $299 MILLION, AND $185
MILLION TO $260 MILLION, RESPECTIVELY.
Gensia Valuation Analysis. CS First Boston arrived at estimated valuation
ranges for Gensia using three valuation methodologies: a comparable
acquisition analysis, a comparable company analysis and a discounted cash flow
analysis. These valuation methodologies are discussed below:
Gensia Comparable Acquisitions Analysis
CS First Boston reviewed acquisitions of companies in the generic
pharmaceutical industry over the past three years, specifically the
acquisition of Biocraft Laboratories Inc. by Teva Pharmaceutical Industries,
Limited, the acquisition of Marsam Pharmaceuticals by Schein Pharmaceutical,
Inc., the acquisition of Circa Pharmaceuticals, Inc. by Watson
Pharmaceuticals, Inc., the acquisition of Zenith Laboratories, Inc. by IVAX
Corporation, the acquisition of a 25% minority interest in Schein
Pharmaceutical by Bayer AG, the acquisition of Copley Pharmaceutical, Inc. by
Hoechst AG, and the acquisition of Rugby-Darby Group Co. Inc. by Marion
Merrell Dow Inc. For those transactions, CS First Boston determined the
relationship between the enterprise value and sales (revenue). CS First Boston
then derived a range of multiples of enterprise value to sales (revenue) of
2.5x-3.8x and applied it to Gensia's projected sales revenue in 1996 under the
Gensia Management Case. Multiples of enterprise value to EBIT and EBITDA were
not meaningful because Gensia's 1996 EBIT and EBITDA are expected to be
negative. Multiples of equity purchase price to net income were also
determined to be not meaningful for the same reason. The reference range of
the enterprise value and equity value of Gensia derived from this analysis
ranged from $147 million to $223 million and from $151 million to $197
million, respectively.
Gensia Comparable Company Analysis
CS First Boston reviewed certain financial results of selected public
companies in the specialty pharmaceutical industry, which is the industry in
which Gensia operates. The companies that were examined by CS First Boston
were A.L. Pharma Inc., Barr Laboratories Inc., Copley Pharmaceutical Company,
Mylan Laboratories, Roberts Pharmaceutical Corporation, and Watson
Pharmaceuticals. Using publicly available financial and stock data, CS First
Boston determined the relationship for these companies between their
enterprise value (equity value plus debt and redeemable preferred stock minus
cash and cash equivalents) and LTM sales (revenue). Enterprise value as a
multiple of EBIT and EBITDA were deemed not meaningful because Gensia's EBIT
and EBITDA are expected to be negative in 1996 under the Gensia Management
Case. CS First Boston derived a range of enterprise value as a multiple of
sales (revenue) of 2.1x-3.5x and applied this range to Gensia's 1996 revenue
as projected under the Gensia Management Case. The reference range of
enterprise value and equity value of Gensia derived from this comparable
company analysis ranged from $123 million to $205 million and from $127
million to $179 million, respectively.
No company or transaction used in the comparable acquisitions and comparable
company analysis is identical to Gensia or the Stock Exchange. Accordingly, an
analysis of the results of the foregoing is not entirely mathematical; rather
it involves complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that could affect
the acquisitions, public trading or other values of the companies, businesses
or transactions to which they are being compared.
Gensia Discounted Cash Flow Analysis
CS First Boston performed discounted cash flow analysis of Gensia under the
Gensia Revised Case. CS First Boston estimated the unlevered "free cash flow"
under that scenario for the 1997-2001 forecast period and discounted these
cash flows at discount rates ranging from 26%-30%. This discount range was
derived by observing the range for comparable specialty pharmaceutical
companies, which have a weighted average cost of capital of 14%-17%, and by
adjusting it upward to reflect Gensia's limited capacity to raise funds and
its historical unprofitability. To estimate the terminal value of Gensia in
year 2001, CS First Boston applied
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multiples of 10.0x-12.0x to Gensia's projected operating income in year 2001.
These terminal values were then discounted to present values at the range of
discount rates range discussed above. The reference enterprise value and
equity value of Gensia derived under the Gensia Revised Case ranged from $189
million to $275 million and $193 million to $249 million, respectively.
BASED ON THE GENSIA COMPARABLE ACQUISITION ANALYSIS, GENSIA COMPARABLE
COMPANY ANALYSIS, AND THE GENSIA DISCOUNTED CASH FLOW ANALYSIS, CS FIRST
BOSTON DERIVED AN OVERALL REFERENCE RANGE OF ENTERPRISE VALUE AND EQUITY VALUE
OF GENSIA RANGING FROM $146 MILLION TO $226 MILLION AND FROM $150 MILLION TO
$200 MILLION, RESPECTIVELY.
Gensia Sicor Valuation Analysis: CS First Boston arrived at estimated
valuation ranges for Gensia Sicor using three valuation methodologies: a
comparable acquisition analysis, a comparable company analysis and a
discounted cash flow analysis. These valuation methodologies are discussed
below:
Gensia Sicor Comparable Acquisition Analysis
CS First Boston applied the enterprise value multiple of sales (revenue)
derived from Gensia Comparable Acquisition Analysis of 2.5x-3.8x to Gensia
Sicor's 1996 revenue as estimated under the Gensia Sicor Management Case. The
reference enterprise value and equity value of Gensia Sicor derived under this
analysis ranged from $383 million to $581 million and $340 million to $508
million, respectively.
Gensia Sicor Comparable Company Analysis
CS First Boston applied the enterprise value multiple of sales (revenue) as
derived from Gensia Comparable Company Acquisition Analysis of 2.1x-3.5x to
Gensia Sicor's 1996 sales revenue as estimated under the Gensia Sicor
Management Case. The reference enterprise value and equity value of Gensia
Sicor derived from this analysis ranged from $321 million to $536 million and
$278 million to $463 million, respectively.
Gensia Sicor Discounted Cash Flow Analysis
CS First Boston developed discounted cash flow analyses for Gensia Sicor
under the Gensia Sicor Revised Case. CS First Boston estimated the unlevered
"free cash flow" under that scenario for the 1997-2001 forecast period and
discounted these cash flows at discount rates ranging from 20%-22%. This
discount range of 20%-22% is a blended rate of Gensia's 26%-30% and Rakepoll
Holding's 18%-20%. To estimate the terminal value of Gensia Sicor in year
2001, CS First Boston applied multiples of 9.0x-11.0x to Gensia Sicor's EBIT
in year 2001. These terminal values were then discounted to present values at
the discount rates range discussed above. The reference enterprise value and
equity value of Gensia Sicor derived under the Gensia Sicor Revised Case
ranged from $517 million to $677 million and $474 million to $604 million,
respectively.
CS First Boston also derived a range of present values of certain synergies
that may result from the Stock Exchange using a similar methodology as
described above. CS First Boston discounted the free cash flows for the 1997-
2001 forecast period at a range of 20%-22% and estimated the terminal value by
applying a multiple of 9.0x-11.0x EBIT in year 2001 then discounted it at 20%-
22%. This analysis implied a present value of the synergies ranging from $80
million to $104 million.
BASED ON THE GENSIA SICOR COMPARABLE ACQUISITION ANALYSIS, GENSIA SICOR
COMPARABLE COMPANY ANALYSIS, AND GENSIA SICOR DISCOUNTED CASH FLOW ANALYSIS,
CS FIRST BOSTON DERIVED AN OVERALL REFERENCE RANGE OF ENTERPRISE VALUE AND
EQUITY VALUE OF GENSIA SICOR, EXCLUDING SYNERGIES, OF $385 MILLION TO $582
MILLION AND $342 MILLION TO $509 MILLION, RESPECTIVELY.
Pro Forma Effect on Gensia's Fully Diluted Earnings Per Share.
CS First Boston analyzed the pro forma effect on Gensia's fully diluted
earnings per share from the Stock Exchange based on Gensia Sicor Management
Case for 1997-2000 period. The analysis assumed a purchase price for Rakepoll
Holding of 29.5 million shares of Gensia Common Stock at the closing share
price of $5.00 on November 8, 1996 and the assumption of net debt by Gensia,
included synergies and excluded transactions costs.
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Under the Gensia Sicor Management Case, the Stock Exchange was estimated to be
accretive in 1997 and 1998 and dilutive in 1999 and 2000.
Relative Contribution Analysis
CS First Boston analyzed and compared the respective contribution of
revenue, EBITDA and EBIT of Rakepoll Holding and Gensia for 1996 and 1997
based on the Gensia Management Case and the Rakepoll Holding Conservative
Case, excluding potential synergies. In that analysis, for the year 1996,
Rakepoll Holding was a positive contributor of EBIT and EBITDA while Gensia
was negative, and Rakepoll Holding's sales accounted for 62% of pro forma
Gensia Sicor revenues. In 1997, Rakepoll Holding was estimated to be the sole
generator of positive EBIT and EBITDA and to account for 51% of pro forma
Gensia Sicor revenues.
Terms of engagement. CS First Boston is a nationally recognized investment
banking firm regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. Pursuant to an engagement letter dated May 1, 1995, Gensia engaged
CS First Boston and its affiliates to act as exclusive financial advisor with
respect to the study and implementation of various strategic alternatives for
Gensia, including the Stock Exchange. In connection with services to be
rendered pursuant to the engagement letter, Gensia agreed to pay CS First
Boston a monthly financial advisory fee of $100,000 for the first three months
of service and $75,000 per month thereafter. On October 11, 1996, Gensia and
CS First Boston executed an amendment to the engagement letter, pursuant to
which CS First Boston's monthly financial advisory fee was modified to a
quarterly payment of $100,000 effective retroactive to April 1, 1996 with 50%
of such fee creditable against the restructuring fees described below.
In addition, for its services in connection with the Stock Exchange, CS
First Boston is entitled to receive a fee of $500,000 upon delivery of its
opinion to Gensia and restructuring fees equal to the greater of 1.5% of the
aggregate consideration paid by Gensia pursuant to the Stock Exchange
Agreement or $2.5 million upon the consummation of the Stock Exchange.
Further, CS First Boston is to be reimbursed for out-of-pocket expenses
incurred in connection with the opinion, including the fees and expenses of
its legal counsel and any other advisor retained by CS First Boston. Gensia
agreed to indemnify and hold harmless CS First Boston and certain related
parties from and against certain liabilities, including certain liabilities
under the federal securities laws, in connection with Gensia's engagement of
CS First Boston.
Certain relationships. Pursuant to the engagement letter, CS First Boston
and its affiliates are acting as exclusive financial advisor to Gensia with
respect to the study and implementation of various strategic alternatives. CS
First Boston's engagement may be terminated at any time, with or without
cause, by either CS First Boston or Gensia upon 10 days' prior written notice
thereof to the other party.
INTERESTS OF CERTAIN PERSONS IN THE STOCK EXCHANGE
In considering the recommendation of Gensia's Board of Directors with
respect to the Stock Exchange Agreement, Gensia stockholders should be aware
that certain officers and directors of Gensia (or their affiliates) have
interests in the Stock Exchange that are different from and in addition to the
interests of Gensia's stockholders generally. These interests include, but are
not limited to, the fact that (i) each of the executive officers and directors
of Gensia currently hold options to acquire Gensia Common Stock, which will
become fully vested upon the consummation of the Stock Exchange; and (ii)
Gensia has executed agreements with its officers and certain key employees of
Gensia, including David Hale, Chairman, President and Chief Executive Officer
of Gensia, which provide, among other things, that, in the event of a change
in control, including the Stock Exchange, if consummated, each of such
individuals would be entitled to certain benefits, including salary
continuation and healthcare coverage upon, within a certain period of time,
their resignation for good reason, including, without limitation, changes in
job authority or responsibility or employer's physical location, or
termination of their employment for other than cause or disability. Also, in
November 1996, the Gensia Board of Directors (with David Hale absent) agreed
to forgive, upon consummation of the Stock Exchange, a loan made
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by Gensia to Mr. Hale in April 1995, upon terms to be determined by Gensia's
Compensation Committee. The outstanding principal and interest on such loan
was approximately $150,000. In addition, Gensia and Rakepoll Finance have each
agreed, from and after the date of execution of the Stock Exchange Agreement,
to cause Gensia to (a) maintain and perform in the same manner as prior to the
execution date of the Stock Exchange Agreement Gensia's existing
indemnification provisions with respect to its present and former directors
and officers for acts or omissions or alleged acts or omissions occurring at
or prior to the Closing Date, subject to certain limitations, (b) to provide,
maintain and perform in the same manner as prior to the execution date of the
Stock Exchange Agreement Gensia's existing indemnification provisions with
respect to its present and future directors and officers for acts or omissions
or alleged acts or omissions occurring after the Closing Date, subject to
certain limitations, and (c) maintain for a period of no less than three years
after the Closing Date, directors and officers liability coverage with limits,
terms and conditions no less advantageous than Gensia had in effect as of the
execution date of the Stock Exchange Agreement. The Gensia Board of Directors
was aware of these interests and took these interests into account in
approving the Stock Exchange Agreement and the transactions contemplated
thereby, including the Stock Exchange and the Shareholder's Agreement.
CONDUCT OF BUSINESS AFTER THE STOCK EXCHANGE; BENEFITS AND DETRIMENTS OF THE
STOCK EXCHANGE
Gensia believes the strategic combination of Gensia and Sicor, Sintesis
Lerma and Lemery will create a specialty pharmaceutical company with a major
focus on the worldwide oncology market. Gensia Sicor will have a vertically-
integrated capability which may enable it to compete effectively in the global
market for low-cost, high quality multisource injectable pharmaceutical
products. As part of its international marketing strategy, Gensia Sicor will
seek to introduce pharmaceutical products in countries where these products
are not subject to patent protection prior to the introduction of these
products in the United States or the EU, where the length of patent protection
can be significantly extended by law.
Because of Sicor's capabilities in the production of bulk anti-cancer
products and GLL and Lemery's capabilities to produce finished dosage forms of
anti-cancer pharmaceuticals, Gensia Sicor expects to have one of the broadest
lines of oncology products available worldwide. Due to the difficulty in
producing many of these compounds, Gensia Sicor also expects to be first to
the market with certain of these anti-cancer products and with some products,
to be the only competitor in the United States to the innovator product for an
extended period of time. In addition, because of Gensia Sicor's vertically-
integrated position with anti-cancer products and the difficulty in
manufacturing these products, Gensia expects gross margins from the sale of
these anti-cancer products to be, on average, higher than for many multisource
injectable pharmaceutical products which are less difficult to produce.
Although the Gensia Board of Directors believes that the Stock Exchange
Agreement and the transactions contemplated thereby, including the Stock
Exchange and the Shareholder's Agreement, are fair to, and in the best
interests of, Gensia and its stockholders, there are also potential
disadvantages of the Stock Exchange to be considered. If the Stock Exchange is
consummated, Gensia will issue 29,500,000 new shares of Gensia Common Stock to
Rakepoll Holding which will then represent a significant portion of such
shares outstanding. While the Gensia Board of Directors believes that for at
least the next several years, the combined company will have improved earnings
per share versus what Gensia could attain without the acquisition, there can
be no assurance that any improvement in earnings will, in fact, offset the
dilution caused by the stock issuance. Additionally, under the Gensia Amended
and Restated 1990 Stock Plan ("1990 Stock Plan"), Gensia offers stock options
to selected employees, directors and consultants. Pursuant to their terms,
such options vest in full, with no further service required from the holders
thereof, if more than 30% of the outstanding shares of Gensia Common Stock is
acquired by a person who did not previously own at least 30% of such shares.
If consummated, the Stock Exchange will trigger such provision and cause
unvested options under the 1990 Stock Plan to vest immediately. As of November
30, 1996, the number of shares of Gensia Common Stock subject to the
acceleration of such options under the 1990 Stock Plan is 1,541,474. Further,
pursuant to the Shareholder's Agreement, the Rakepoll Finance designated
directors will have approval rights over certain financings and certain
significant transactions including any acquisition of Gensia Sicor by a third
party. There can be no assurance that these provisions will not have a
negative effect on Gensia Sicor's ability to complete any such financings or
other significant
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transactions. Further, after the completion of the Stock Exchange, Gensia
Sicor will be required to invest significant management time to integrate its
worldwide operations. In addition, certain customers of Sicor may elect not to
continue to purchase bulk drug substances from Sicor because of Sicor's
relationship with GLL. Prior to the completion of the Stock Exchange, Sicor,
Sintesis Lerma and Lemery have not been subject to U.S. Generally Accepted
Accounting Principles or Commission reporting obligations and will incur
additional public company administrative and accounting expense to conform to
these reporting requirements.
CONDUCT OF BUSINESS IF STOCK EXCHANGE IS NOT CONSUMMATED
If the Stock Exchange is not consummated, Gensia would seek to significantly
reduce expenses associated with its operations, including attempting to reduce
to break-even the cash outflows associated with its research activities.
Gensia would attempt to complete additional equity financings at prices likely
to be dilutive to its stockholders and might seek to sell certain of its
assets to continue to operate its business. If sufficient funds were
available, Gensia would focus on its commercial businesses and near-term
product opportunities, including GLL, the LMA, the GenESA System and the
Feedback Controlled Heparin System.
EXCHANGE ACT AND LISTING REQUIREMENTS
Gensia Common Stock is currently registered under the Exchange Act. If the
Stock Exchange is consummated, Gensia, so long as it is subject to Section
13(a) or 15(d) of the Exchange Act, would have an obligation to file annual,
quarterly and other periodic reports with the Commission, which would include
consolidated financial and other information regarding Gensia and its
subsidiaries. Directors, officers and 10% stockholders of Gensia would
continue to be subject to the short-swing profit recovery provisions of
Section 16(b) of the Exchange Act. All other applicable provisions of the
federal and state securities laws would continue to be in effect with respect
to transactions in Gensia equity securities. Gensia Common Stock is listed on
the NNM and Gensia would endeavor to maintain such listing subsequent to the
Stock Exchange, if consummated.
REGULATORY MATTERS
Federal and state antitrust enforcement agencies frequently scrutinize the
legality under the antitrust laws of transactions such as Gensia's acquisition
of Rakepoll Holding pursuant to the Stock Exchange. At any time before or
after Gensia's acquisition of Rakepoll Holding, any such agency could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the Stock Exchange or otherwise
seeking divestiture of substantial assets of Gensia and/or Rakepoll Holding.
Private parties may also bring legal action under the antitrust laws under
certain circumstances.
Based upon an examination of publicly available information relating to the
businesses in which both Gensia and Rakepoll Holding are engaged, Gensia
believes that the Stock Exchange will not violate antitrust laws.
Nevertheless, there can be no assurance that a challenge to the Stock Exchange
on antitrust grounds will not be made or that, if such a challenge is made,
Gensia will prevail. See "The Stock Exchange Agreement--Conditions."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences of the Stock Exchange to a Gensia stockholder. The
summary is based upon the Code, applicable regulations thereunder, and
administrative rulings and judicial authority as of the date hereof. All of
the foregoing are subject to change, possibly with retroactive effect, and any
such change could affect the continuing validity of the discussion. The
discussion does not address the tax consequences that may be relevant to a
particular Gensia stockholder subject to special treatment under certain
United States federal income tax laws, such as dealers in securities, banks,
life insurance companies, tax-exempt organizations and non-U.S. persons. The
discussion does not address any consequences arising under the laws of any
state, locality or foreign jurisdiction. No ruling has been requested from the
Internal Revenue Service with respect to any of the United States federal
income tax consequences of the Stock Exchange.
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The Stock Exchange will not be a taxable event to either Gensia or its
stockholders, and accordingly, no gain or loss will be recognized by Gensia or
its stockholders for United States federal income tax purposes.
Section 382 of the Code imposes limitations on the amount of "pre-change"
losses and deductions (including unrealized losses and deductions attributable
to periods prior to an "ownership change") that may be used to offset "post-
change" taxable income of a corporation which undergoes an ownership change.
Similarly, Section 383 of the Code limits the amount of pre-change tax credits
that may be used to reduce the post-change tax liability of a corporation
which undergoes an ownership change.
Gensia believes that the Stock Exchange, when considered with other previous
transactions and contemplated financings, is likely to result in an ownership
change of Gensia. If such an ownership change occurs, Gensia's ability to
utilize its net operating losses and tax credits to offset future income would
generally be limited to an amount (the "Section 382 limitation") equal to the
value of Gensia's equity immediately prior to such ownership change,
multiplied by the then applicable long-term tax-exempt rate applicable to
ownership changes (currently 5.60% for ownership changes occurring in January
1997). Under current conditions, Gensia's section 382 limitation would be
approximately $12,000,000 per year (based upon the final reported sales price
of Gensia Common Stock on January 10, 1997). Unused annual limitations may be
carried over to later years, and the amount of the limitation may, under
certain circumstances, be increased by the built-in-gains (in excess of built-
in-losses) in assets held by Gensia at the time of the ownership change that
are recognized within the five-year period after the ownership change.
Similarly, Gensia's ability to use its pre-change credits would generally be
limited to an amount sufficient to offset Gensia's tax liability on as much of
its post-change income as would not exceed the Section 382 limitation (after
application of all Section 382 limited net operating losses available). As of
December 31, 1996, Gensia's federal net operating loss carryforwards are
estimated to be approximately $220,000,000 and Gensia's credit carryforwards
are estimated to be approximately $10,000,000.
ACCOUNTING TREATMENT
Under applicable accounting standards, the Stock Exchange will be treated as
a purchase of Rakepoll Holding by Gensia. The estimated total purchase price
of Rakepoll Holding would be approximately $158,000,000 consisting of the
following: (i) 29,500,000 shares of Gensia Common Stock, (ii) $100,000 in
cash, and (iii) $11,000,000 in transaction costs. Gensia is in the process of
allocating the purchase price to the assets acquired and liabilities assumed.
This process will not be complete until after the Closing Date of the Stock
Exchange. However, Gensia management currently estimates that approximately
$109,000,000 will be allocated to goodwill and other intangible assets and
$20,000,000 to in-process technology. This estimate of goodwill takes into
account the estimated value of the assets and liabilities purchased and the
preliminary estimated value of in-process technology acquired.
The value of in-process technology will be charged to expense upon the
completion of the purchase. This charge will be a one-time non-recurring
charge and will have no impact upon future results.
These estimates are preliminary and final numbers could vary significantly
from the amounts stated above.
SOURCE AND AMOUNT OF FEES AND EXPENSES
Approximately $11,000,000 will be required to consummate the Stock Exchange
and to pay related fees and expenses. The Stock Exchange Agreement provides
that upon consummation of the Stock Exchange, Gensia will pay such fees and
expenses. Funds required by Gensia to consummate the Stock Exchange will come
from Gensia's working capital and available cash and may come from the
proceeds of equity or debt offerings or from borrowings under credit
arrangements.
See "The Stock Exchange Agreement--Termination; Effect of Termination" for a
description of certain reimbursement obligations of Gensia and Rakepoll
Holding in the event the Stock Exchange is not consummated.
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EFFECT ON RESEARCH PROGRAMS
Prior to consummation of the Stock Exchange, Gensia shall have eliminated
its net use of cash for ongoing research activities (other than ongoing
property lease related expenses) either (i) as a result of Gensia having
obtained cash or contractually committed payments for such research activities
from third parties in the form of research collaborations or otherwise, or
(ii) by the termination of such research activities; provided, however, that
in any event, Gensia shall be permitted to expend such amounts on research as
are required for Gensia to fulfill its obligations under the Pfizer Agreement.
It is further understood by Gensia and Rakepoll Finance that Gensia will not
borrow money in order to eliminate the net use of cash as described in
subclause (i) above. In the event that such net use of cash has been
eliminated pursuant to subclause (i) above, it is the intent of Gensia and
Rakepoll Finance that, subsequent to the Closing Date, they will use their
best efforts to present to the Board of Directors of Gensia a plan to
effectuate the spinoff of the research activities of Gensia into an
independent company, so long as such spinoff is reasonably feasible. Such
spinoff plan shall include as assets of the company to be spunoff the
$5,000,000 cash contribution contemplated by the funding plan agreed to by
Gensia and Rakepoll Finance and other cash received (and unspent) or to be
received under research collaborations between third parties and Gensia. If
there has been no such spinoff within six months after the Closing Date, any
such research activities not fully paid for by third parties will be
terminated, so that no such research activities will produce losses. If Gensia
terminates such research activities pursuant to clause (ii) above, Gensia
estimates that the costs of eliminating such research activities, including
severance payments and related costs, would be approximately $2,600,000.
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THE STOCK EXCHANGE AGREEMENT
The following is a summary of the material provisions of the Stock Exchange
Agreement, a copy of which is attached as Annex A to the Proxy Statement.
Capitalized terms which are not otherwise defined in this summary have the
meanings set forth in the Stock Exchange Agreement. The following description
of the Stock Exchange Agreement is qualified in its entirety by reference to
the complete text of the Stock Exchange Agreement, which is incorporated
herein by reference. All Gensia stockholders are urged to read Annex A in its
entirety.
THE STOCK EXCHANGE
The Stock Exchange Agreement provides that Gensia will receive from Rakepoll
Finance, in a private placement, all of the outstanding shares of Rakepoll
Holding Common Stock in exchange for (i) 29,500,000 newly issued shares of
Gensia Common Stock and (ii) $100,000 in cash. It is currently anticipated
that the Closing Date will occur shortly after the date of the Special
Meeting, assuming the Stock Exchange Agreement is approved and adopted at such
meeting and all other conditions to the Stock Exchange have been satisfied or
waived.
REPRESENTATIONS, WARRANTIES AND COVENANTS
The Stock Exchange Agreement contains various representations, warranties
and covenants of Gensia and Rakepoll Finance. The representations and
warranties made by either party in the Stock Exchange Agreement shall survive
until the second anniversary of the Closing Date, except that certain
representations and warranties with respect to tax matters shall survive until
the earlier to occur of the expiration of the applicable statute of
limitations or the sixth anniversary of the Closing Date. It is a condition to
each party's obligations under the Stock Exchange Agreement that the other
party's representations and warranties be true and correct in all material
respects on and as of the Closing Date as though made on and as of the Closing
Date (except for representations and warranties made as of a specified date,
which need be true and correct only as of the specified date), except for such
inaccuracies which would not be expected to have in the reasonably foreseeable
future a material adverse effect on the representing party and the
subsidiaries of the representing party, taken as a whole.
Pursuant to the Stock Exchange Agreement, each of Gensia and Rakepoll
Finance has agreed that it (i) shall use its reasonable efforts to take all
action and to do all things necessary, proper or advisable to consummate the
Stock Exchange and the transactions contemplated by the Stock Exchange
Agreement (including, without limitation, using its reasonable efforts to
cause the conditions to the consummation of the Stock Exchange for which it is
responsible to be satisfied as soon as reasonably practicable and to prepare,
execute and deliver such further instruments and take or cause to be taken
such other and further action as any other party to the Stock Exchange
Agreement shall reasonably request); (ii) will, as soon as practicable, and in
any event no later than 10 business days after the date of the Stock Exchange
Agreement, file any Notification and Report Forms and related material
required to be filed by it with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the HSR Act with
respect to the Stock Exchange, will use its reasonable efforts to obtain an
early termination of the applicable waiting period and shall promptly make any
further filings pursuant thereto that may be necessary, proper or advisable;
provided, however, that neither it nor any of its subsidiaries shall be
required under the Stock Exchange Agreement to divest or hold separate any
portion of their business or assets; (iii) shall use its reasonable efforts to
take any additional action that may be necessary, proper or advisable in
connection with any other notices to, filings with, and authorizations,
consents and approvals of any Governmental Authority (as defined in the Stock
Exchange Agreement) that it may be required to give, make or obtain; (iv)
shall use its reasonable efforts so as to ensure that the Stock Exchange does
not constitute a tax-free reorganization under the Code and instead is a
"purchase" within the meaning of Section 338 of the Code so that Gensia will
be permitted to cause a Section 338 election to be made in respect of Rakepoll
Holding; (v) shall, subject to certain conditions, and at all times prior to
the earlier of the Closing Date or termination of the Stock Exchange
Agreement, consult with the other party before issuing any press release with
respect to the Stock Exchange or the transaction contemplated by the Stock
Exchange Agreement
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and shall not issue a press release prior to such consultation; (vi) shall,
from and after the date of the Stock Exchange Agreement until the Closing Date
(or the termination of the Stock Exchange Agreement), upon the reasonable
request of the other party, permit representatives of the other party to have
appropriate access at all reasonable times to the other's premises,
properties, books, records, contracts, tax records, documents, customers and
suppliers, subject to certain limitations and confidentiality provisions; and
(vii) shall, during the period from the date of the Stock Exchange Agreement
to the Closing Date, with respect to itself and each of its subsidiaries,
conduct operations in the ordinary course consistent with past practice except
with the prior written consent of the other party or as expressly contemplated
by the Stock Exchange Agreement and the transactions contemplated thereby and
shall use its reasonable efforts to maintain and preserve its business
organization and its material rights and franchises, retain the services of
its officers and key employees and maintain relationships with customers,
suppliers, lessees, licensees and other third parties to the end that their
goodwill and ongoing business shall not be impaired in any material respect.
Each of Gensia and Rakepoll Finance have also agreed that they intend that
Gensia shall contribute to its subsidiary, Automedics Development, Inc.
("Automedics") the assets (tangible and intangible), licenses, contracts,
intellectual property and other associated rights related to the Laryngeal
Mask Airway products, the Brevibloc product, the distribution rights related
to the GenESA System, the Heparin closed loop drug delivery system and any
medical device products in-licensed by Gensia between the date of the Stock
Exchange Agreement and the Closing Date (Gensia shall endeavor to obtain all
necessary consents to permit such asset contributions to Automedics and, after
consultation with Rakepoll Finance, shall be permitted to sell or grant equity
interests in Automedics to facilitate obtaining the necessary consents to
permit such asset contributions and to obtain financing for Automedics.
Additionally, Gensia, after consultation with Rakepoll Finance, shall
determine who is to staff and operate Automedics).
Each of Gensia and Rakepoll Finance further covenant that, during the period
from the date of the Stock Exchange Agreement to the Closing Date, neither
party will, subject to certain exceptions, including the consent of the other
party, (i) (a) adjust, split, combine or reclassify its capital stock, (b)
make, declare or pay any dividend, except for the payment of dividends on
outstanding shares of Convertible Preferred Stock, and except for the spinoff
of Gensia research assets as contemplated by the Stock Exchange Agreement, or
distribution on, or directly or indirectly redeem, purchase or otherwise
acquire, any shares of capital stock or any securities or obligations
convertible into or exchangeable for any shares of capital stock, (c) grant
any person any right or option to acquire any shares of capital stock except
pursuant to Gensia Stock Plans existing on the date of the Stock Exchange
Agreement consistent with past practice, (d) issue, deliver or sell or agree
to issue, deliver or sell any additional shares of capital stock or any
securities or obligations convertible into or exchangeable or exercisable for
any shares of its capital stock or such securities except pursuant to
preferred stock, options, warrants or other agreements or instruments
outstanding on the date of the Stock Exchange Agreement, or (e) enter into any
agreement, understanding or arrangement with respect to the sale or voting of
capital stock; (ii) sell, transfer, lease, pledge, mortgage, encumber or
otherwise dispose of any property or asset thereof or of any of its
subsidiaries other than sales or leases of inventory or licensing of
Intellectual Property thereof or of any of its subsidiaries made in the
ordinary course of business consistent with past practice; (iii) make or
propose any changes in the charter documents thereof or of any of its
subsidiaries; (iv) merge or consolidate with any other person or acquire a
material amount of assets or capital stock of any other person; (v) incur,
create, assume or otherwise become liable for indebtedness in excess of U.S.
$250,000 for borrowed money or assume, guarantee, endorse or otherwise as an
accommodation become responsible or liable for obligations in excess of U.S.
$250,000 of any other individual, corporation or other entity; (vi) create any
subsidiaries (other than Automedics and to facilitate the spinoff of the
Gensia research assets); (vii) enter into or modify any employment, severance,
termination or similar agreements or arrangements with, or grant or announce
any bonuses, salary increases, severance or termination pay to, any officer or
director or employee thereof or of any of its subsidiaries other than salary,
stock or option grants, bonuses and benefits, increases granted in the
ordinary course of business consistent with past practices and established
plans made known to the other party prior to the date of the Stock Exchange
Agreement, or otherwise increase the compensation or benefits provided to any
officer or director except as may be required by Applicable Law (as defined in
the Stock Exchange Agreement) or a binding written contract in effect on the
date of the Stock Exchange Agreement or enter into any new consulting
agreements with a duration of greater than twelve months or compensation of
greater than U.S. $100,000; (viii) change any
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method or principle of accounting in a manner that is inconsistent with past
practice except as may be required to meet the requirements of United States
securities laws and United States Generally Accepted Accounting Principles;
(ix) settle any Actions (as defined in the Stock Exchange Agreement), whether
now pending or hereafter made or brought involving an amount in excess of U.S.
$200,000 affecting it or any of its subsidiaries; (x) modify, amend or
terminate, or waive, release or assign any material rights or claims with
respect to, certain contracts set forth in its disclosure schedule to the
Stock Exchange Agreement, or any other material contract to which it or any of
its subsidiaries is a party if such modification, amendment, termination,
waiver, release or assignment would have a material adverse effect on it and
its subsidiaries taken as a whole; (xi) incur or commit to any capital
expenditures, obligations or liabilities in respect thereof which in the
aggregate exceed or would exceed U.S. $250,000 unless otherwise disclosed on
its disclosure schedule to the Stock Exchange Agreement; (xii) pay (or agree
to become obligated to pay) any stock exchange fees in excess of the amount
set forth in its disclosure schedule to the Stock Exchange Agreement other
than any excess amounts which are immaterial in the aggregate incurred in
connection with and in furtherance of consummation of the transactions
contemplated by the Stock Exchange Agreement; (xiii) take any action to exempt
or make not subject to any takeover law or law that purports to limit or
restrict business combinations or the ability to acquire or vote shares by any
person or entity (other than as contemplated in the Stock Exchange Agreement)
or any action taken thereby, which person, entity or action would have
otherwise been subject to the restrictive provisions thereof and not exempt
therefrom; (xiv) take any action that could reasonably be expected to result
in its representations and warranties set forth in the Stock Exchange
Agreement becoming false or inaccurate; (xv) permit or cause any subsidiary or
affiliate thereof to do any of the foregoing or agree or commit to do any of
the foregoing; or (xvi) agree in writing or otherwise to take any of the
foregoing actions.
In addition, each of Gensia and Rakepoll Finance also covenant that (i) none
of the information provided by it for inclusion in the Proxy Statement and
form of proxies to be filed with the Commission by Gensia under the Exchange
Act relating to the vote of the Gensia stockholders with respect to the Stock
Exchange at the date of mailing the Proxy Statement will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading and (ii) it
shall cause Gensia (a) to maintain and perform in the same manner as prior to
the date of the Stock Exchange Agreement Gensia's existing indemnification
provisions with respect to present and former directors and officers of Gensia
for all losses, claims, damages, expenses or liabilities arising out of
actions or omissions or alleged actions or omissions occurring at or prior to
the Closing Date, subject to certain limitations, (b) to provide, maintain and
perform in the same manner as prior to the date of the Stock Exchange
Agreement Gensia's existing indemnification provisions with respect to present
and future directors and officers of Gensia for all losses, claims, damages,
expenses or liabilities arising out of actions or omissions or alleged actions
or omissions occurring after the Closing Date, subject to certain limitations,
and (c) to maintain for a period of no less than three years after the Closing
Date, directors and officers liability coverage, with limits, terms and
conditions no less advantageous than in effect on the date of the Stock
Exchange Agreement.
Gensia further covenants in the Stock Exchange Agreement (i) to take all
action (including causing the Gensia Board to take certain action) in
accordance with the federal securities laws, the NASD Rules, the Delaware
General Corporation Law including, without limitation, Section 203 thereof,
and the Gensia Certificate of Incorporation and Bylaws, as amended and
restated, necessary to obtain the consent and approval of Gensia stockholders
with respect to the authorization of the issuance of Gensia Common Stock in
the Stock Exchange and the transactions contemplated by the Stock Exchange
Agreement; (ii) to, as soon as is reasonably practicable, prepare and file the
Proxy Statement with the Commission on a confidential basis and use all
reasonable efforts to mail at the earliest practicable date to Gensia
stockholders the Proxy Statement, which shall include all information required
under Applicable Law to be furnished to Gensia stockholders in connection with
the Stock Exchange and the transactions contemplated thereby (If at any time
prior to the Closing Date any information pertaining to Gensia or any
subsidiary thereof contained in or omitted from the Proxy Statement makes such
statements contained in the Proxy Statement false or misleading, Gensia shall
promptly inform Rakepoll Finance and take such action necessary to make such
statements contained in the Proxy Statement not false and
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misleading and shall also take such other reasonable actions (other than
qualifying to do business in any jurisdiction in which it is not so qualified)
required to be taken under any applicable state securities laws in connection
with the issuance of Gensia Common Stock in the Stock Exchange); (iii) to,
with respect to itself and each of its subsidiaries, use reasonable commercial
efforts to preserve its ownership rights and those of its subsidiaries to
their Intellectual Property (as defined in the Stock Exchange Agreement) free
and clear of any liens, claims or encumbrances and shall use reasonable
commercial efforts to assert, contest and prosecute any infringement of any
issued foreign or domestic patent, trademark, service mark, trade name or
copyright that forms a part of such Intellectual Property or any
misappropriation or disclosure of any trade secret, confidential information
or know-how that forms a part of such Intellectual Property consistent with
its past practices and those of each of its subsidiaries; (iv) during the term
of the Stock Exchange Agreement, to not, nor to authorize or permit any
subsidiary or affiliate thereof or any of its or their respective directors,
officers, employees, agents or representatives to, directly or indirectly,
solicit, initiate, encourage, facilitate, or accept or furnish or disclose
non-public information in furtherance of, any Competing Transaction (as
defined in the Stock Exchange Agreement), or negotiate, explore or otherwise
engage in discussions with any person (other than Rakepoll Finance, or its
directors, officers, employees, agents and representatives) with respect to
any Competing Transaction or enter into any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to consummate the
Stock Exchange or any other transactions contemplated by the Stock Exchange
Agreement; provided that it may furnish information to, and negotiate or
otherwise engage in discussions (a) in connection with financings contemplated
by the Stock Exchange Agreement and associated documents provided, that prior
to the furnishing to prospective investors of any such information in respect
of such financing, the identities of such prospective investors are made
available to Rakepoll Finance and the prior written consent of Rakepoll
Finance is obtained as to the furnishing of such information to each such
prospective investor, which consent shall not be unreasonably withheld, and
(b) with any bona fide party who delivers an unsolicited, written proposal for
a Competing Transaction if and so long as (x) the Board of Directors of Gensia
determines in good faith by a majority vote of its disinterested directors
that failing to take such action would constitute a breach of the fiduciary
duties of the Gensia Board and (y) such a proposal is, based upon the advice
of CS First Boston, more favorable to Gensia's stockholders from a financial
point of view than the Stock Exchange (In the case of any proposal meeting the
requirements of clauses (x) and (y), the Board of Directors of Gensia may
withdraw its recommendation of the Stock Exchange Agreement and the Stock
Exchange. Gensia and each of its subsidiaries will immediately cease all
existing activities, discussions and negotiations with any parties conducted
before the date of the Stock Exchange Agreement with respect to any of the
foregoing and except for financings contemplated by the Stock Exchange
Agreement and associated documents. From and after the execution of the Stock
Exchange Agreement, Gensia and each of its subsidiaries and affiliates shall
promptly advise Rakepoll Finance in writing of the receipt, directly or
indirectly, of any inquiries, discussions, negotiations, or proposals relating
to a Competing Transaction (including the specific terms thereof) and promptly
furnish to Rakepoll Finance a copy of any such proposal or inquiry in addition
to any information provided to or by any third party relating thereto, and
shall state in such notice whether Gensia has determined that it is required
to take any action with respect thereto. The Gensia Board shall keep Rakepoll
Finance promptly advised of all developments which could reasonably be
expected to culminate in the Board of Directors of Gensia withdrawing,
modifying or amending its recommendation of the Stock Exchange and the
transactions contemplated by the Stock Exchange Agreement.); (v)(a) to cause
Rakepoll Holding to provide benefits to employees of Rakepoll Holding in
accordance with the applicable laws of the jurisdictions in which such
employees are employed and (b) to provide for the participation of certain
specified employees of Rakepoll Holding in the Gensia stock option plan as of
the Closing Date on substantially the same terms and conditions as similarly
situated employees of Gensia; (vi) to give prompt notice to Rakepoll Finance
of (a) the occurrence or non-occurrence of any event the occurrence or non-
occurrence of which would cause any Gensia representation or warranty
contained in the Stock Exchange Agreement to be untrue or inaccurate at or
prior to the Closing Date and (b) any material failure thereof or of any
subsidiary thereof to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under the Stock Exchange
Agreement; provided, however, that the delivery of any such notice pursuant to
this clause shall not limit or otherwise affect the remedies available under
the Stock Exchange Agreement to Rakepoll Finance; and (vii) to use reasonable
efforts to maintain the availability of Rule 144 to Rakepoll Finance, provided
that failure to maintain such availability because of a failure of Rakepoll
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Holding or any subsidiary thereof to deliver appropriate information to Gensia
shall not be deemed a breach of this covenant.
Rakepoll Finance further covenants in the Stock Exchange Agreement (i) to,
as soon as reasonably practicable, furnish Gensia with all information
concerning it as may be required for inclusion in the Proxy Statement, to
cooperate with Gensia in the preparation of the Proxy Statement in a timely
fashion and to use all reasonable efforts to assist Gensia in having the Proxy
Statement cleared by the Commission as promptly as practicable (If, at any
time prior to the Closing Date any information pertaining to Rakepoll Finance,
Rakepoll Holding or any subsidiary of Rakepoll Holding contained in or omitted
from the Proxy Statement makes such statements contained in the Proxy
Statement false or misleading, Rakepoll Finance shall promptly so inform
Gensia and provide Gensia with the information necessary to make statements
contained therein not false and misleading and shall use all reasonable
efforts to cooperate with Gensia in the preparation and filing of the Proxy
Statement with the Commission on a confidential basis.); (ii) to use
reasonable commercial efforts, with respect to itself and Rakepoll Holding and
each subsidiary thereof, to preserve the ownership rights of Rakepoll Holding
and its subsidiaries to their Intellectual Property free and clear of any
liens, claims or encumbrances and shall use reasonable commercial efforts to
assert, contest and prosecute any infringement of any issued foreign or
domestic patent, trademark, service mark, trade name or copyright that forms a
part of such Intellectual Property or any misappropriation or disclosure of
any trade secret, confidential information or know-how that forms a part of
such Intellectual Property consistent with past practices of each of Rakepoll
Finance and Rakepoll Holding and each subsidiary thereof; (iii) during the
term of the Stock Exchange Agreement, to not, nor to authorize or permit
Rakepoll Holding or any subsidiary or affiliate thereof or any of its or their
respective directors, officers, employees, agents or representatives to,
directly or indirectly, solicit, initiate, encourage, facilitate, or accept or
furnish or disclose non-public information in furtherance of, any inquiries or
the making of any proposal with respect to any Competing Transaction, or
negotiate, explore or otherwise engage in discussions with any person (other
than Gensia, or its directors, officers, employees, agents and
representatives) with respect to any Competing Transaction or enter into any
agreement, arrangement or understanding requiring it to abandon, terminate or
fail to consummate the Stock Exchange or any other transactions contemplated
by the Stock Exchange Agreement (Rakepoll Finance and Rakepoll Holding and
each subsidiary thereof will immediately cease all existing activities,
discussions and negotiations with any parties conducted before the date of the
Stock Exchange Agreement with respect to any of the foregoing except for
financings contemplated by the Stock Exchange Agreement and associated
documents. From and after the execution of the Stock Exchange Agreement,
Rakepoll Finance and Rakepoll Holding and each subsidiary thereof and
affiliates shall promptly advise Gensia in writing of the receipt, directly or
indirectly, of any inquiries, discussions, negotiations, or proposals relating
to a Competing Transaction (including the specific terms thereof) and promptly
furnish to Gensia a copy of any such proposal or inquiry in addition to any
information provided to or by any third party relating thereto.); (iv) to give
prompt notice to Gensia of (a) the occurrence or non-occurrence of any event
the occurrence or non-occurrence of which would cause any Rakepoll Finance
representation or warranty contained in the Stock Exchange Agreement to be
untrue or inaccurate at or prior to the Closing Date and (b) any material
failure of Rakepoll Finance or Rakepoll Holding or any subsidiary thereof to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it under the terms of the Stock Exchange Agreement;
provided, however, that the delivery of any such notice pursuant to this
clause shall not limit or otherwise affect the remedies available under the
Stock Exchange Agreement to Gensia; and (v) cause all intercompany and
affiliate debt between and among Rakepoll Finance and Rakepoll Holding and the
subsidiaries and affiliates thereof to be converted and contributed into
equity of Rakepoll Holding prior to the Closing Date.
CONDITIONS
The obligations of Gensia and Rakepoll Finance to complete the Stock
Exchange are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions: (i) no temporary restraining order,
preliminary or permanent injunction or other order or decree which prevents
the consummation of the Stock Exchange shall have been issued and remain in
effect, and no statute, rule or regulation shall have been enacted by any
Governmental Authority which prevents the consummation of the Stock Exchange;
provided,
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however, that the parties shall use their reasonable best efforts to cause any
such decree, ruling, injunction or other order to be vacated or lifted; (ii)
all waiting periods (and any extensions thereof) applicable to the
consummation of the Stock Exchange under the HSR Act and applicable Mexican
law shall have expired or been terminated and the consummation of the
transactions contemplated by the Stock Exchange Agreement shall be permitted
thereunder; (iii) the issuance of the Gensia Common Stock to be issued in the
Stock Exchange and the other transactions contemplated by the Stock Exchange
Agreement shall have been approved by the Gensia stockholders in the manner
required by any Applicable Law; (iv) the Commission shall have approved the
Proxy Statement and, on the Closing Date, no stop order or similar restraining
order shall have been threatened by the Commission or entered by the
Commission or any state securities administrator prohibiting the Stock
Exchange; (v) no Action shall be instituted by any Governmental Authority,
including under the HSR Act or the Exon-Florio Amendment, which seeks to
prevent consummation of the Stock Exchange or seeking material damages in
connection with the transactions contemplated by the Stock Exchange Agreement
which continues to be outstanding; provided, however, that the parties shall
use their reasonable best efforts to cause any such decree, ruling, injunction
or other order to be vacated or lifted; and (vi) the Shareholder's Agreement
shall be in full force and effect and the appointment of directors
contemplated therein shall have been made in accordance therewith.
The obligations of Rakepoll Finance to consummate the Stock Exchange and the
transactions contemplated by the Stock Exchange Agreement are subject to
satisfaction or waiver on or prior to the Closing Date of the following
additional conditions: (i) the representations and warranties of Gensia set
forth in the Stock Exchange Agreement shall be true and correct in all
material respects on the date of the Stock Exchange Agreement and on and as of
the Closing Date as though made on and as of the Closing Date (except for
representations and warranties made as of a specified date, which need be true
and correct only as of the specified date), except for such inaccuracies which
have not had and would not reasonably be expected to have in the reasonably
foreseeable future a material adverse effect on Gensia and its subsidiaries
taken as a whole; (ii) Gensia shall have performed in all material respects
each obligation and agreement and shall have complied in all material respects
with each covenant to be performed and complied with by it under the Stock
Exchange Agreement at or prior to the Closing Date; (iii) Gensia shall have
furnished Rakepoll Finance with a certificate dated the Closing Date signed on
behalf of it by its Chairman, President or any Vice President to the effect
that certain conditions set forth in the Stock Exchange Agreement have been
satisfied; (iv) Rakepoll Finance shall have received the legal opinion, dated
the Closing Date, of Pillsbury Madison & Sutro LLP, counsel to Gensia,
substantially in the form attached to the Stock Exchange Agreement; (v) the
Gensia Common Stock to be issued in the Stock Exchange and the transactions
contemplated by the Stock Exchange Agreement shall have been authorized for
inclusion on Nasdaq, subject to official notice of issuance; (vi) Gensia shall
have paid, or caused to be paid, all dividends owing in connection with any
Gensia preferred stock, commencing with the dividend payment due as of
September 1, 1996; (vii) Gensia shall have filed, or caused to be filed, all
amendments to its Certificate of Incorporation and Bylaws as contemplated by,
and necessary to effectuate, the Stock Exchange Agreement and the
Shareholder's Agreement; and (viii) prior to consummation of the Stock
Exchange, Gensia shall have eliminated its net use of cash for ongoing
research activities (other than ongoing property lease related expenses)
either (a) as a result of Gensia having obtained cash or contractually
committed payments for such research activities from third parties in the form
of research collaborations or otherwise, or (b) by the termination of such
research activities; provided, however, that in any event, Gensia shall be
permitted to expend such amounts on research as are required for Gensia to
fulfill its obligations under the Pfizer Agreement. It is further understood
by Gensia and Rakepoll Finance that Gensia will not borrow money in order to
eliminate the net use of cash as described in subclause viii(a) above. In the
event that such net use of cash has been eliminated pursuant to subclause
viii(a) above, it is the intent of Gensia and Rakepoll Finance that,
subsequent to the Closing Date, they will use their best efforts to present to
the Board of Directors of Gensia a plan to effectuate the spinoff of the
research activities of Gensia into an independent company, so long as such
spinoff is reasonably feasible. Such spinoff plan shall include as assets of
the company to be spunoff the $5,000,000 cash contribution contemplated by the
funding plan agreed to by Gensia and Rakepoll Finance and other cash received
(and unspent) or to be received under research collaborations between third
parties and Gensia. If there has been no such spinoff within six months after
the Closing Date, any such research activities not fully paid for by third
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parties will be terminated, so that no such research activities will produce
losses. If Gensia terminates such research activities pursuant to clause
viii(b) above, Gensia estimates that the costs of eliminating such research
activities, including severance payments and related costs, would be
approximately $2,600,000. See "Stock Exchange--Effect on Research Programs."
The obligations of Gensia to consummate the Stock Exchange and the
transactions contemplated by the Stock Exchange Agreement are further subject
to the satisfaction or waiver on or prior to the Closing Date of the following
additional conditions: (i) the representations and warranties of Rakepoll
Finance set forth in the Stock Exchange Agreement shall be true and correct in
all material respects on the date of the Stock Exchange Agreement and on and
as of the Closing Date as though made on and as of the Closing Date (except
for representations and warranties made as of a specified date, which need be
true and correct only as of the specified date), except for such inaccuracies
which have not had and would not reasonably be expected to have in the
reasonably foreseeable future a material adverse effect on Rakepoll Holding
and its subsidiaries, taken as a whole; (ii) Rakepoll Finance shall have
performed in all material respects each obligation and agreement and shall
have complied in all material respects with each covenant to be performed and
complied with by it under the Stock Exchange Agreement at or prior to the
Closing Date; (iii) Rakepoll Finance shall have furnished Gensia with a
certificate dated the Closing Date signed on its behalf by its Chairman,
President or any Vice President to the effect that certain conditions set
forth in the Stock Exchange Agreement have been satisfied; and (iv) Gensia
shall have received the legal opinions, dated the Closing Date, of Simpson
Thacher & Bartlett and certain other counsel to Rakepoll Finance, in
substantially the forms attached to the Stock Exchange Agreement.
TERMINATION; EFFECT OF TERMINATION
The Stock Exchange Agreement may be terminated at any time prior to the
Closing Date, whether before or after approval and adoption of the Stock
Exchange Agreement by the Gensia stockholders (i) by mutual consent of Gensia
and Rakepoll Finance; (ii) by either Gensia or Rakepoll Finance if any
permanent injunction or other order, decree or ruling of a court of competent
jurisdiction or other competent Governmental Authority preventing the
consummation of the Stock Exchange shall have become final and nonappealable;
(iii) by either Gensia or Rakepoll Finance if the Stock Exchange shall not
have been consummated before June 30, 1997, unless extended by the Boards of
Directors of both Gensia and Rakepoll Finance (provided that the right to
terminate the Stock Exchange Agreement pursuant to this clause (iii) shall not
be available to any party whose failure or whose affiliate's failure to
perform any material covenant or obligation under the Stock Exchange Agreement
has been the cause of or resulted in the failure of the Stock Exchange to
occur on or before such date); (iv) by Gensia or Rakepoll Finance if the
authorization of the Gensia stockholders with respect to the issuance of
Gensia Common Stock in the Stock Exchange shall not have been obtained by
reason of the failure to obtain the required vote at a meeting held for such
purpose and any adjournment thereof; (v) by Rakepoll Finance if prior to the
Closing Date (a) any representation or warranty on the part of Gensia or any
subsidiary thereof contained in the Stock Exchange Agreement is incorrect in
any material respect and which has a material adverse effect or which
materially adversely affects the ability of the parties to consummate the
transactions contemplated by the Stock Exchange Agreement, (b) there shall
have been a breach of any covenant or agreement on the part of Gensia or any
subsidiary thereof contained in the Stock Exchange Agreement which has
material adverse effect or which materially adversely affects the ability of
the parties to consummate the transactions contemplated by the Stock Exchange
Agreement, which breach, in the case of foregoing clauses (v)(a) and (b),
shall not have been cured prior to 30 days following notice thereof, (c)
Gensia's Board of Directors shall have withdrawn or modified (including by
amendment of or supplement to the Proxy Statement) in a manner adverse to
Rakepoll Finance its approval or recommendation of the Stock Exchange
Agreement or the transactions contemplated thereby or shall have recommended a
Third Party Acquisition (as defined below), or shall have resolved to effect
any of the foregoing or (d) any person other than Rakepoll Finance or any of
its affiliates shall have become the beneficial owner of more than 15% of the
shares of Gensia Common Stock; and (vi) by Gensia if prior to the Closing Date
(a) any representation or warranty on the part of Rakepoll Finance or any
subsidiary thereof contained in the Stock Exchange Agreement is incorrect in
any material respect and which has a material adverse effect or which
materially adversely affects the ability of the parties to consummate the
transactions contemplated by the Stock
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Exchange Agreement or (b) there shall have been a breach of any covenant or
agreement on the part of Rakepoll Finance or any subsidiary thereof contained
in the Stock Exchange Agreement which has material adverse effect or which
materially adversely affects the ability of the parties to consummate the
transactions contemplated by the Stock Exchange Agreement, which breach, in
the case of foregoing clauses (vi)(a) and (b), shall not have been cured prior
to 30 days following notice thereof.
In the event of the termination of the Stock Exchange Agreement as set forth
above, the Stock Exchange Agreement, except for the provisions of Sections 6.2
(Effect of Termination) and 7.9 (Expenses) thereof, shall become void and have
no effect, without any liability on the part of any party or its directors,
officers or stockholders; provided, however, that nothing in Section 6.2
(Effect of Termination) shall relieve any party to the Stock Exchange
Agreement of liability for a material breach of any provision of the Stock
Exchange Agreement.
The Stock Exchange Agreement further provides that if (i) Rakepoll Finance
terminates the Stock Exchange Agreement pursuant to clause (iv) set forth
above, or (ii) Rakepoll Finance terminates the Stock Exchange Agreement
pursuant to clause (iii) set forth above or (a), (b) or (c) of clause (v) set
forth above and, within twenty-four months thereafter, Gensia enters into an
agreement with respect to a Third Party Acquisition, or a Third Party
Acquisition occurs, then Gensia shall pay to Rakepoll Finance (A) within one
business day following any occurrence contemplated in clause (ii) of this
paragraph or simultaneously with any termination contemplated by clause (i) of
this paragraph, a fee, in cash, of $5 million, provided, however, that Gensia
shall in no event be obligated to pay more than one such fee with respect to
all such occurrences and such termination, and (B) within one business day
after being requested by Rakepoll Finance (accompanied by reasonably detailed
documentation to the extent reasonably requested by Gensia) from time to time,
all of the Rakepoll Finance fees incurred in connection with the proposed
Stock Exchange.
Additionally, the Stock Exchange Agreement provides that if (i) Gensia
terminates the Stock Exchange Agreement pursuant to clause (iv) set forth
above or (ii) Gensia terminates the Stock Exchange Agreement pursuant to
clause (iii) set forth above or (a) or (b) of clause (vi) set forth above and,
within twenty-four months thereafter, Rakepoll Finance enters into an
agreement with respect to a Third Party Acquisition, or a Third Party
Acquisition occurs, then Rakepoll Finance shall pay to Gensia (A) within one
business day following any occurrence contemplated in clause (ii) of this
paragraph or simultaneously with any termination contemplated by clause (i) of
this paragraph, a fee, in cash, of $5 million, provided, however, that
Rakepoll Finance shall in no event be obligated to pay more than one such fee
with respect to all such occurrences and such termination, and (B) within one
business day after being requested by Gensia (accompanied by reasonably
detailed documentation to the extent reasonably requested by Rakepoll Finance)
from time to time, all of the Gensia fees incurred in connection with the
proposed Stock Exchange.
For purposes of the Stock Exchange Agreement, "Third Party Acquisition"
means any of the following events: (i) the acquisition of a party by merger,
tender offer or otherwise by any person other than Rakepoll Finance, Rakepoll
Holding or any affiliate thereof (a "Third Party"); (ii) the acquisition by a
Third Party of 30% or more of the assets of Gensia and its subsidiaries, taken
as a whole; (iii) the acquisition by a Third Party of 15% or more of the
outstanding shares of Gensia Common Stock, directly or indirectly; (iv) the
adoption by Gensia of a plan of liquidation or the declaration or payment of
an extraordinary dividend; (v) the repurchase by Gensia or any of its
subsidiaries of 15% or more of the outstanding shares of Gensia Common Stock;
or (vi) the acquisition by Gensia of a Third Party resulting in the issuance
to such Third Party or its affiliates, directly or indirectly, of 15% or more
of the outstanding shares of Gensia Common Stock.
THE SHAREHOLDER'S AGREEMENT
In connection with the Stock Exchange Agreement, Gensia and Rakepoll Finance
entered into the Shareholder's Agreement concerning the governance of Gensia
after the Closing Date and certain other matters concerning the acquisition
and disposition of Gensia securities by Rakepoll Finance and its affiliates.
The following is a summary of certain material provisions of the Shareholder's
Agreement.
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STANDSTILL; LOCK-UP; ANTI-DILUTION PROVISIONS
Under the terms of the Shareholder's Agreement, for a period of twelve
months after the Closing Date, Rakepoll Finance and its affiliates are
prohibited from directly or indirectly purchasing or otherwise acquiring or
proposing or offering to purchase or otherwise acquiring any Gensia Common
Stock or other securities of Gensia, whether by tender offer, market purchase,
privately negotiated purchase, business combination or otherwise, except (i)
with the consent of a majority of the Independent Directors (as defined
below), (ii) in the event of any issuance by Gensia of any equity securities
not contemplated by the funding plan previously agreed to by the parties or
(iii) under certain circumstances, following (a) the commencement by any third
party of a bona fide tender or exchange offer to purchase in excess of 20% of
the outstanding shares of Gensia Common Stock, (b) a bona fide proposal to
acquire all or substantially all of the assets of Gensia, (c) a bona fide
proposal to enter into any other similar business combination transaction with
Gensia or (d) Gensia's entry into (or announcement of its intention to do so)
a definitive agreement, or an agreement contemplating a definitive agreement,
for any of the transactions described in clauses (iii)(a)-(c) above.
Rakepoll Finance is also prohibited, for a period of twelve months after the
Closing Date, from (i) directly or indirectly, selling, transferring, or
otherwise disposing of any shares of Gensia Common Stock (and from permitting
any of its affiliates to do so) and (ii) selling, transferring or otherwise
disposing of any shares of the capital stock of any subsidiary thereof that
owns shares of Gensia Common Stock, except to an affiliate of Rakepoll
Finance; provided, however, that such affiliate agrees in writing to be bound
by the terms and conditions of the Shareholder's Agreement. The foregoing
restrictions do not apply following the commencement by any third party of a
bona fide tender or exchange offer to purchase in excess of 20% of the
outstanding shares of Gensia Common Stock that the Gensia Board of Directors
either recommends acceptance of, expresses no opinion and remains neutral
towards, or is unable to take a position with respect to.
In addition, Rakepoll Finance is granted certain anti-dilution privileges
pursuant to which Rakepoll Finance may, upon the authorization by Gensia's
Board of Directors of the issuance of equity securities (other than the
issuance of securities to officers, employees or directors of Gensia or its
subsidiaries pursuant to an employee compensation or benefit plan approved by
the Gensia Board of Directors or pursuant to the terms of securities
outstanding on the Closing Date, as set forth in the disclosure schedule to
the Shareholder's Agreement), acquire in the open market as permitted by
applicable law, such number of shares of Gensia Common Stock so that Rakepoll
Finance's percentage equity interest in Gensia after such issuance is equal to
but not greater than its percentage equity interest in Gensia on and as of the
Closing Date (its "Initial Interest").
COMPOSITION OF BOARD OF DIRECTORS
The Shareholder's Agreement further specifies that, effective as of the
Closing Date, Gensia is to have a ten member Board of Directors (to be
expanded to twelve members in the event that holders of Gensia's Convertible
Preferred Stock (other than Rakepoll Finance and its affiliates) in accordance
with the terms of the Convertible Preferred Stock, become entitled to appoint
two directors). At the Closing Date, the Gensia Board will initially consist
of (i) two directors who are executive officers of Gensia and not affiliated
with Rakepoll Finance ("Management Directors"), (ii) three directors
designated by Rakepoll Finance ("Investor Directors") and (iii) five
independent directors to be designated jointly by the Management Directors and
the Investor Directors (the "Independent Directors"). The initial directors
will be David Hale and Patrick Walsh as Management Directors; Carlo Salvi,
Michael Cannon and an Investor Director to be named in the future as Investor
Directors; and James Blair, Jerry Benjamin, Herbert Conrad, Steven Mendell and
L. John Wilkerson as the five Independent Directors. Messrs. Blair, Benjamin,
Conrad, Mendell and Wilkerson are currently Gensia directors. Management
Directors, Investor Directors and Independent Directors will be apportioned,
to the extent possible, equally among Gensia's three classes of directors.
During the term of the Shareholder's Agreement, the number of Investor
Directors that Rakepoll Finance will be entitled to designate will vary
according to its ownership interest in Gensia as a percentage of its Initial
Interest. If Rakepoll Finance's ownership interest in Gensia is (i) 50% or
above of its Initial Interest, Rakepoll Finance shall have the right to
designate for nomination and approval three Investor Directors; the Management
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Directors shall have the right to designate for nomination and approval two
Management Directors; and the five Independent Directors shall be designated
for nomination and approval jointly by the Management Directors and the
Investor Directors; (ii) 25% or above but less than 50% of its Initial
Interest, Rakepoll Finance shall have the right to designate for nomination
and approval two Investor Directors; and there shall be four Independent
Directors who shall be designated for nomination and approval jointly by the
Management Directors and the Investor Directors; (iii) 10% or above but less
than 25% of its Initial Interest, Rakepoll Finance shall have the right to
designate for nomination and approval one Investor Director; and there shall
be three Independent Directors who shall be designated for nomination and
approval jointly by the Management Directors and the Investor Director. Once
Rakepoll Finance's interest has fallen below 10% of its Initial Interest,
Rakepoll Finance shall have no further right to designate any Investor
Directors or Independent Directors and the Management Directors shall have no
right to designate any Management Directors or Independent Directors.
Additionally, if, on or prior to the Closing Date, the holders of Gensia
Convertible Preferred Stock (other than Rakepoll Finance and its affiliates)
become entitled to appoint two directors in accordance with the terms of the
Convertible Preferred Stock, then (x) the Gensia Board of Directors shall be
increased from 10 to 12 Gensia directors, and (y) Rakepoll Finance shall
thereafter be entitled to designate an additional Investor Director and one
Independent Director shall resign so that up to 4 of the 12 directors will be
Investor Directors.
If at any time Rakepoll Finance's ownership interest in Gensia Sicor should
be reduced with the result that, in accordance with the provisions described
in the foregoing paragraph, the number of directors which Rakepoll Finance is
entitled to designate is reduced, then such entitlement reduction shall
extinguish any right Rakepoll Finance might have under the Shareholder's
Agreement to designate a greater number of directors, notwithstanding any
increase in Rakepoll Finance's ownership in Gensia Sicor which may occur after
such entitlement reduction.
The Shareholder's Agreement further specifies that vacancies on the Gensia
Board of Directors which result from a reduction in Rakepoll Finance's and the
Management Directors' entitlement to designate directors in accordance the
terms of the Shareholder's Agreement shall be filled by election by the
stockholders at large of Gensia Sicor in accordance with applicable law,
Gensia Sicor's Certificate of Incorporation and its Bylaws.
The Shareholder's Agreement further grants to Rakepoll Finance the right to
initially designate a majority of the directors and the senior managers of
each of Sicor, Sintesis Lerma and Lemery, and grants to the Investor Directors
the right to nominate for the consideration of the Gensia Board of Directors
replacements for all directors and senior managers so designated. The
Management Directors are entitled to designate the balance of the directors
and senior managers of each such company. Each such director and senior
manager shall serve at the pleasure of the Board of Directors of Gensia Sicor.
Additionally, with respect to Gensia Laboratories, the Shareholder's Agreement
names the members of its initial Board of Directors and provides that Rakepoll
Finance shall have the right to designate one of the directors thereof.
MANAGEMENT OF THE COMPANY
The Shareholder's Agreement provides that, at the Closing Date (i) an
Independent Director shall serve as the non-executive Chairman of the Gensia
Board of Directors upon the mutual agreement of the Investor Directors and
Management Directors, (ii) David F. Hale shall serve as President and Chief
Executive Officer of Gensia and (iii) Michael D. Cannon shall serve as
Executive Vice President of Gensia. The Shareholder's Agreement further
provides for the creation of an Executive Operating Committee, which shall be
a management committee and not a committee of the Board of Directors of
Gensia, consisting of Carlo Salvi (who shall serve as the Executive Operating
Committee's Chairman), the President and Chief Executive Officer of Gensia,
the President of Gensia Laboratories and the Executive Vice President of
Gensia.
APPROVAL OF CERTAIN ACTIONS BY INVESTOR DIRECTORS
At all times that Rakepoll Finance's ownership interest in Gensia is greater
than or equal to 50% of its Initial Interest, the approval of the Investor
Directors shall be required for the Gensia Board of Directors to approve
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and authorize any of the following actions, including: (i) the entry by Gensia
or any of its subsidiaries into any merger or consolidation, or the
acquisition by Gensia or any of its subsidiaries of any business or assets
that would constitute a substantial part of the business or assets of Gensia,
whether such acquisition be by merger or consolidation or the purchase or sale
of stock or assets or otherwise, (ii) the sale, lease, pledge, grant of a
security interest in, license, transfer or other disposal by Gensia or any of
its subsidiaries of all or substantially all of the business or assets of
Gensia, (iii) the dissolution or adoption of a plan of liquidation of Gensia,
or the commencement by Gensia or any significant subsidiary thereof, as the
case may be, of any action (a) seeking protection from its creditors via an
order of relief, adjudication of bankruptcy or insolvency, reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief, (b) seeking appointment of a receiver, trustee, custodian or
other similar official for all or any substantial part of its assets or (c)
making a general assignment for the benefit of its creditors, (iv) the payment
of an extraordinary dividend by Gensia, (v) the issuance of debt securities or
equity securities by Gensia such that the principal amount of debt securities
or the number of shares of equity securities, as the case may be, outstanding
subsequent to such issuance is equal to or greater than 110% of the aggregate
principal amount of debt securities or aggregate number of equity securities,
as the case may be, contemplated to be outstanding at such time under the
funding plan, and (vi) the issuance of any debt or equity securities or other
capital stock of any of its subsidiaries, except the issuance of shares of
capital stock of Gensia or options to purchase such shares pursuant to any
employee compensation or benefit plan approved by the Gensia Board of
Directors or pursuant to the terms of securities outstanding on the Closing
Date, as set forth in the disclosure schedule to the Shareholder's Agreement.
Further, if Gensia enters into governance arrangements with respect to
Automedics which are acceptable to the Investor Directors, then Automedics
will not constitute a subsidiary for purposes of the foregoing sentence.
REGISTRATION RIGHTS
The Shareholder's Agreement provides certain registration rights, pursuant
to which the holders of Gensia Common Stock subject to the Shareholder's
Agreement (the "Initiating Holders") may, at any time on or after the first
anniversary of the Closing Date, request in a written notice that Gensia file
a registration statement under the Securities Act covering the registration of
the Registrable Securities (generally defined in the Shareholder's Agreement
to include Gensia Common Stock and securities convertible into Gensia Common
Stock acquired by Rakepoll Finance, in accordance with the terms of the
Shareholder's Agreement or the Stock Exchange Agreement) held by such
Initiating Holders constituting in the aggregate at least 5% of the aggregate
Gensia Common Stock outstanding immediately upon consummation of the
transaction contemplated by the Stock Exchange Agreement. Following the
receipt of any such notice, Gensia is required (i) within ten days, to notify
all other holders of Gensia Common Stock of such request in writing, and (ii)
thereupon, to, as expeditiously as possible, use its best efforts to cause to
be registered under the Securities Act all Registrable Securities that the
Initiating Holders and such other holders have, within ten days after Gensia
has given such notice, requested be registered in accordance with the manner
of disposition specified in such notice by the Initiating Holders; provided
that Gensia shall not be obligated to file a registration statement relating
to such registration request if (A) two registration statements relating to
registration requests as described above have previously been filed and
declared effective by the Commission in the calendar year in which such
registration request is made, or (B) five registration statements relating to
registration requests as described above have already been filed and declared
effective by the Commission. Gensia will be generally responsible for expenses
incurred in connection with such registrations effected pursuant to the
Shareholder's Agreement.
If the Gensia Board of Directors, in its good faith judgment, determines
that any registration of Registrable Securities should not be made or
continued due to a valid need not to disclose confidential information or
because it would materially interfere with any material financing,
acquisition, corporate reorganization or merger or other transaction involving
Gensia, Gensia may postpone filing a registration statement relating to a
request for registration as described above for a period of up to 90 days by
giving prompt written notice thereof to any holder of Registrable Securities
included or to be included in such registration statement.
REPRESENTATIONS AND WARRANTIES
The Shareholder's Agreement contains various representations, warranties and
covenants of Gensia and Rakepoll Finance. In particular, each of Gensia and
Rakepoll Finance represent and warrant that as of the date
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of the Shareholder's Agreement and as of the Closing Date (i) that it has all
necessary power and authority to execute and deliver the Shareholder's
Agreement, to perform its obligations thereunder and to consummate the
transactions contemplated thereby, that its execution and delivery of the
Shareholder's Agreement and the consummation of the transactions contemplated
thereby have been duly and validly authorized by all necessary corporate
action and no other corporate proceedings on its part are necessary to
authorize the Shareholder's Agreement or to consummate the transactions
contemplated thereby, and that the Shareholder's Agreement has been duly and
validly executed and delivered by it and, assuming the due authorization,
execution and delivery by the other party, constitutes its legal, valid and
binding obligations; (ii) that its execution and delivery of the Shareholder's
Agreement do not, and the performance of the Shareholder's Agreement by it
will not, (a) conflict with or violate the certificate of incorporation or by-
laws thereof or of any of its subsidiaries, (b) conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to it or any of
its subsidiaries or by which any property or asset thereof or of any of its
subsidiaries is bound or affected, or (c) result in any breach of or
constitute a default (or an event which with notice or lapse or time or both
would become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a
lien or other encumbrance on any property or asset thereof or of any of its
subsidiaries pursuant to any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which it or any of its subsidiaries is a party or by which it or any of its
subsidiaries or any property or assets thereof or of any of its subsidiaries
is bound or affected, except for any such breaches, defaults or other
occurrences which would not, individually or in the aggregate, have a material
adverse effect on the results of operations, financial condition or business
thereof and of its subsidiaries, taken as a whole; or (iii) that its execution
and delivery of the Shareholder's Agreement do not, and its performance of the
Shareholder's Agreement will not, require any consent, approval, authorization
or permit of, or filing by it with, or notification to, any governmental or
regulatory authority, domestic or foreign, except for (a) applicable
requirements, if any, of the Securities Act, the Exchange Act, state blue sky
and takeover laws, (b) the HSR Act, (c) the Exon Florio Amendment, and (d)
where failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, would not prevent or delay it from
performing its obligations under the Shareholder's Agreement and would not,
individually or in the aggregate, have a material adverse effect on the
results of operations, financial condition or business thereof and its
subsidiaries, taken as a whole.
MARKET PRICE AND DIVIDEND INFORMATION
Gensia Common Stock is traded on the NNM under the symbol GNSA. The
following table sets forth, for the calendar periods indicated, the high and
low sales prices per share of the Gensia Common Stock, as reported by the NNM.
As of January 1, 1997, there were approximately 730 holders of record of
Gensia Common Stock.
<TABLE>
<CAPTION>
GENSIA
COMMON STOCK
-------------
HIGH LOW
------ ------
<S> <C> <C>
1995
First Quarter.................................................. $ 5.00 $ 2.56
Second Quarter................................................. 4.63 2.00
Third Quarter.................................................. 6.63 3.25
Fourth Quarter................................................. 5.75 3.75
1996
First Quarter.................................................. $ 6.38 $ 4.38
Second Quarter................................................. 6.00 3.88
Third Quarter.................................................. 5.75 4.56
Fourth Quarter................................................. 5.56 3.88
1997
First Quarter (through January 10, 1997)....................... $ 5.00 $ 4.44
</TABLE>
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Gensia has never paid any cash dividends on Gensia Common Stock. Gensia
presently intends to retain earnings, if any, for the development of its
businesses and does not anticipate paying any cash dividends on Gensia Common
Stock in the foreseeable future. Unless full cumulative dividends are paid on
Gensia's outstanding Convertible Preferred Stock cash dividends may not be
paid or declared and set aside for payment on Gensia Common Stock. Through
November 1996, Gensia has approximately $7,500,000 in undeclared cumulative
dividends on its Convertible Preferred Stock. Gensia did pay quarterly cash
dividends on its Convertible Preferred Stock in September 1996 and December
1996 in the aggregate amount of approximately $3,000,000. Gensia will consider
further payment of dividends on its Convertible Preferred Stock as time goes
by.
On November 12, 1996, the last full day of trading prior to the public
announcement of the execution of the Stock Exchange Agreement, the reported
closing per share sale prices of the Gensia Common Stock on the NNM was
$5.375. On January 10, 1997, the last full day of trading prior to the
printing of the Proxy Statement, the reported closing per share sale price of
the Gensia Common Stock on the NNM was $4 17/32.
Holders of Gensia Common Stock are urged to obtain current market quotations
for the Gensia Common Stock. No assurances can be given as to the future
prices of, or markets for, Gensia Common Stock.
GENSIA
BUSINESS
General
Gensia is a healthcare company focused on the development, manufacture and
marketing of products for acute care in hospital and alternate site markets.
Gensia's commercial businesses include GLL, a manufacturer of multisource
injectable drugs, as well as a proprietary medical products business. GLL is a
specialty pharmaceutical company which develops, manufactures and markets
injectable products with a primary emphasis on oncology, anesthesiology and
other key multisource pharmaceuticals. In addition, GLL provides contract
manufacturing support and services to other pharmaceutical and biotechnology
companies.
Gensia's proprietary medical products business currently markets the LMA
product line, used in airway management, to anesthesiology departments in the
United States. This group also markets Brevibloc, an intravenous
cardiovascular drug, and the GenESA System, a proprietary pharmacologic stress
testing system either directly or through distributors in a number of European
countries. The GenESA System is currently under regulatory review in the
United States, and if approved, would be marketed by the Gensia medical
products sales organization. Gensia is also developing a Feedback Control
Heparin System which is being designed to better control dosing of heparin, a
widely used anticoagulant.
Gensia also has a basic research group involved in four primary areas: pain,
inflammation, diabetes, and cardiovascular disease. Its research program in
pain is being performed pursuant to a collaboration with Pfizer Inc. Gensia is
also in discussions with pharmaceutical companies about a similar
collaboration for its diabetes research program.
GENSIA LABORATORIES
Gensia acquired Gensia Laboratories (previously Kendall McGaw
Pharmaceuticals, a division of Kendall McGaw Laboratories, Inc.) in January
1991 in a strategic move to accelerate Gensia's commercialization efforts and
to provide for manufacturing of Gensia's proprietary products under
development at that time. Since the acquisition, Gensia Laboratories has been
building a multisource injectable business and now markets 25 products and has
31 approved Abbreviated New Drug Applications ("ANDAs") and Abbreviated
Antibiotic Drug Applications ("AADAs"). Gensia Laboratories also has 13 ANDAs
filed with the FDA as well as approximately 45 products under development.
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In furtherance of Gensia's commercialization efforts, Gensia Laboratories
has implemented a strategic plan which includes the following major goals:
. Be the first multisource company to receive approval and bring to market
major injectable drugs coming off-patent
. Establish a major focus on the oncology market
. Focus new product development efforts on injectable drugs with barriers
to entry, such as raw material availability or products which are
difficult to develop or manufacture, which will capitalize on the
significant capability which Gensia Laboratories has in product
development and manufacturing
. Develop and submit 8 to 10 ANDAs each year
. Develop value-added products and drug delivery systems to enhance the
value to users of GLL's products
. Develop broad therapeutic product lines in selected markets (oncology,
anesthesiology and cardiology)
. Establish long-term contract manufacturing agreements
GLL has broad capabilities in the formulation, development and manufacturing
of injectable pharmaceuticals. Since 1991 Gensia has built a sales and
marketing infrastructure which includes 20 sales representatives and five
additional corporate marketing representatives. Gensia Laboratories' sales
representatives cover the major hospital markets in the United States,
focusing their sales calls on hospital pharmacies and alternate site providers
such as oncology clinics and outpatient surgery centers. As collective
purchasing agreements have become increasingly important to healthcare
providers as a means to control costs, the corporate marketing group has grown
and is establishing relationships with hospital group purchasing
organizations, managed care groups and with other large healthcare purchasing
organizations.
In 1995 and 1996, Gensia Laboratories received approvals of five new
injectable multisource drugs: amphotericin B (anti-fungal), fluphenazine
(anti-psychotic) and two oncology products, etoposide in 50 ml glass vials and
in polymer vials and doxorubicin in polymer vials. Gensia believes that the
AADA for doxorubicin, which was approved within nine months from submission,
was the first time an injectable oncolytic agent has ever been approved for
marketing in the United States in a polymer vial. Gensia believes that
providing doxorubicin in this unique, unbreakable packaging offers a number of
advantages for healthcare providers in terms of safety and convenience and the
product has, to date, been well accepted by the medical community. Gensia was
also the first company to receive an ANDA approval on dobutamine and
etoposide, two of the most widely used injectable drugs to go off-patent in
recent years.
Gensia Laboratories manufactures the oncolytic agent etoposide (in glass
vials) in its Irvine facility. Gensia Laboratories expects its oncolytic
product development focus will create product demand that will exceed current
oncolytic manufacturing capacity. As a result, Gensia Laboratories has begun
an expansion program to build out an adjacent manufacturing facility which
will be dedicated to the production of oncology drugs. The proposed timing of
this project is to have the facility inspected and validated during 1997.
Gensia Laboratories also has marketing rights in the United States to three
oncology products (doxorubicin, etoposide and cisplatin) manufactured in
polymer vials by Delta West Pty. Limited, a wholly-owned subsidiary of
Pharmacia & Upjohn. Two of these products, doxorubicin and etoposide, have
received FDA approval.
In addition, product development is continuing for multisource injectable
drugs in anesthesiology and cardiology as well as other selected areas. As
previously stated, GLL currently has 13 ANDAs filed with the FDA and has
approximately 45 products under development. Gensia believes that this
investment in product development at Gensia Laboratories may position GLL for
significant growth in the 1997 to 2000 time frame when a number of major
injectable drugs will come off-patent. There can be no assurance that this
growth will occur.
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Gensia Laboratories is continuing to seek innovative ways to increase sales
of its products and leverage its manufacturing capacity. For example, in
February 1996, an agreement with Ohmeda, Inc. Pharmaceutical Products Division
("Ohmeda") was announced under which Gensia Laboratories will manufacture a
number of primarily anesthesia-related multisource injectable drugs for U.S.
distribution under the Ohmeda label. Gensia Laboratories will also continue to
market these drugs under its own name. With this long term supply agreement,
Gensia is allying with one of the leading companies in anesthesia and critical
care which will offer Gensia's multisource anesthesia products with Ohmeda's
proprietary anesthesia products, resulting in what Gensia believes is a more
attractive product portfolio for group purchasing organizations in the U.S.
market. This program is further enhanced through an Ohmeda alliance with
Baxter Healthcare Corporation I.V. Systems Division. This agreement could
substantially increase the production volume at Gensia Laboratories, although
there can be no assurance that any such increase will occur.
As part of its strategy to develop additional value-added products, in May
1995, Gensia announced a worldwide license agreement with Atrix Laboratories,
Inc. ("Atrix") to develop leuprolide acetate using Atrix's ATRIGEL Drug
Delivery System. This product is expected to compete with TAP Pharmaceuticals,
Inc.'s Lupron Depot(R), a major product used in the treatment of prostate
cancer and endometriosis. If a feasibility study is successfully completed,
Atrix will proceed with development of a dosage form or forms to be evaluated
in human clinical trials. GLL would be responsible for conducting the clinical
trials, scale-up, manufacture, marketing and distribution of commercial
quantities of the product. Gensia will be responsible for funding the
development program at Atrix, will make certain milestone payments and pay a
royalty to Atrix on future sales, if any, of the product.
In September 1996, GLL announced an agreement with Microbix Biosystems, Inc.
for the development, manufacture and sale in the United States of ThromboClear
(urokinase), a drug which is being developed as a generic equivalent to
Abbokinase(R) an existing acute cardiovascular drug widely used in the
treatment of pulmonary embolism and coronary artery thrombosis. If approved
for sale in the United States, Gensia believes ThromboClear would be the first
generic alternative to the innovator product which had 1995 sales of $165
million, according to market research sources.
Another growing source of revenue at Gensia Laboratories is its contract
manufacturing business which manufactures sterile injectable products for
biotechnology and pharmaceutical companies. The contract manufacturing
business experienced significant growth in 1995 and 1996. Gensia believes
additional growth may be attained as a result of the oncology facility planned
for completion in 1997 as discussed above. There can be no assurance, however,
that this growth can be sustained. Gensia Laboratories also manufactures
arbutamine (the drug used in Gensia's proprietary product, the GenESA System)
in prefilled syringes for commercial shipment to Europe, for clinical testing,
and assuming regulatory approval in the United States, for commercial sales in
North America.
PROPRIETARY MEDICAL PRODUCTS
Gensia has developed the GenESA System, a new drug and new device
combination product designed for use in the diagnosis of coronary artery
disease when used in conjunction with electrocardiography ("ECG"),
echocardiography and radionuclide perfusion imaging. The GenESA System is
approved in nine European countries and is under review by the FDA in the
United States. Using its experience in developing the GenESA System, Gensia is
developing a second proprietary product called the Feedback Controlled Heparin
System or FCHS. This product is in the early stages of clinical testing.
As a way of accelerating its commercialization efforts, Gensia has licensed
proprietary products from third parties over the last several years. The goal
of these efforts has been to accelerate the commercialization of Gensia and to
begin establishing the commercial infrastructure in the United States and
Europe which would be required for the launch of the GenESA System, as and if
this product is approved by regulatory authorities. In addition, Gensia is
currently seeking to license additional medical products which would be sold
through Gensia's proprietary medical products-based sales force.
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Gensia is planning to transfer its proprietary medical products, including
the exclusive United States distribution rights to the LMA, worldwide
distribution rights to the GenESA System, European distribution rights to
Brevibloc and worldwide rights to the FCHS into its wholly-owned subsidiary,
Automedics. Further, Gensia is also planning to transfer its proprietary
product development, product support, sales and marketing administration and
medical products sales organization to Automedics. Gensia plans to explore
private and public financing for such subsidiary, subject to certain third
party consents.
GENESA SYSTEM
The GenESA System, a pharmacologic stress system for use in the diagnosis of
coronary artery disease, consists of a novel catecholamine compound,
arbutamine, and a computer controlled, closed-loop drug delivery device (the
"GenESA Device"). Based on preclinical testing and clinical trials, arbutamine
increases heart rate, cardiac contractility and systolic blood pressure.
Gensia has conducted Phase 3 clinical trials with the GenESA System in the
United States, Canada and certain European countries. Based on the results of
these trials, Gensia believes that the sensitivity of the GenESA System, when
used in conjunction with each of ECG, echocardiography and radionuclide
perfusion imaging, is similar to exercise stress testing in the diagnosis of
coronary artery disease. In a separate Phase 3 clinical trial designed to
evaluate specificity, Gensia believes the GenESA System also demonstrated high
normalcy (an estimate of specificity) in correctly identifying those patients
who did not have coronary artery disease. Arbutamine, the novel drug which is
part of the GenESA System, was generally well tolerated by patients in these
trials and Gensia believes the safety profile should support the use of the
drug in these indications.
In December 1993, Gensia submitted a New Drug Application ("NDA") for the
GenESA System for use in the diagnosis of coronary artery disease in
conjunction with ECG, echocardiography and radionuclide perfusion imaging to
the FDA and also submitted Marketing Authorization Applications ("MAAs") to
the twelve EU countries under the List "B" High Tech procedure established by
the Committee for Proprietary Medicinal Products ("CPMP") in the EU. Gensia
also submitted MAAs to the five member countries of the European Free Trade
Association.
In December 1994, Gensia announced that the CPMP recommended marketing
approval of the GenESA System to the member countries of the EU for use in the
diagnosis of coronary artery disease in conjunction with ECG, echocardiography
and radionuclide perfusion imaging in patients who cannot exercise adequately.
Following the CPMP recommendation, each EU member country must individually
issue a product license before marketing may commence in such country.
Additionally, certain countries may require approval of pricing and
reimbursement. In January 1995, Gensia received its first product license
approval from the Medicines Control Agency ("MCA") of the United Kingdom,
which served as the rapporteur for the CPMP. In addition, product licenses
have now also been issued in Belgium, Denmark, Germany, Ireland, Luxembourg,
the Netherlands, Portugal and Sweden. Gensia is currently marketing the GenESA
System in the United Kingdom and Germany and plans to market the product in
certain other countries through partners or distributors.
In April 1995 and 1996, Gensia received action letters from the FDA
indicating that the NDA for the GenESA System was not approvable based on the
data submitted. Gensia believes, however, that it has made significant
progress in addressing issues raised by the FDA in its action letters. The FDA
indicated in its April 1996 letter that it was possible that a further
presentation and analysis of data from one of Gensia's clinical trials
contained in an NDA amendment may be sufficient for approval of the product.
Gensia has conducted the analysis and has filed an additional amendment to its
NDA for the GenESA System. Gensia is unable to predict whether or when any
potential United States approval of the GenESA System may occur, or the
potential labeling that may eventually be received. However, Gensia believes
that the GenESA System provides significant clinical benefit in the diagnosis
of coronary artery disease and plans to continue to work with the FDA to gain
approval in the United States. Failure to obtain United States regulatory
approval or to market the GenESA System successfully in the United States
could have a material adverse effect on Gensia.
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Gensia has granted to Gensia Clinical Partners, L.P. ("Gensia Clinical
Partners") an exclusive, royalty-free license to use certain patent rights and
technology related to the GenESA System. Gensia Clinical Partners funded a
substantial portion of the development of the GenESA System under a
development and marketing agreement with Gensia. Gensia must make milestone
payments and pay royalties on sales of the GenESA System to Gensia Clinical
Partners. Gensia has an option to purchase the technology and rights related
to the GenESA System from Gensia Clinical Partners. If Gensia does not
exercise this option prior to its expiration, then Gensia will lose all rights
to the GenESA System in the United States, Europe and Canada. There can be no
assurance that Gensia will be in a position to exercise this option.
Feedback Controlled Heparin System
Using its experience in developing the GenESA System, Gensia is developing
the FCHS, an automated heparin delivery system designed to monitor a patient's
anti-coagulation status, use a proprietary closed-loop algorithm to determine
an appropriate level of heparin dosing and adjust the dose automatically. The
objective is to more tightly control the coagulation status of the patient to
avoid over and underdosing of heparin.
Heparin is a widely used parenteral anti-coagulant to prevent thrombosis in
hospitalized patients. A typical course of treatment can run from two to seven
days. Heparin has a narrow therapeutic window and over-heparinization can lead
to serious bleeding side-effects, while under-heparinization can result in
serious complications, such as thrombosis and/or lack of clinical efficacy.
A retrospective analysis of several clinical studies indicated that more
than 50% of patients on heparin fail to reach a therapeutic window on the drug
within the first 24 hours of therapy. Another study indicated that the mean
time to a therapeutic coagulation status for patients receiving heparin was
approximately two days. Even after reaching a therapeutic level of dosing, as
many as 50% of patients may drift out of the therapeutic range over time.
Physicians differ widely in their dosing regimens and in the intervals at
which samples are drawn to determine coagulation status. Typically, samples
will be drawn upon initiation of therapy and every four to six hours until a
patient is within a therapeutic range, after which samples will typically be
drawn every 12 to 24 hours. Testing continues to occur throughout the course
of heparin therapy.
Gensia believes that its FCHS, which is being designed to provide automated
and individualized heparin delivery, will offer certain advantages over the
current practice of manual titration including:
--improved dosing regimen
--tighter control over variable patient response
--frequent and accurate monitoring of patient response
--efficient use of nursing and physician time
The components of the FCHS include measurement technology to determine
coagulation status, fluid handling for sampling and drug delivery and
proprietary closed-loop software which will determine appropriate sampling
intervals and regulate drug delivery. Gensia began clinical testing of the
software algorithm in 1996 and is planning to begin clinical testing with a
prototype FCHS in early 1997. Substantial additional development work,
including basic feasibility studies, still needs to be conducted with the
FCHS. There can be no assurance that the product can ever be successfully
developed or marketed.
Laryngeal Mask Airway
In September 1992, Gensia acquired the rights for exclusive distribution in
the United States of the LMA and introduced the LMA to the United States
market in the fourth quarter of 1992. The LMA is an innovative, reusable
airway management product designed to provide an alternative to a face mask
when administering general anesthesia during surgery. After purchasing LMAs
from The Laryngeal Mask Company Ltd., Gensia packages, labels, and inspects
the products at its Gensia Laboratories facilities.
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Gensia believes the LMA, which was designed by an anesthesiologist,
represents a major advance in airway management. Market research indicates
that this product is easy to use, convenient, well tolerated, and relatively
noninvasive. Gensia believes that the LMA has been well accepted by the
international anesthesiology community, with sales by the innovator company in
over 60 countries through a distributor network. Use of the LMA has become a
standard of practice in the United Kingdom, where it was first introduced in
1988.
Sales of this product in the United States increased significantly in 1995
and 1996. In February 1995, Gensia announced that it had extended its
distribution agreement for an additional three years and had also obtained
exclusive U.S. distribution rights to a number of new innovative airway
management products currently under development by The Laryngeal Mask Company
Ltd. These new products include the LMA-Flexible(TM), the LMA-Fastrach(TM),
the LMA-Unique(TM) and the LMA-High Seal(TM).
The LMA-Flexible provides a highly flexible tube, which is convenient for
use when the surgical field involves the head, neck or face. Gensia launched
the LMA-Flexible in 1996.
The LMA-Fastrach is designed to be used in situations where establishing an
airway is difficult. The LMA-Fastrach is also designed to assist in the
placement of an endotracheal tube without the use of a laryngoscope. The rigid
design of the LMA-Fastrach tube allows greater manipulation of the LMA,
providing a channel to guide the endotracheal tube into its correct position
in the trachea. Gensia expects to launch the LMA-Fastrach in 1997.
The LMA-Unique is a single-use product designed specifically for the U.S.
market where disposable products are common. Other LMA products are reusable
with cleaning and steam sterilization. Gensia believes that the LMA-Unique
will be used primarily in the emergency airway management setting and may be
well suited for use in alternate site clinics where steam sterilization may
not be readily available.
Although still under development, the LMA-High Seal is being designed to
allow higher airway pressures during controlled ventilation as compared to the
existing LMA product. In addition, it incorporates a second small mask to
isolate the upper esophagus from the glottis offering protection against
aspiration. Gensia expects to launch the LMA-High Seal in 1998.
Brevibloc
In October 1993, Gensia announced the signing of an exclusive distribution
agreement with Ohmeda which enabled Gensia to distribute and market Brevibloc,
an acute care cardiovascular drug, in Europe and certain other countries.
Brevibloc is an ultra short acting intravenous beta blocker indicated
primarily for the treatment of perioperative tachycardia and hypertension with
a secondary indication for the treatment of supraventricular tachycardia in
emergency situations.
Under the agreement, Gensia made payments to Ohmeda in return for exclusive
distribution and marketing rights in Europe and certain other countries.
Gensia is also paying a royalty on sales to Ohmeda over a ten year period.
Brevibloc is approved for marketing in a number of European countries. Gensia
began distributing the product directly in certain European countries in 1994.
GEOMATRIX NIFEDIPINE
In October 1996, Gensia announced that it had signed a letter of intent with
SkyePharma and Boehringer Mannheim Corporation, Therapeutics Division ("BMCT")
of Gaithersburg, Maryland to restructure the terms of an agreement to develop
and market an AB rated equivalent formulation of Procardia XL using
Geomatrix(R) drug delivery technology. Upon execution of a definitive
agreement, SkyePharma and its U.S. generic subsidiary, Brightstone, will
assume responsibility for the cost of ongoing and future development work on
Geomatrix nifedipine. SkyePharma will pay Gensia a royalty from its share of
operating income derived from any Geomatrix nifedipine product marketed by
BMCT and Brightstone. Under the previous agreements, Gensia had been
collaborating with Jago Pharma AG and BMCT to develop a Geomatrix nifedipine
product which would be an AB rated equivalent formulation of Procardia XL.
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RESEARCH ACTIVITIES
Gensia's basic research efforts are focused on discovering and developing
small molecule pharmaceuticals that target key regulatory points in metabolic
pathways that will positively impact the course of a targeted disease. Gensia
believes its technology has broad applications and is initially focused on the
discovery and development of drugs for the treatment of pain, inflammation,
diabetes and cardiovascular disease. Gensia has specific expertise in computer
assisted, structure based drug and prodrug design, enzymology, disease biology
and small molecule medicinal chemistry. Gensia has established a significant
proprietary position in the chemistry and biology of purines, molecules that
are involved in the regulation of many cellular metabolic processes.
Gensia's understanding of purine chemistry and biology has led to the
discovery of a new class of compounds called adenosine regulating agents
("ARAs"). These compounds are designed to regulate metabolic pathways
responsible for the production or degradation of the pharmacologically
important molecule, adenosine. Gensia has two ARAs in clinical testing. One is
targeted for the treatment of cardiovascular disease and the other is designed
to treat epilepsy. Gensia is pursuing collaborations with pharmaceutical
companies to further develop these compounds.
In May 1996, Gensia announced an agreement with Pfizer Inc. to collaborate
on a research program using Gensia's ARA technology to discover and develop
broad spectrum analgesic drugs for the treatment of pain. The research
collaboration is focusing on a subgroup of ARAs which may represent a new
class of analgesic drugs. Preclinical studies reported in the scientific
literature have demonstrated the analgesic effects of adenosine in the spinal
cord. The activation of receptors on neurons in the spinal cord appears to
reduce the flow of pain signals reaching the higher centers of the brain,
producing analgesia. The ARAs to be developed during the collaboration with
Pfizer Inc. act on a specific site and apparently result in an increase in the
local concentration of adenosine produced when pain signals are traveling
through the spinal cord.
Gensia's expertise with purine regulated enzymes is also being directed to
the development of a new treatment of diabetes. Gensia has developed potent
inhibitors of a specific purine regulated enzyme that acts in the metabolic
pathway that produces glucose in the liver. Gensia believes that these
compounds may represent a novel approach to the treatment of Type II diabetes.
Gensia is in active discussions with a number of pharmaceutical companies
regarding a potential collaboration in diabetes research.
Prior to consummation of the Stock Exchange, Gensia has agreed to eliminate
its net use of cash for ongoing research activities (other than ongoing
property lease related expenses) either (i) as a result of Gensia having
obtained cash or contractually committed payments for such research activities
from third parties in the form of research collaborations or otherwise, or
(ii) by the termination of such research activities; provided, however, that
in any event, Gensia shall be permitted to expend such amounts on research as
are required for Gensia to fulfill its obligations under the Pfizer Agreement.
It is further understood by Gensia and Rakepoll Finance that Gensia will not
borrow money in order to eliminate the net use of cash as described in
subclause (i) above. In the event that such net use of cash has been
eliminated pursuant to subclause (i) above, it is the intent of Gensia and
Rakepoll Finance that, subsequent to the Closing Date, they will use their
best efforts to present to the Board of Directors of Gensia a plan to
effectuate the spinoff of the research activities of Gensia into an
independent company, so long as such spinoff is reasonably feasible. Such
spinoff plan shall include as assets of the company to be spunoff the
$5,000,000 cash contribution contemplated by the funding plan agreed to by
Gensia and Rakepoll Finance and other cash received (and unspent) or to be
received under research collaborations between third parties and Gensia. If
there has been no such spinoff within six months after the Closing Date, any
such research activities not fully paid for by third parties will be
terminated, so that no such research activities will produce losses. If Gensia
terminates such research activities pursuant to clause (ii) above, Gensia
estimates that the costs of eliminating such research activities, including
severance payments and related costs, would be approximately $2,600,000. See
"The Stock Exchange--Effect on Research Programs."
PATENTS, TRADEMARKS AND TRADE SECRETS
Gensia's policy is to protect its technology by, among other things, filing
patent applications for technology which it considers important to the
development of its business. Gensia intends to file additional patent
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applications, when appropriate, relating to improvements in its technology and
other specific products that it develops. Gensia also relies on trade secrets
and improvements, unpatented know-how and continuing technological innovation
to develop and maintain its competitive position.
Historically, pharmaceutical companies have relied heavily upon patents to
protect proprietary positions of synthetic chemicals discovered or developed
in their research. In the past decade, there have been a number of patent
issues that have confronted the owners of patents directed to biotechnology
inventions, including, among others, recombinant DNA and biologically-derived
or produced proteins.
In 1995, the Uruguay Round Agreements Act implemented many changes in U.S.
patent law. In particular, patents issuing on applications filed after June 7,
1995, will have a patent term of 20 years from the priority date. Prior to
June 8, 1995, Gensia filed several new and continuing applications directed to
new compositions of matter and their use so that Gensia is positioned to
obtain maximum patent term, if patents issue from these applications.
During 1994, Gensia received U.S. patent 5,286,252 covering closed-loop
administration of exercise simulating agents, as used in the GenESA System.
Gensia has also received U.S. patent No. 5,108,363, which includes claims to
methods of diagnosis and evaluation of coronary artery disease using certain
exercise simulating agent compounds. Gensia has also received U.S. patent
5,234,404, which includes claims to the methods of diagnosis and evaluation of
coronary artery disease using closed-loop delivery of exercise simulating
agents, and U.S. patent 5,088,978, which includes claims relating to closed-
loop drug monitoring technology. In March 1995, U.S. patent 5,395,970 was
issued to Gensia claiming composition of matter for arbutamine, the drug
component of the GenESA System. In addition, claims are made with regard to
certain methods of drug delivery. Further coverage is provided by U.S. patent
5,460,605 which includes claims to a device for eliciting cardiovascular
responses and a system for the closed-loop administration of a drug arising a
physical response. Additional patent applications have been filed which
specifically claim methods of drug delivery which include the specific design
of certain drug delivery hardware. In addition, Gensia has applied for and
been issued patents concerning its ARA technology.
A substantial number of patents have been issued to other pharmaceutical,
biotechnology and biopharmaceutical companies. In addition, competitors may
have filed applications for, or may have been issued, patents or may obtain
additional patents and proprietary rights relating to, products or processes
competitive with those of Gensia. Accordingly, there can be no assurance that
Gensia's patent applications will result in patents being issued or that, if
issued, the patents will afford protection against competitors with similar
technology; nor can there be any assurance that any patents issued to Gensia
will not be infringed or circumvented by others, or that others will not
obtain patents that Gensia would need to license or circumvent. There can be
no assurance that licenses that might be required for Gensia's processes or
products would be available on reasonable terms. If Gensia does not obtain
such licenses, product introductions could be delayed or foreclosed. In
addition, there can be no assurance that Gensia's patents, if issued, would be
held valid by a court. Litigation to defend against or assert claims of
infringement or otherwise related to proprietary rights could result in
substantial costs to and diversion of resources of Gensia.
Gensia also relies upon unpatented trade secrets, and no assurance can be
given that others will not independently develop substantially equivalent
proprietary information and techniques, or otherwise gain access to Gensia's
trade secrets or disclose such technology, or that Gensia can meaningfully
protect its rights to its unpatented trade secrets.
Gensia requires each of its employees, consultants and advisors to execute a
confidentiality agreement upon the commencement of an employment or consulting
relationship with Gensia. The agreement generally provides that all
confidential information developed or made known to the individual during the
course of the relationship shall be kept confidential and not disclosed to
third parties except in specified circumstances. In the case of employees, the
agreement generally provides that all inventions conceived by the individual
shall be the exclusive property of Gensia. There can be no assurance, however,
that these agreements will provide meaningful protection for Gensia's trade
secrets in the event of unauthorized use or disclosure of such information.
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COMPETITION
Multisource Pharmaceutical Products
Significant competition exists in the multisource injectable drug business
from other multisource drug companies, health care companies and proprietary
pharmaceutical companies. The major competitors in the multisource injectable
drug industry include Abbott Laboratories ("Abbott"), Astra, Bedford
Laboratories, Elkins-Sinn (a division of American Home Products), Fujisawa,
and Schein Pharmaceutical, Inc. Many of these companies have been in business
for a longer period of time, have a greater number of products on the market
and have substantially greater financial and other resources than Gensia.
During 1995 and 1996, a number of competitors received FDA approval to
market injectable etoposide. Etoposide was Gensia Laboratories' largest
product in terms of sales in 1995 and 1994. These approvals have had and are
expected to continue to have a material adverse impact on Gensia's sales of
etoposide.
The various competitive factors affecting the marketing of multisource
injectable pharmaceutical products are price, quality, timing (the ability to
produce generic versions of brand name drugs promptly after the patent
protection for the brand name drug expires), product cost, maintenance of
sufficient inventories for timely deliveries, breadth of product line,
reputation, distribution capabilities and customer service.
Gensia believes that price and quality are the most significant competitive
factors in the multisource injectable drug industry as the number of
manufacturers of a particular multisource injectable product increases. As
competition from other manufacturers intensifies, selling prices typically
decline. Accordingly, Gensia Laboratories' profitability will depend in part
on its ability to develop and introduce appropriate new products to the market
in a timely manner, to obtain raw materials at competitive prices and to
continue to improve the efficiency of its production capabilities. Gensia
Laboratories will also compete with manufacturers of off-patent injectable
brand name products, which may reduce prices in order to keep their brand name
products competitive with equivalent multisource products.
The GenESA System
There are a number of products which have been approved for marketing or
that are in development which may compete with the GenESA System. In early
1991, The Du Pont Merck Pharmaceutical Company received FDA marketing approval
for I.V. Persantine(R) (dipyridamole) for use with thallium imaging in
patients who cannot exercise adequately. In October 1996, Elkins-Sinn received
the first generic approval for dipyridamole. Thallium imaging using I.V.
Persantine appears to be well accepted by the medical community. I.V.
Persantine is a vasodilator which increases blood flow to a greater extent in
normal coronary arteries than in vessels with coronary artery disease. The
resulting variances in coronary perfusion are detectable on the thallium
image. Gensia believes that, unlike I.V. Persantine, arbutamine causes the
heart to respond much as it does to exercise, and may therefore prove to be a
more effective agent for enhancing diagnostic capability. Moreover, I.V.
Persantine has been approved for use only with thallium imaging, whereas
Gensia believes the GenESA System may be used with echocardiography, the use
of which is growing rapidly, as well as radionuclide perfusion imaging.
A second pharmaceutical product called Adenoscan(R)(adenosine) has been
developed by Medco Research, Inc. ("Medco") for use with thallium imaging in
the diagnosis of heart disease. Gensia believes that Medco may also be
investigating the use of Adenoscan with echocardiography. The mode of action
of Adenoscan is believed to be similar to that of I.V. Persantine. Medco
introduced Adenoscan through its marketing partner, Fujisawa U.S.A. in 1995.
An intravenous drug called Dobutrex(R) (dobutamine) has been approved by the
FDA for the treatment of patients with acute congestive heart failure and is
marketed by Eli Lilly and Company. Although dobutamine is
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used by some physicians to stress the heart in order to perform cardiac
diagnostic procedures, it has not been approved by the FDA for this purpose.
The patent protection on dobutamine expired in late 1993 and several
companies, including Gensia Laboratories, have introduced generic versions of
this product. The introduction of these generic products has led to a
significant decline in the price of dobutamine. To the extent physicians use
dobutamine to stress the heart, it may act as a substitute for the GenESA
System and thus may affect the market penetration of the GenESA System or its
pricing.
Those products which Gensia succeeds in developing and for which it gains
regulatory approval must then compete for market acceptence and market share.
For certain of Gensia's potential products, an important factor in such
competition may be the timing of market introduction of competitive products.
Accordingly, the relative speed with which Gensia can develop products,
complete the clinical testing and approval processes and supply commercial
quantities of the product to the market are expected to be important
competitive factors. Gensia expects that competition among products approved
for sale will be based, among other things, on product efficacy, safety,
reliability, availability, price and patent position.
GOVERNMENT REGULATION
Multisource Pharmaceutical Products
Prior to the enactment of the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "Waxman/Hatch Act"), the FDA, by regulation,
permitted certain drugs to be approved under an abbreviated procedure which
waived submission of the extensive animal and human studies of safety and
effectiveness normally required to be in an NDA. Instead, the manufacturer
only needed to provide an ANDA containing labeling, information on
manufacturing procedures and data establishing that the original "pioneer"
product and the proposed "generic" product are equivalent when administered to
humans. Although antibiotic drugs are classified separately for purposes of
FDA approval, the approval procedures for such drugs conform substantially to
the NDA/ANDA procedures.
Originally, the FDA's regulations permitted this abbreviated procedure only
for a drug that was identical to a drug which had been approved by the FDA as
safe before 1962 and which was subsequently determined by the FDA to be
effective for its intended use. In 1984, the Waxman/Hatch Act extended
permission to use the abbreviated procedure established by the FDA to any drug
that is identical to a drug which was approved by the FDA as safe and
effective after 1962, subject to certain exclusions (such as drugs that are
still protected by patent).
As compared to an NDA, an ANDA typically involves reduced research and
development costs and a faster review and approval time at the FDA. However,
there can be no assurance that any such applications will be approved.
Furthermore, the suppliers of raw materials also must be approved by the FDA.
Delays in the review process or failure to obtain approval of certain of these
ANDAs or suppliers could have a material adverse effect on the financial
condition of Gensia.
GLL is marketing certain products without obtaining FDA approval of an NDA
or ANDA on the premise that these products are not "new drugs" under the
Federal Food, Drug and Cosmetic Act, as amended ("FFDCA") and accordingly do
not require such approval. The FFDCA excludes from the definition of "new
drug" any drug which was on the market prior to 1938 and the labeling for
which contains the same representations concerning use as before 1938. These
products are sometimes referred to as "grandfathered drugs." Under the FFDCA,
if a manufacturer markets a product on the premise that it is grandfathered,
the FDA may disagree and initiate regulatory action to declare the product to
be a "new drug" and to remove it from the market until an NDA is approved. Any
such action by the FDA, if successful, could eliminate or reduce revenues from
the product in question, generate additional costs and may result in the
imposition of fines, which may have a material adverse effect on Gensia.
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Proprietary Pharmaceutical Products
The production and marketing of Gensia's products and its research and
development activities are subject to extensive regulation for safety,
efficacy and quality by numerous governmental authorities in the United States
and other countries. In the United States, drugs are subject to rigorous FDA
regulation. The FFDCA, and the regulations promulgated thereunder, and other
federal and state statutes and regulations, govern, among other things, the
testing, manufacture, safety, effectiveness, labeling, storage, record
keeping, approval, advertising and promotion of Gensia's products.
The steps required before a pharmaceutical agent may be marketed in the
United States include (i) preclinical laboratory tests, in vivo preclinical
studies and formulation studies, (ii) the submission to the FDA of an
investigational new drug application ("IND"), which must become effective
before human clinical trials commence, (iii) adequate and well-controlled
human clinical trials to establish the safety and efficacy of the drug, (iv)
the submission of an NDA to the FDA and (v) FDA approval of the NDA prior to
any commercial sale or shipment of the drug. In addition to obtaining FDA
approval for each product, each domestic drug manufacturing establishment must
be registered with and approved by the FDA. Domestic manufacturing
establishments are subject to inspections by the FDA biennially, or when
deemed necessary by the FDA, and must comply with current Good Manufacturing
Practices ("cGMP") for both drugs and devices. To supply products for use in
the United States, foreign manufacturing establishments must comply with cGMP
and are subject to periodic inspection by the FDA or by regulatory authorities
in such countries under reciprocal agreements with the FDA.
Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the potential safety and
efficacy of the product. Compounds must be formulated according to cGMP and
preclinical safety tests must be conducted by laboratories that comply with
FDA regulations regarding Good Laboratory Practices. The results of the
preclinical tests are submitted to the FDA as part of an IND and are reviewed
by the FDA prior to the commencement of human clinical trials. Unless the FDA
objects to an IND, the IND will become effective 30 days following its receipt
by the FDA. There is no certainty that submission of an IND will result in FDA
authorization to commence clinical trials.
Clinical trials involve the administration of the investigational new drug
to healthy volunteers or to patients, under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with
certain standards under protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND.
Further, each clinical trial must be conducted under the auspices of an
independent Institutional Review Board ("IRB") at the institution at which the
study will be conducted. The IRB may consider, among other things, ethical
factors, the safety of human subjects and the possible liability of the
institution.
Clinical trials are typically conducted in three sequential phases, but the
phases may overlap. In Phase 1, the initial introduction of the drug into
healthy human subjects, the drug is tested for safety (adverse effects),
dosage tolerance, metabolism, distribution, excretion and pharmacodynamics
(clinical pharmacology). Phase 2 involves studies in a limited patient
population to (i) determine the efficacy of the drug for specific, targeted
indications, (ii) determine dosage tolerance and optimal dosage and (iii)
identify possible adverse effects and safety risks. When a compound is found
to be effective and to have an acceptable safety profile in Phase 2
evaluations, Phase 3 trials are undertaken to further evaluate clinical
efficacy and to further test for safety within an expanded patient population
at geographically dispersed clinical trial sites. There can be no assurance
that Phase 1, Phase 2 or Phase 3 testing will be completed successfully within
any specified time period, if at all with respect to any of Gensia's products
subject to such testing. Furthermore, Gensia or the FDA may suspend clinical
trials at any time if it is felt that the subjects or patients are being
exposed to an unacceptable health risk.
The results of the pharmaceutical development, preclinical studies and
clinical trials are submitted to the FDA in the form of an NDA for approval of
the marketing and commercial shipment of the drug. The testing and approval
process is likely to require substantial time and effort and there can be no
assurance that any approval will be granted on a timely basis, if at all. The
FDA may deny an NDA if applicable regulatory criteria
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are not satisfied, require additional testing or information, or require
postmarketing testing and surveillance to monitor the safety of Gensia's
products if they do not view the NDA as containing adequate evidence of the
safety and efficacy of the drug. Notwithstanding the submission of such data,
the FDA may ultimately decide that the application does not satisfy its
regulatory criteria for approval. Finally, if compliance with regulatory
standards is not maintained, it can, among other things, lead to fines,
suspensions of regulatory approvals, product recalls, operating restrictions
and criminal prosecution or if problems occur during marketing, product
approvals can be withdrawn.
Among the conditions for FDA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures
conform to cGMP, which must be followed at all times. In complying with
standards set forth in these regulations, the manufacturer must continue to
expend time, monies and effort in the area of production and quality control
to ensure full technical compliance.
In addition to regulations enforced by the FDA, Gensia also is subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation
and Recovery Act and other present and potential future federal, state or
local regulations.
For marketing outside the United States, Gensia is also subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for drugs and devices. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country
to country.
Medical Devices
Medical devices are subject to regulation in the United States by the FDA
and, in many instances, by comparable agencies in foreign countries where
these devices are manufactured or distributed. Under the FFDCA and the State
Medical Devices Act of 1990 (the "SMDA") and subsequent amendments,
manufacturers of medical devices must comply with applicable provisions of
these acts and certain associated regulations governing the testing,
manufacturing, labeling, marketing and distribution of medical devices and the
reporting of certain information regarding the safety of medical devices. Both
the FFDCA and the SMDA require certain clearances from the FDA before medical
devices may be legally marketed.
FDA permission to distribute a new device can be obtained in one of two
ways. If a new or significantly modified device is "substantially equivalent"
to an existing legally marketed device, the new device can be commercially
introduced after submission of a premarket notification (a "510(k)
submission") to the FDA, and after the subsequent issuance by the FDA of an
order permitting commercial distribution. Changes to existing devices that do
not significantly affect safety or effectiveness can be made by a company
without a 510(k) Submission.
The second more comprehensive approval process applies to a new device that
is not substantially equivalent to an existing product. First, a company must
conduct clinical trials in compliance with testing protocols approved by an
institutional review board for the participating research institution. Second,
a company must submit to the FDA a Premarket Approval ("PMA") application that
contains, among other things, the results of the clinical trials. The PMA
application also contains other information required under the FFDCA such as a
full description of the device and its components, a full description of the
methods, facilities and controls used for manufacturing and proposed labeling.
Finally, the manufacturing site for the product subject to the PMA must pass
an FDA premarketing approval inspection.
Certain other countries require a company to obtain clearances for its
products prior to marketing the products in those countries. In addition,
certain other countries impose product specifications that differ from those
mandated in the United States. These requirements may significantly affect the
efficiency and timeliness of international market introduction of a company's
products.
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MANUFACTURING
The manufacturing facility at Gensia Laboratories gives Gensia the
capability to formulate, fill, label and package final dosage forms of
injectable drug products. The Gensia Laboratories facility has a broad filling
capability, including the ability to terminally sterilize or aseptically fill
syringes and single and multiple dose vials. The facility also has the ability
to lyophilize (freeze dry) products. In addition, Gensia Laboratories has the
capability to manufacture commercial supplies of arbutamine, the drug used in
the GenESA System. Pursuant to a 1992 agreement with Abbott, Gensia purchases
bulk commercial quantities of arbutamine from Abbott. Gensia retains certain
ownership and patent rights for the process developed to produce bulk
arbutamine.
In 1995, planning began for the build-out of an oncology manufacturing
facility and for additional laboratories for the development of oncology
products in a building adjacent to GLL's existing manufacturing facility. The
new oncology facility will include the capability to produce oncology products
in lyophilized or liquid forms and in glass or polymer vials. The new facility
is expected to be completed and validated to begin producing oncology products
in the second half of 1997.
The principal raw materials to be used in manufacturing Gensia Laboratories'
products are active drug ingredients (such as those produced by Sicor) and
inactive pharmaceutical chemicals. The FDA approval process requires
manufacturers of pharmaceutical products to identify their suppliers of active
ingredient raw materials. If raw materials from a specified supplier were to
become unavailable, FDA approval of a new supplier would be required, which
could result in manufacturing delays. Development and approval of Gensia
Laboratories products are, therefore, dependent upon Gensia Laboratories'
ability to procure active ingredient raw materials from suppliers who are, and
who remain, FDA approved. Sicor has filed over 30 Drug Master Files with the
FDA and is a qualified source for several of GLL's current products as well as
the planned supplier for many of GLL's products in development. Termination of
qualified supply arrangements could have a material adverse impact on the sale
of Gensia Laboratories' products. Gensia Laboratories currently utilizes
single sources for certain raw materials and packaging components.
HEALTH CARE REFORM AND THIRD-PARTY REIMBURSEMENT
The adoption of health care reform legislation or other regulatory proposals
or reforms that would implement controls on pricing or profitability of
prescription pharmaceuticals would adversely affect Gensia's business,
financial condition and profitability. In addition, in both the United States
and elsewhere, sales of prescription pharmaceuticals are dependent in part on
the availability of reimbursement to the consumer from third-party payors,
such as government and private insurance plans. Third-party payors are
increasingly challenging the prices charged for medical products and services.
If Gensia succeeds in bringing one or more products to the market, there can
be no assurance that any of these products will be considered cost effective
or that reimbursement to the consumer will be available or will be sufficient
to allow Gensia to sell its products on a competitive basis.
RAKEPOLL HOLDING
Rakepoll Holding owns the Rakepoll Operating Group, a group of three
specialty pharmaceutical companies comprised of a company located in Italy,
Sicor, and two companies located in Mexico, Sintesis Lerma and Lemery. Sicor
and Sintesis Lerma manufacture specialty bulk drug substances. Lemery produces
oral and injectable finished multisource drug products (also called finished
dosage forms) utilizing specialty bulk drug substances produced by the other
companies in the Rakepoll Operating Group and/or purchased from third parties.
Rakepoll Holding also owns two additional Mexican companies, Lemery Desarrollo
y Control, S.A. de C.V. ("Ledeco") and Inmobiliaria Lemery, S.A. de C.V.
("Inmobiliaria") which provide certain administrative services to Lemery.
The specialty bulk drug substances manufactured by the Rakepoll Operating
Group are almost entirely destined for parenteral or topical administration,
including inhalation therapy, and almost all belong to one of
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three categories: (i) oncolytic agents, (ii) steroids or (iii) non-
depolarizing muscle relaxants. The oncolytic agents are anti-cancer drugs. The
steroids are either progestins used in contraceptives or corticosteroids used
in a variety of anti-inflammatory preparations, including preparations used in
the treatment of asthma, allergies and certain dermatological conditions.
Certain progestins also have oncolytic applications. The muscle relaxants are
used in conjunction with anaesthetics during surgery.
The principal markets for the Rakepoll Operating Group's specialty bulk drug
substances are the United States and Canada, the EU and Japan. The finished
multisource drug products manufactured by the Rakepoll Operating Group are
sold primarily to the national health program in Mexico and exported to
certain countries in Central and South America, North Africa, the Middle East
and Eastern Europe. In addition, export of such drug products to China is also
currently expected to commence in 1997.
Oncolytic Agents
Due to a worldwide increase in the incidence of cancer, related in part to
the general aging of the world's population, and to the introduction of new
regimens for the treatment of cancer, there has been an increase in the demand
for oncolytic agents. The Rakepoll Operating Group offers a wide range of
oncolytic specialty bulk drug substances and finished dosage forms. Sicor and
Lemery are the Rakepoll Operating Group's principal producers of oncolytic
agents. The oncolytic agents produced by Sicor are etoposide, the antibiotics
bleomycin, mitomycin, daunorubicin, epirubicin and idarubicin and the
progestins medroxyprogesterone acetate and megestrol acetate. Lemery
manufactures various oncolytic agents in finished dosage form, including
principally carboplatin, cisplatin, doxorubicin and vincristine. Sintesis
Lerma also recently began production in 1996 of pilot batches of the oncolytic
agents cisplatin and mitoxantrone and also produces certain progestins which
have oncolytic applications.
Etoposide is suitable for oral use or injection. It is used in combination
with other oncolytic agents in the treatment of testicular and small cell lung
cancers. Sicor produces etoposide for sale primarily to customers in the
United States and Australia and to its affiliate, Lemery. Etoposide is Sicor's
most important oncolytic product. Sicor produces etoposide using a process for
which a patent has been granted in fourteen European countries. A patent
application for such process has also been filed in the United States.
Bleomycin is an injectable antibiotic used in combination with three other
compounds, doxorubicin, vinblastine and dacarbazine. This combination, known
by the abbreviation ABVD, is used to treat lymphomas. Bleomycin is also used
in the treatment of testicular carcinoma and squamous cell carcinomas of the
head, neck and mouth. Bleomycin is produced using technology jointly developed
by Sicor and Abbott utilizing an Abbott owned microorganism. In the United
States, Sicor supplies bleomycin exclusively to Abbott which manufactures a
finished dosage form based on such antibiotic which was recently approved by
the FDA. Outside the United States, Sicor's principal markets for bleomycin
are in Mexico and India. Sicor's European customers are currently awaiting
regulatory approval of their bleomycin-based finished dosage forms from health
ministries in the Netherlands and certain other EU countries. Sicor pays
Abbott a royalty for Sicor's use of Abbott's microorganism based on Sicor's
non-United States sales of bleomycin.
Mitomycin is an injectable antibiotic used in the treatment of bladder
cancer and adenocarcinomas of the stomach and pancreas. The FDA has recently
approved Sicor's mitomycin for use in finished dosage forms in the United
States. As a consequence, Sicor's generic drug company customers in the United
States are expected to commence distribution of finished dosage forms based on
such antibiotic in mid-1997. Sicor's principal market for the bulk drug
substance will be the United States. Lemery also produces a finished dosage
form containing mitomycin which is marketed in several countries.
Daunorubicin is an injectable antibiotic. Sicor's principal customer for
such agent is NeXstar Pharmaceuticals, Inc. which has developed a new
liposomal formulation approved by the FDA for the treatment of Kaposi's
sarcoma, a type of cancer associated with AIDS. Applications for regulatory
approval for regular
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finished dosage form formulation used in the treatment of lymphomas are under
preparation in certain additional countries.
Epirubicin is an injectable antibiotic derived from daunorubicin. Epirubicin
is not approved in the U.S. but is widely used in many other countries in the
treatment of solid tumors, such as breast cancer. Clinical studies have shown
that epirubicin may cause less myocardial damage than its predecessor drug,
doxorubicin. Epirubicin is still covered by extended patent protection in
certain EU countries. Sicor has developed a process for the production of
epirubicin for which a patent application has been filed in over 25 countries.
Sicor believes that its experience in the production of daunorubicin and its
epirubicin synthesis process will constitute an effective barrier to the
production of epirubicin by third parties in the near future. As a
consequence, future sales of epirubicin will generally be limited to other
Rakepoll Operating Group companies for their manufacture of finished dosage
forms, which should result in higher gross margins on this product. Commercial
scale production of epirubicin began in November 1996. Sicor expects that
Mexico (where regulatory approval of such antibiotic has already been
received), Central and South America, possibly Australia, and China will be
major markets for epirubicin. Lemery currently expects to launch a finished
dosage form based on epirubicin in the Mexican market and for export in 1997.
Idarubicin is an antibiotic suitable for oral use or injection which is used
in combination therapy for the treatment of adult leukemias. Although to date
Sicor has produced only laboratory quantities of such antibiotic, it currently
expects to begin production of pilot batches in early 1997. Sicor believes
that the difficulty of the idarubicin manufacturing process will constitute an
effective barrier to the production thereof by third parties in the near
future. As a consequence, as with epirubicin, future sales of idarubicin will
generally be limited to other Rakepoll Operating Group companies and GLL
(assuming consummation of the Stock Exchange) for their manufacture of
finished dosage forms, which should result in higher gross margins on this
product. An application for FDA approval of a finished dosage form based on
idarubicin is planned for the United States market. It is currently expected
that commercial sales of such finished dosage form may commence in 1998 if FDA
approval is obtained.
Sintesis Lerma recently began construction of a facility to produce
oncolytic agents. Production of oncolytic agents in this facility is currently
expected to commence in 1997. The first oncolytic agents produced will be
cisplatin (used in the treatment of testicular, ovarian and bladder cancers),
carboplatin (used in the treatment of advanced ovarian cancer), and
mitoxantrone (used in combination therapy for the treatment of adult
leukemias). These compounds produced by Sintesis Lerma will also be used by
Lemery to replace its existing third party suppliers.
Sintesis Lerma is also a major producer of two progestins, megestrol acetate
and medroxyprogesterone acetate, which may be used in high dosages to treat
certain hormone dependent malignancies, such as breast cancer, in addition to
the latter's more typical use in contraceptives. The principal markets for
these compounds are the Far East and, upon receipt of FDA approval of Sintesis
Lerma's version of such compounds, the United States. Sintesis Lerma also
produces the progestins cyproterone acetate, which is generally used in the
treatment of prostate cancer although it may also be used as a component in
contraceptives, and chlormadinone acetate, which is administered orally for
the treatment of prostate cancer and benign prostate hypertrophy. The
principal markets for these drug substances are the EU, Canada, Argentina, the
Middle East and Japan.
Steroids
The steroids manufactured by the Rakepoll Operating Group are either
progestins, used in contraceptives or in certain oncolytic applications, or
corticosteroids, used in a variety of anti-inflammatory preparations,
including preparations used in the treatment of asthma, allergies and certain
dermatological conditions. Sicor and Sintesis Lerma together produce six such
progestins, medroxyprogesterone acetate, megestrol acetate, cyproterone
acetate, chlormadinone acetate, gestodene and desogestrel. Medroxyprogesterone
acetate is principally used as component of sustained release contraceptives
which are widely used in developing nations. The principal markets for this
steroid are in Indonesia, the Philippines and Thailand. In addition, megestrol
acetate,
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chlormadinone acetate, cyproterone acetate and also medroxyprogesterone
acetate have certain oncolytic applications.
Gestodene and desogestrel are highly active third generation progestins of
which Sicor has only produced laboratory quantities to date. The compounds are
principally used in contraceptives in more advanced markets such as the United
States and the EU due to their high manufacturing costs. Their activity allows
the production of dosage forms with very low concentrations of such compounds.
Sicor and Sintesis Lerma manufacture corticosteroid products with respect to
which they have either developed a proprietary production technology,
including seven different process patents, or enjoy some other market
advantage. Sicor and Sintesis Lerma manufacture over 50 corticosteroids.
Ongoing research to increase the selective activity and reduce the long-term
toxicity of various corticosteroid compounds has produced a fairly constant
stream of corticosteroid products coming off patent. This stream together with
a growing market for such products in developing countries has enabled Sicor
and Sintesis Lerma to consistently expand their production of these compounds
for several years.
The highest growth rate of corticosteroid use is in the management of
obstructive airway diseases. Corticosteroids have recently been declared one
of the preferred prophylactic treatments for asthma. This together with the
expiration of certain related patents has led to an increase in the demand for
two principal corticosteroids in this field: beclomethasone dipropionate and
budesonide.
Beclomethasone dipropionate is available from the Rakepoll Operating Group
in three forms: (i) the normal crystalline form, (iii) beclomethasone
dipropionate Freon 11 solvate, and (iii) beclomethasone dipropionate
monohydrate. The first two are manufactured by Sicor, and the third by
Sintesis Lerma. The normal crystalline form is principally used as an
intermediate for the Freon solvate or the monohydrate forms. Sicor's principal
markets for these compounds are the United Kingdom, Canada, India and Italy.
Budesonide is another corticosteroid which is used for the treatment of
obstructive airway diseases as well as for the treatment of certain other
conditions such as inflammatory bowel disease. Sicor produces the bulk drug
substance by a process which is protected by two different patents, one of
which was developed by Sicor but was transferred to another company in return
for Sicor's receipt of a royalty-free license with respect to such patent in
order to minimize certain potential related legal costs, and a royalty-free
license to such patent was granted to Sicor. Sicor's principal markets for
this compound are in Spain, Germany and Finland. In addition, Sicor has
developed a new process which allows the selective production of budesonide's
R isomer component. The R isomer has been shown to be more active and may be
less toxic than budesonide's other isomer and several companies have expressed
interest in the compound. The Spanish company Ifedesa is currently developing
a finished dosage form based on the budesonide R isomer. It is currently
expected that the Spanish Ministry of Health may grant regulatory approval of
such dosage form in 1998. Thereafter, additional regulatory approvals may also
be sought in Italy and Germany.
Other Drugs
In addition to the oncolytic agents and steroid products discussed above,
Sicor also produces as bulk drug substances the muscle relaxants atracurium
besylate, panacuronium bromide and vecuronium bromide, the immunosuppressant
drug cyclosporine and the prodrug dexrazoxane.
Finished dosage forms based on the muscle relaxants are used in conjunction
with anesthetics during surgery. Sicor has filed a DMF with the FDA with
respect to the atracurium besylate it produces and expects that its customers
in the United States will receive FDA approval of their finished dosage forms
based on such compound in early 1997.
Pancuronium bromide and vecuronium bromide are produced using a common
steroidal intermediate. The principal market for both drug substances is the
United States.
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Cyclosporine is a selective immunosuppressant administered to virtually all
transplant patients. It reduces the risk of severe organ rejection and must be
taken by such patients for most of their lives. The worldwide market for
cyclosporine finished drug products is more than $1 billion annually. Sicor
has requested FDA approval for the bulk cyclosporine it produces. Its
distributor in the United States has applied for FDA approval of a finished
dosage form based on such drug and currently expects to begin commercial sales
thereof in 1998.
Sicor manufactures the prodrug dexrazoxane. Prodrugs become effective only
after metabolization by the body. Dexrazoxane metabolites trap the iron ions
involved in the process which leads to myocardial damage caused by
anthracycline antibiotics such as doxorubicin. Administration of dexrazoxane
with such oncolytic agents protects the heart and allows higher dosages of the
oncolytic agent. Sicor manufactures dexrazoxane according to a proprietary
process covered by a process patent filed in many countries. Sicor is
developing dexrazoxane with Chiron BV which is responsible for product
development, including clinical trials, dosage form manufacturing, marketing
and sales.
Future Developments
Sicor has obtained an exclusive license for a new oncolytic agent known as
UK 101 from Zetesis of Milan. UK 101 is a protein antigen obtained from goat
liver. Antigens trigger an immune response designed to destroy such antigen.
Antibodies attach themselves to the antigen marking it for elimination by the
immune system. The antibodies which attack UK 101 also attach themselves to
the membrane of certain cancer cells. Cancer cells so marked are then disposed
of by the immune system. The mechanics of this process are now the subject of
further study by university researchers in Italy. A plan for studies using UK
101 in the treatment of patients with breast and colon cancer in Italy has
been sponsored by Sicor and submitted to the Italian Ministry of Health for
approval and receipt of such approval is currently expected in early 1997. A
second series of studies for the same two cancers have been approved by the
Mexican Ministry of Health and will be conducted in Mexico by Lemery. If these
studies are successful, receipt of regulatory approval of UK 101 could be
received in Mexico as early as late 1997.
In addition, at its facility outside of Turin, Sicor is developing a
glycoprotein, urofollitropin. Urofollitropin is involved in the stimulation of
ovulation and is used in the treatment of certain types of infertility. Sicor
is developing a process for the isolation of urofollitropin from the urine of
post-menopausal women. Sicor currently expects to file a process patent
covering purification of urofollitropin in early 1997.
Sicor is also currently working with a number of pharmaceutical companies to
develop new proprietary pharmaceutical products. If these products are
successfully developed, Sicor expects to have long term supply rights for the
bulk active ingredients used in these products.
Facilities
The Rakepoll Operating Group's production is currently carried out at its
manufacturing sites in Italy and Mexico. The Rakepoll Operating Group's
principal manufacturing processes consist of the manufacture of specialty bulk
drug substances and finished dosage forms.
Sicor is the largest producer in the Rakepoll Operating Group. Its
production is carried out at its two manufacturing sites in Italy. The
principal site is located on the outskirts of Milan and is regularly inspected
and approved by the FDA. It is the Rakepoll Operating Group's largest producer
of oncolytic agents, steroids and certain other products in bulk drug
substance form. These products are manufactured either through fermentation or
chemical synthesis processes. This production center, covering approximately
1,200 square meters of a 14,438 square meter site, supplies specialty bulk
drug substances to other Rakepoll Operating Group companies and to export
markets around the world. Major capital expenditure projects and their
expected completion dates are as follows: a new finishing area (1997) and 50%
increase in fermentation capacity (1998) for daunorubicin, bleomycin and
mitomycin, and a new purification plant for cyclosporine (1998).
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Sicor's other production center, acquired in its merger with Zanoni, is
located on the outskirts of Turin. It produces principally various animal
organ extracts for use in both pharmaceuticals, including UK 101, and
cosmetics. This production center, covering approximately 1,700 square meters
of an 18,469 square meter site, supplies such products to the European market.
Major capital expenditure projects and their expected completion dates are as
follows: a new oncolytic agent production plant (1998) and a new protein
purification plant (1999).
The Rakepoll Operating Group also has two additional production facilities
in Mexico. Lemery has a site located in Mexico City. It is currently the
Rakepoll Operating Group's only producer of drugs in finished dosage form, of
which injectable oncolytic agents are an important product line, which are
sold in Mexico and exported to certain countries in Central and South America,
North America and Eastern Europe.
Sintesis Lerma has a site located near Toluca, on the outskirts of Mexico
City, which produces principally steroid products for export to various
countries. Sintesis Lerma also recently began construction of a facility to
produce oncolytic agents which is currently expected to commence production in
1997. Production from this new facility will be used by Lemery to replace its
existing third party suppliers.
Employees
The Rakepoll Operating Group has more than 500 employees, of whom
approximately 30% work in Italy and 70% in Mexico. Approximately 25% of
employees have professional degrees. As is customary in Italy and Mexico, most
of the employees of the Rakepoll Operating Group companies are represented by
unions. The Rakepoll Operating Group companies have not experienced any
significant labor disputes in recent years and it considers its employee
relations to be good.
Distribution
The marketing and distribution of Sicor products is conducted primarily
through the Swiss branch of Alco Chemicals Ltd., a Guernsey company ("Alco
Chemicals"), which is wholly owned by Carlo Salvi, the controlling beneficial
owner of Rakepoll Finance. Alco Chemicals acts principally as an agent on
behalf of Sicor in connection with the distribution of Sicor's products
pursuant to a contract which provides that Alco Chemicals shall receive a
fixed rate of commission for such activities. In addition, Alco Chemicals has
also distributed certain Sicor products by means of the purchase and resale of
such products. Further, in certain countries, including the United States,
Alco Chemicals has made arrangements with local third party distributors to
purchase and resell certain Sicor products.
Alco Chemicals is also Sintesis Lerma's exclusive agent authorized to act on
its behalf in connection with the distribution of certain of its products.
Alco Chemicals may infrequently act in a similar capacity on behalf of Lemery.
Lemery and Sintesis Lerma each also sell products to third party distributors
or directly to end-user customers.
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RAKEPOLL HOLDING MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
Rakepoll Holding is owned 97.5% by Rakepoll Finance and 2.5% by OB Norden
Holding NV, which holds its shares in trust for Rakepoll Finance. Rakepoll
Holding itself owns 99.5% of Sicor. Sicor acquired 70% of Zanoni in January
1995 and the remaining 30% in June 1996. Sicor and Zanoni are collectively
referred to herein as the "Italian Companies."
Sintesis Lerma was acquired in 1994. Until late 1996, Sintesis Lerma was
owned 80% by the majority shareholder of Rakepoll Finance and 20% by two other
individuals closely related to Rakepoll Finance. In September 1996, all of the
20% minority interest, with the exception of one share, was acquired by
Rakepoll Holding.
Lemery, Ledeco and Inmobiliaria (the "Lemery Group") were acquired in 1989.
Until late 1996, 51% of each of the Lemery Group companies was indirectly
controlled by the majority shareholder of Rakepoll Finance. The remaining
interest was controlled by the same individuals who owned the minority
interest in Sintesis Lerma. In September 1996, indirect control of
substantially 100% of each of the Lemery Group companies was acquired by
Rakepoll Holding. These companies, together with Sintesis Lerma, are
collectively referred to herein as the "Mexican Companies."
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Net sales
Rakepoll Holding's combined net sales increased 25% to $56,499,000 in the
first nine months of 1996 from $45,144,000 for the same period in 1995. The
increase was attributable primarily to a 30% growth in net sales of the
Italian Companies, which increased to $43,147,000 in the first nine months of
1996 from $33,264,000 for the same period in 1995. This increase was due
primarily to an overall growth in sales volume, notably of higher volume
steroid products and higher margin anti-cancer products.
Net sales of steroid and anti-cancer products increased 3% and 107%,
respectively. The volume of steroid products sold increased 5% in the first
nine months of 1996 compared to the same period in 1995, while the volume of
anti-cancer and other products sold increased 48% in the same period although
from a smaller initial volume. Overall, the increased sales volumes were made
possible by expenditures of approximately $7,700,000 in 1996 to increase plant
capacity.
The Mexican Companies' net sales increased 10% to $13,352,000 in the first
nine months of 1996 from $12,087,000 for the same period in 1995, due
primarily to growth in Lemery's Mexican government sector sales. Sintesis
Lerma accounted for $1,482,000 of net sales in the first nine months of 1996.
There were no sales by Sintesis Lerma in the first nine months of 1995 since
its operations had not yet commenced.
Cost of Sales
Rakepoll Holding's combined cost of sales increased 7% to $35,760,000 in the
first nine months of 1996 from $33,470,000 for the same period in 1995. Cost
of sales as a percentage of sales improved to 63% in the first nine months of
1996 from 74% for the same period in 1995.
The overall decrease in the cost of sales percentage was attributable
primarily to the Italian Companies. The Italian Companies' cost of sales
percentage was 62% and 76% for the first nine months of 1996 and 1995,
respectively. The considerable reduction in the cost of sales percentage was
due mainly to a significant increase in sales of high margin products.
The Mexican Companies' cost of sales as a percentage of sales decreased to
66% in the first nine months of 1996 from 71% for the same period in 1995.
This decrease was due primarily to increased operating efficiencies.
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Selling, General and Administrative Expenses
Rakepoll Holding's combined selling, general and administrative ("SG&A")
expenses increased 40% to $9,483,000 in the first nine months of 1996 from
$6,776,000 for the same period in 1995. SG&A expenses as a percentage of net
sales increased to 18% from 15% in the first nine months of 1996 and 1995,
respectively.
The Italian Companies' SG&A expenses increased to $6,337,000 in the first
nine months of 1996 from $4,615,000 for the same period in 1995. As a
percentage of sales, SG&A remained essentially unchanged.
The Mexican Companies' SG&A expenses increased to $3,133,000 (representing
23% of sales) in the first nine months of 1996 from $2,132,000 (representing
18% of sales) for the same period in 1995. The increase is attributable to the
effect of inflation and the start up of Sintesis Lerma, which incurred
$420,000 of general and administrative expenses in 1996 and was offset in part
by increased operating efficiencies achieved during the period.
Research and Development Expenses
Rakepoll Holding's combined research and development ("R&D") expenses
increased 135% to $4,922,000 in the first nine months of 1996 from $2,092,000
for the same period in 1995. R&D expenses as a percentage of sales were 9% and
5% for the first nine months of 1996 and 1995, respectively.
The R&D expenses were incurred entirely by the Italian Companies and the
increase was due primarily to the growth of expenses incurred in connection
with the UK 101 project. As a result, the Italian Companies' R&D expenses as a
percentage of sales increased to 11% from 6% for the first nine months of 1996
and 1995, respectively.
Unusual Items
There were no unusual items reported for Rakepoll Holding for the first nine
months in 1996. In the first nine months of 1995, the Italian Companies
recorded a $2,400,000 provision related to the sale of certain contaminated
products. See Note 19 of Notes to Rakepoll Holding Combined Financial
Statements.
Operating Income
In the first nine months of 1996, Rakepoll Holding's combined operating
income increased to $6,333,000 compared to $406,000 for the same period in
1995. The overall increase was attributable primarily to the Italian
Companies' operations. The Italian Companies' operating income increased to
$4,871,000 in the first nine months of 1996 compared to a $998,000 loss for
the same period in 1995. This increase was due mainly to increased gross
margins in 1996 which were partially offset by growth in R&D expenses and the
impact of product contamination charges in 1995.
The Mexican Companies' operating income increased 3% to $1,475,000
(representing 11% of sales) for the first nine months in 1996 from $1,434,000
(representing 12% of sales) for the same period in 1995.
Taxation
Rakepoll Holding incurred income tax expense of $3,623,000 for the first
nine months in 1996 compared to an income tax benefit of $1,466,000 for the
same period in 1995. As a percentage of income before taxes, Rakepoll
Holding's effective tax rate increased to the statutory rate of 52% from a
benefit of 63%. The principal explanation for such change in effective tax
rate was a one-time tax benefit available in 1995 under Italian law and a
return to profitability in the 1996 period.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Net sales.
Rakepoll Holding's net sales increased 20% in 1995 to $60,736,000 from
$50,516,000 in 1994. The increase was attributable primarily to the 35% growth
in net sales of the Italian Companies, which increased to
68
<PAGE>
$46,664,000 in 1995 from $34,424,000 in 1994. The increase was due mainly to
growth in sales volume and a change in anti-cancer agent product mix. The
Zanoni operation, which was acquired in the first quarter of 1995, generated a
7% increase in 1995 net sales.
The Mexican Companies' net sales decreased 13% in 1995 to $14,072,000 from
$16,092,000 in 1994. This decrease was due primarily to the effects of
exchange rate movements during the period. In Mexican peso terms, the Mexican
Companies' net sales increased 69%, attributable primarily to Lemery's Mexican
government sector sales, which increased 32%.
Cost of Sales
Rakepoll Holding's combined cost of sales increased 29% to $46,198,000 in
1995 from $35,808,000 in 1994. Cost of sales as a percentage of sales
increased to 76% from 71% for the years 1995 and 1994, respectively. The
overall increase in the cost of sales percentage was attributable primarily to
the Mexican Companies. The Mexican Companies' cost of sales as a percentage of
sales increased to 71% from 65% for 1995 and 1994, respectively. The increase
resulted primarily from the effect of exchange rate movements which directly
affected the cost of raw materials purchased by the Mexican Companies.
Sintesis Lerma's cost of sales as a percentage of sales was 95% in 1995, its
first year of operations.
The Italian Companies' cost of sales as a percentage of sales increased to
78% from 74% for 1995 and 1994, respectively. The higher cost of sales
percentage was due primarily to Zanoni's performance, while Sicor's cost of
sales percentage remained substantially constant.
Selling, General and Administrative Expenses
Rakepoll Holding's combined SG&A expenses increased 12% to $8,762,000 in
1995 from $7,809,000 in 1994. SG&A expenses as a percentage of sales decreased
to 14% from 15% for 1995 and 1994, respectively.
The Italian Companies' SG&A expenses increased by approximately 33% and
remained stable as a percentage of sales at 13% for both 1995 and 1994.
The increase in SG&A expenses experienced by the Italian Companies was
offset in part by a 24% decrease in such expenses experienced by the Mexican
Companies. SG&A expenses for the Mexican Companies decreased to $2,811,000 in
1995 from $3,325,000 in 1994. SG&A expenses as a percentage of sales were 21%
and 20% for 1995 and 1994, respectively. If considered in Mexican peso terms,
SG&A expenses grew by 49% due to increased operations.
Research and Development Expenses
Rakepoll Holding's combined R&D expenses increased by 87% to $3,132,000 in
1995 from $1,677,000 in 1994. R&D expenses as a percentage of sales were 5%
and 3% for 1995 and 1994, respectively.
The R&D expenses were incurred entirely by the Italian Companies and the
increase was due primarily to the growth of expenses incurred in connection
with the UK 101 project which rose to $2,194,000 in 1995 from $1,229,000 in
1994. As a result, the Italian Companies' R&D expenses as a percentage of
sales increased to 7% from 5% for 1995 and 1994, respectively.
Unusual Items
During 1995, Sicor recorded a $2,701,000 provision for contingencies related
to the sale of certain contaminated products. See Note 19 of Notes to Rakepoll
Holding Combined Financial Statements. There was no similar provision in 1994.
Operating Income
Overall, Rakepoll Holding experienced a sharp decline in combined operating
income, resulting in an operating loss of $57,000 in 1995 compared to
operating income of $5,222,000 in 1994.
69
<PAGE>
The decline was due mainly to an operating loss of $1,250,000 incurred by
the Italian Companies in 1995 compared with operating income of $2,924,000 in
1994, which resulted primarily from Sicor's provision for contaminated
products, the increase in UK 101 R&D expenses and Zanoni's negative operating
results.
The Mexican Companies experienced a $1,100,000 decrease in operating income
in 1995. Lemery had operating income of $1,212,000 in 1995 compared to
operating income of $2,314,000 in 1994. This decline was due mainly to
exchange rate movements.
Taxation
Rakepoll Holding had a combined income tax benefit of $1,727,000 in 1995,
compared to a tax expense of $1,960,000 for the same period in 1994. As a
percentage of income before taxes, Rakepoll Holding's effective income tax
rate decreased to a benefit of 41% from an expense of 155% for 1995 and 1994,
respectively. The reported benefit in 1995 was less than the expected benefit
of approximately 52% of income before taxes due to numerous non-deductible
items and taxes due in Mexico, offset by tax credits realized on fixed-asset
investments. The reported tax rate in 1994 of 155% was greater than the
expected tax rate of 52% due to numerous non-deductible items and higher tax
rates in Mexico.
YEARS ENDED DECEMBER 31, 1994 AND 1993
Net Sales
Rakepoll Holding's combined net sales increased 15% to $50,516,000 in 1994
from $43,799,000 in 1993. The increase was attributable primarily to the 49%
growth in net sales of the Mexican Companies, which increased to $16,092,000
in 1994 from $10,798,000 in 1993. The increase was attributable primarily to
growth in Lemery's Mexican government sector sales.
The Italian Companies' net sales increased 4% to $34,424,000 in 1994 from
$33,001,000 in 1993. This increase was due to a 24% increase in sales volume
and a decrease in product prices. The Italian Companies' increased sales
volume was attributable mainly to steroid products.
Cost of Sales
Rakepoll Holding's combined cost of sales increased 9% to $35,808,000 in
1994 from $32,853,000 in 1993. Cost of sales as a percentage of sales
decreased to 71% from 75% for 1994 and 1993, respectively. The overall
decrease in the cost of sales percentage was attributable primarily to the
Mexican Companies. The Mexican Companies' cost of sales as a percentage of
sales decreased to 65% from 73% for 1994 and 1993, respectively. The decrease
in 1994 resulted generally from increased efficiencies, and an increase in
product sales volumes and prices.
The Italian Companies' cost of sales as a percentage of sales decreased to
74% from 76% for 1994 and 1993, respectively. The decrease in cost of sales
percentage was related primarily to the depreciation of the Italian lire
against the U.S. dollar (approximately 3.8%) which affected approximately half
of the cost of sales (all costs of production are incurred in local currency).
Selling, General and Administrative Expenses
Rakepoll Holding's SG&A expenses increased 20% to $7,809,000 in 1994 from
$6,489,000 in 1993. SG&A expenses as a percentage of sales were, however,
constant at 15% for both years.
SG&A expenses for the Italian Companies increased to $4,468,000 in 1994 from
$3,867,000 in 1993 and as a percentage of sales to 13% from 12% for 1994 and
1993, respectively. The increase was due to the net effect of exchange rate
movements in various local currency administrative and general expenses.
The Mexican Companies' SG&A expenses increased to $3,325,000 in 1994 from
$2,604,000 in 1993. As a percentage of sales, SG&A decreased to 20% from 24%
for 1994 and 1993, respectively.
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<PAGE>
Research and Development Expenses
Rakepoll Holding's combined R&D expenses increased 432% in 1994 to
$1,677,000 from $315,000 in 1993. R&D expenses as a percentage of sales were
3% and 1% for 1994 and 1993, respectively.
The R&D expenses were incurred entirely by the Italian Companies and the
increase was due primarily to the growth in expenses incurred in connection
with the start of the UK 101 project. Expenses related to this project
amounted to $1,229,000 in 1994. As a result, the Italian Companies' R&D
expenses as a percentage of sales rose to 5% from 1% for 1994 and 1993,
respectively.
Operating Income
Rakepoll Holding's operating income increased 26% to $5,222,000 in 1994 from
$4,142,000 in 1993. Operating income as a percentage of sales increased to 10%
from 9% for 1994 and 1993, respectively. The overall increase was attributable
primarily to the Mexican Companies' operations.
The Mexican Companies' operating income increased over sixfold in 1994 to
$2,398,000 from $332,000 in 1993. Operating income as a percentage of sales
increased to 14% from 3% for 1994 and 1993, respectively, due to the factors
discussed above. The Italian Companies' operating income decreased by 24% to
$2,924,000 in 1994 from $3,828,000 in 1993, and as a percentage of sales to 8%
from 12% for 1994 and 1993, respectively. The decline in operating income was
due to expenses incurred in connection with the UK 101 project.
Taxation
Rakepoll Holding's combined income tax expense increased to $1,960,000 in
1994 from $1,476,000 in 1993. Rakepoll Holding's effective income tax rate was
155% and 74% for 1994 and 1993, respectively.
This change was due primarily to the following: (i) the effect of a decrease
in 1994 of a non-deductible provision for fiscal contingencies; (ii) the
increase in taxes in 1994 in Mexico; and (iii) the expiration of a net
operating loss carryforward at the end of 1994.
LIQUIDITY AND CAPITAL RESOURCES
During most of the periods presented, Rakepoll Holding has generated
insufficient liquidity from operations to meet its cash needs. Consequently,
in order to fund growth in both the production capacity and sales of its
operating companies, Rakepoll Holding has relied on sources of short- and
long-term borrowings and permanent capital.
During the first nine months of 1996, Rakepoll Holding generated $795,000
cash from operating activities. In contrast, it used cash in operating
activities totaling $5,059,000 and $2,112,000 during 1995 and 1994,
respectively.
In achieving a 25% increase in net sales for the first nine months in 1996,
compared to the same period in 1995, Rakepoll Holding's accounts receivable
increased by $9,339,000 at September 30, 1996 over the balance at December 31,
1995. Because most of this increase related to sales by the Italian Companies,
Rakepoll Holding was able to generate cash through additional short-term
borrowings in which trade receivables are pledged to banks.
In addition, in order to position itself for both current sales and future
growth, and because of certain production issues related to the product
contamination matter discussed in Note 19 of Notes to Rakepoll Holding's
Combined Financial Statements and matters related to the capacity of its
quality control department, Rakepoll Holding's inventories increased at
September 30, 1996 by $12,322,000 over the balance carried at December 31,
1995. This growth in inventories was funded through increased trade and other
current payable balances and other borrowings.
71
<PAGE>
Capital expenditures for the first nine months in 1996 amounted to
approximately $7,700,000. To substantially fund these expenditures, Rakepoll
Holding's operating companies borrowed $3,200,000, net of repayments, during
the period, and sold newly issued stock for approximately $2,000,000. Capital
expenditures were used to meet the requirements of new plant safety laws,
improve plant operating efficiencies, including expansion of the quality
control department, construct production facilities and increase the capacity
of Sicor's fermentation plant.
At September 30, 1996, the Italian Companies had unused short-term borrowing
capacity of approximately $1.5 million. Rakepoll Holding anticipates that its
current operating results, expectations for improvements in operations, and
existing commitments from third parties for additional borrowings will enable
it to finance its operating requirements and planned capital expenditures
during the next 12 to 18 months.
IMPACT OF FOREIGN CURRENCY RISK AND INFLATION
Foreign Currency
Rakepoll Holding's subsidiaries are subject to foreign exchange risk in
their operations since a portion of their sales and purchases are denominated
in currencies other than the U.S. dollar. The majority of Sicor's sales and
purchases of raw materials are denominated in U.S. dollars. In order to reduce
its exposure to foreign exchange risk related to U.S. dollar denominated
sales, Sicor has entered into agreements with several banks whereby it borrows
against its receivables in Italian lire, pays interest to the banks during the
period in which the receivables are outstanding, and is relieved of any
potential foreign exchange gain or loss. Sicor also enters into forward
exchange contracts to reduce its exposure to exchange rate movements.
The Mexican Companies are exposed to movements in the exchange rate of the
Mexican peso, particularly in comparison to the U.S. dollar. The Mexican
Companies historically have not entered into foreign currency contracts in
order to hedge their foreign exchange risk, due to managements' belief that
the cost of such hedges outweigh the benefits they might provide. Most of the
sales by the Mexican Companies are denominated in Mexican pesos, while their
purchases of goods and materials are denominated in U.S. dollars.
Inflation
The Italian Companies' operating results have not been significantly
impacted by inflation. As discussed above, most of Sicor's sales and purchases
of raw material are denominated in U.S. dollars, and the underlying rates of
inflation impacting local operating costs in Italy have not been significant
in recent years.
Mexican inflation rates for 1993-1995 and for the first nine months of 1996
were as follows:
<TABLE>
<CAPTION>
PERIOD PERCENTAGE INCREASE
------ -------------------
<S> <C>
1993................................................ 8%
1994................................................ 7%
1995................................................ 52%
1996................................................ 20%
</TABLE>
Inflation has caused the Mexican Companies to continually increase the
selling prices of their products in order to compensate for the impact of the
devaluation of their inventories, the raw materials for which were purchased
predominantly with U.S. dollars.
72
<PAGE>
PRO FORMA CONSOLIDATED COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated combined condensed balance
sheet as of September 30, 1996 and the unaudited pro forma consolidated
combined condensed statements of operations for the year ended December 31,
1995 and the nine months ended September 30, 1996 give effect to the proposed
Stock Exchange as of September 30, 1996 for the pro forma consolidated
combined condensed balance sheet and as of January 1, 1995 for the pro forma
consolidated combined condensed statements of operations.
The pro forma consolidated combined condensed financial statements are based
on historical financial statements of Gensia and Rakepoll Holding, giving
effect to the Stock Exchange applying the purchase method of accounting and
the assumptions and adjustments as discussed in the accompanying notes to the
pro forma consolidated combined condensed financial statements. These pro
forma consolidated combined condensed financial statements have been prepared
by the management of Gensia and Rakepoll Holding based upon the audited
consolidated financial statements of Gensia and the audited combined financial
statements of Rakepoll Holding, in each case, as of December 31, 1995 and for
the year then ended, and the unaudited consolidated financial statements of
Gensia and the unaudited combined financial statements of Rakepoll Holding, in
each case, as of September 30, 1996 and for the nine months then ended. The
unaudited pro forma consolidated combined condensed financial statements
should be read in conjunction with the historical financial statements and
notes thereto and narrative sections incorporated by reference or included
elsewhere herein. The pro forma consolidated combined condensed financial
statements are not necessarily indicative of what actual results of operations
would have been for the periods had the transaction occurred on the dates
indicated and do not purport to indicate the results of future operations.
73
<PAGE>
GENSIA SICOR, INC.
PRO FORMA CONSOLIDATED COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
RAKEPOLL PRO-
GENSIA HOLDING PRO-FORMA FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash, cash equivalents and
short-term investments........ $ 27,022 $ 1,221 $ (100)(c) $ 28,143
Trade accounts receivable...... 7,309 26,221 -- 33,530
Inventories.................... 13,349 30,879 -- 44,228
Other current assets........... 3,104 7,379 -- 10,483
-------- -------- -------- --------
Total current assets......... 50,784 65,700 (100) 116,384
Property and equipment, net...... 30,888 34,296 5,000 (e) 70,184
Goodwill......................... -- -- 109,199 (g) 109,199
Other assets..................... 8,305 3,581 -- 11,886
-------- -------- -------- --------
$ 89,977 $103,577 $114,099 $307,653
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term borrowings.......... $ -- $ 16,602 $ -- $ 16,602
Current portion of long-term
obligations................... 134 6,883 (3,040)(a) 3,977
Accounts payable............... 7,072 35,751 -- 42,823
Other current liabilities...... 6,619 8,666 11,000 (d) 26,285
Current portion of deferred
credits....................... 1,500 653 -- 2,153
-------- -------- -------- --------
Total current liabilities.... 15,325 68,555 7,960 91,840
Long-term obligations, less
current portion................. 136 20,407 (9,546)(a) 10,997
Other liabilities................ -- 3,685 -- 3,685
Deferred credits, less current
portion......................... 875 -- -- 875
Stockholders' equity:
Preferred stock................ 16 -- -- 16
Common stock................... 370 5,152 (5,152)(b) 665
295 (c)
Additional paid-in capital..... 327,474 7,182 12,586 (a) 473,794
(19,768)(b)
146,320 (c)
Accumulated deficit............ (253,993) (583) 583 (b) (273,993)
(20,000)(f)
Unearned compensation.......... (226) -- -- (226)
Cumulative translation
adjustments................... -- (821) 821 (b) --
-------- -------- -------- --------
Total stockholders' equity... 73,641 10,930 115,685 200,256
-------- -------- -------- --------
$ 89,977 $103,577 $114,099 $307,653
======== ======== ======== ========
</TABLE>
74
<PAGE>
GENSIA SICOR, INC.
PRO FORMA CONSOLIDATED COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RAKEPOLL
GENSIA HOLDING PRO-FORMA PRO-FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Product sales.......... $ 53,464 $ 60,736 $ (2,653)(a) $ 111,547
Contract research and
license fees.......... 11,062 -- -- 11,062
Interest and other
income, net........... 2,086 470 -- 2,556
License restructuring
fee................... 50,000 -- -- 50,000
Sale of investment..... 5,359 -- -- 5,359
---------- -------- -------- ----------
Total revenues....... $ 121,971 $ 61,206 $ (2,653) $ 180,524
---------- -------- -------- ----------
Costs and Expenses:
Costs of sales......... 33,183 46,198 (2,653)(a) 77,228
500 (d)
Research and
development........... 38,762 3,132 (15,852)(c) 26,042
Selling, general and
administrative........ 31,137 8,761 1,000 (g) 40,898
Amortization of
goodwill.............. -- -- 4,368 (e) 4,368
Foreign exchange
losses, net........... -- 1,592 -- 1,592
Interest and other..... 872 3,084 (808)(b) 3,148
Provision for
restructuring......... 1,092 -- -- 1,092
Provision for
contamination
settlement............ -- 2,701 -- 2,701
Litigation settlement.. 4,000 -- -- 4,000
Write-off of in-process
technology............ 18,269 -- -- 18,269
---------- -------- -------- ----------
Total costs and
expenses............ $ 127,315 $ 65,468 $(13,447) $ 179,338
---------- -------- -------- ----------
Income (loss) before
taxes, minority interest
and dividends on
preferred stock......... (5,344) (4,262) 10,794 1,186
Income tax
benefit/(expense)..... (550) 1,727 -- 1,177
---------- -------- -------- ----------
Income (loss) before
minority interest and
dividends on preferred
stock................... (5,894) (2,535) 10,794 2,363
Minority interest...... -- 150 -- 150
---------- -------- -------- ----------
Income (loss) before
dividends on preferred
stock................... (5,894) (2,385) 10,794 2,513
Dividends on preferred
stock................... (6,000) -- -- (6,000)
---------- -------- -------- ----------
Net loss applicable to
common shares........... $ (11,894) $ (2,385) $ 10,794 $ (3,487)
========== ======== ======== ==========
Net loss per common
share................... $ (0.36) $(59,625) $ (0.06)(h)
Shares used in computing
per share amounts....... 33,231,000 40 62,731,000 (h)
</TABLE>
NOTE: The above Pro Forma Consolidated Combined Condensed Statement of
Operations does not include a $20.0 million charge for the estimated fair
value of acquired in-process technology of Rakepoll Holding as it is a
nonrecurring charge. This amount is only an estimate and may change upon
completion of the valuation process.
75
<PAGE>
GENSIA SICOR, INC.
PRO FORMA CONSOLIDATED COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED, IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RAKEPOLL
GENSIA HOLDING PRO-FORMA PRO-FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product sales........... $ 39,379 $56,499 $(1,708)(a) $ 94,170
Contract research and
license fees........... 2,479 -- -- 2,479
Interest and other
income, net............ 1,784 598 -- 2,382
Foreign exchange gains,
net.................... 2,687 -- 2,687
---------- ------- ------- ----------
Total revenues........ $ 43,642 $59,784 $(1,708) $ 101,718
---------- ------- ------- ----------
Costs and Expenses:
Costs of Sales.......... 29,247 35,760 (1,708)(a) 63,674
375 (d)
Research and
development............ 24,756 4,922 (8,054)(c) 21,624
Selling, general and
administrative......... 23,663 9,483 (751)(f) 33,145
750 (g)
Amortization of
goodwill............... -- -- 3,276 (e) 3,276
Interest and other...... 632 2,729 (718)(b) 2,643
---------- ------- ------- ----------
Total costs and
expenses............. $ 78,298 $52,894 $(6,830) $ 124,362
---------- ------- ------- ----------
Income (loss) before taxes
and dividends
on preferred stock....... (34,656) 6,890 5,122 (22,644)
Income tax expense...... -- (3,623) -- (3,623)
---------- ------- ------- ----------
Income (loss) before
dividends
on preferred stock....... (34,656) 3,267 5,122 (26,267)
Dividends on preferred
stock.................... (4,496) -- -- (4,496)
---------- ------- ------- ----------
Net income (loss)
applicable to common
shares................... $ (39,152) $ 3,267 $ 5,122 $ (30,763)
========== ======= ======= ==========
Net income (loss) per
common share............. $ (1.08) $81,675 $ (0.47)(h)
Shares used in computing
per share amounts........ 36,196,000 40 65,696,000 (h)
</TABLE>
NOTE: The above Pro Forma Consolidated Combined Condensed Statement of
Operations does not include a $20.0 million charge for the estimated fair
value of acquired in-process technology of Rakepoll Holding as it is a
nonrecurring charge. This amount is only an estimate and may change upon
completion of the valuation process.
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<PAGE>
GENSIA SICOR, INC.
NOTES TO PRO FORMA CONSOLIDATED COMBINED CONDENSED FINANCIAL STATEMENTS
1. HISTORICAL
The historical balances represent the financial position and results of
operations for each company and were derived from the respective financial
statements for the indicated period.
2. PRO FORMA
Pursuant to the proposed Stock Exchange, if consummated, Gensia will acquire
all of the outstanding shares of capital stock of Rakepoll Holding in exchange
for 29,500,000 shares of Gensia Common Stock and $100,000 in cash. The
acquisition will be accounted for as a purchase and Rakepoll Holding will
become a wholly-owned subsidiary of Gensia. The estimated purchase price for
Rakepoll Holding of $157,715,000 consists of the following: (i) the
$146,615,000 market value of the shares of Gensia Common Stock which will be
issued to Rakepoll Holding stockholders (29,500,000 shares of Gensia Common
Stock at $4.97 per share), (ii) cash payment of $100,000 to Rakepoll Holding
stockholders, and (iii) estimated transaction costs of $11,000,000. Gensia
will obtain valuations of the tangible and intangible assets, as well as in-
process technology, in order to properly allocate the estimated total purchase
price to all of the assets acquired and liabilities assumed as required by
Accounting Principles Board Opinion No. 16. Pending completion of such
valuations, Gensia has assumed a net write-up of property and equipment of
$5.0 million and assigned an estimated value of $20.0 million to in-process
technology, with the excess of the estimated purchase price over the estimated
fair value of net assets acquired of $109.2 million recognized as goodwill.
The final purchase price will depend upon Rakepoll Holding's closing balance
sheet and the completion of the valuation of tangible and intangible assets
including in-process technology. Accordingly, goodwill and related
amortization reflected in the Pro Forma Financial Statements may change based
on the final accounting. The amount of goodwill recognized may also change due
to other factors including a change in the Rakepoll Holding stockholders'
equity balance from September 30, 1996.
The Pro Forma Consolidated Combined Condensed Balance Sheet has been
prepared to reflect the Stock Exchange as if it occurred on September 30,
1996. The Pro Forma Consolidated Combined Condensed Statements of Operations
have been prepared to reflect the Stock Exchange as if it occurred on January
1, 1995 for the twelve months ended December 31, 1995 and on January 1, 1996
for the nine months ended September 30, 1996. The following pro forma
adjustments are reflected in the pro forma combined condensed financial
statements:
PRO FORMA CONSOLIDATED COMBINED CONDENSED BALANCE SHEET:
(a) Conversion of Rakepoll Holding affiliate debt as of September 30,
1996 into Rakepoll equity as specified in the Stock Exchange Agreement.
(b) Elimination of Rakepoll Holding's equity accounts as required by
generally accepted accounting principles.
(c) Issuance of 29,500,000 shares of Gensia Common Stock at a fair market
value of $4.97 per share and the payment of $100,000 to Rakepoll Holding
shareholders.
(d) Accrual of certain costs associated with the Stock Exchange.
(e) Adjustment of Rakepoll Holding's assets and liabilities to the
estimated fair values thereof at the date of the Stock Exchange. This
amount is only an estimate and may change upon completion of the valuation
of such assets.
(f) Write-off of the portion of the purchase price allocated to estimated
acquired in-process technology of Rakepoll Holding, which will be charged
to the statement of operations upon consummation of the Stock Exchange.
This amount is not included in the Pro Forma Consolidated Combined
Condensed Statements of
77
<PAGE>
Operations as it represents a nonrecurring charge. This amount is only an
estimate and may change upon completion of the valuation of such in-process
technology.
(g) Recognition of goodwill for the excess of the estimated purchase
price over the estimated net fair value of assets acquired and liabilities
assumed. This amount is only an estimate and may change upon completion of
the valuation of tangible and intangible assets including in-process
technology, as well as other factors.
PRO FORMA CONSOLIDATED COMBINED CONDENSED STATEMENTS OF OPERATIONS:
(a) Elimination of intercompany product sales and cost of sales between
Gensia and Rakepoll Holding.
(b) Reduction in interest expense upon the conversion of Rakepoll Holding
affiliate debt into Rakepoll Holding equity as specified in the Stock
Exchange Agreement. The weighted average annual interest rate for the
affiliate debt is approximately 8.5%.
(c) Adjustment to research and development expenses for cost reductions
required by Amendment No. 1, dated as of December 16, 1996, to the Stock
Exchange Agreement. As stated in Amendment No. 1, prior to consummation of
the Stock Exchange, Gensia must either reduce its research activities to
the level at which third party funding for such activities has been
obtained or terminate any such unfunded research activities. These adjusted
amounts reflect spending on research activities at a level for which
funding has already been obtained and do not assume any additional funding
for research activities.
(d) Increase in depreciation resulting from the estimated adjustment of
property and equipment to the estimated net fair value, assuming a useful
life of ten years.
(e) Amortization over 25 years of goodwill resulting from excess of the
estimated purchase price over the estimated net fair value of assets
acquired and liabilities assumed. This amount is only an estimate and may
change upon final determination of the goodwill amount and amortization
period.
(f) Reduction for costs associated with the transaction which were
expensed by Rakepoll Holding in the nine-month historical amounts.
(g) Adjustment to reflect estimated increase in general and
administrative expenses for operation of a multinational public company.
(h) The net loss per share and the shares used in computing the net loss
per share are based upon the historical weighted average common shares
outstanding for the respective periods, adjusted to reflect the issuance of
29,500,000 shares of Gensia Common Stock to Rakepoll Holding stockholders
as of January 1, 1995.
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<PAGE>
PROPOSAL TO AMEND AND RESTATE
GENSIA'S CERTIFICATE OF INCORPORATION
By resolution adopted on November 12, 1996, the Gensia Board of Directors
proposed the adoption by Gensia stockholders of an amendment and restatement
of Gensia's Certificate of Incorporation, pursuant to which (i) Gensia's name
would be changed to "Gensia Sicor Inc.," (ii) the number of authorized shares
of Gensia Common Stock would be increased from 75,000,000 to 125,000,000 and
(iii) the number of authorized shares of preferred stock designated as Series
I Participating Preferred Stock, $.01 par value, would be increased from
100,000 to 125,000. The Gensia Board of Directors further directed that such
proposed amendment and restatement be submitted to a vote of Gensia
stockholders at the Special Meeting.
As of January 1, 1997 there were (i) 39,657,982 shares of Gensia Common
Stock outstanding, with 4,338,879 shares reserved for issuance pursuant to
grants under certain employee benefit plans and 2,154,522 shares reserved for
issuance pursuant to outstanding warrants or contingent value rights, and (ii)
1,600,000 shares of Gensia Convertible Preferred Stock outstanding. Pursuant
to the Stock Exchange Agreement, Gensia will issue to Rakepoll Holding
29,500,000 shares of Gensia Common Stock, and has also reserved for issuance
an additional 2,000,000 shares of Gensia Common Stock issuable upon the
exercise of options which may be granted under the 1997 Stock Plan.
Presently authorized and unreserved shares are not sufficient to permit the
consummation of the Stock Exchange. Approval of the amendment and restatement
of Gensia's Certificate of Incorporation is necessary in order to consummate
the Stock Exchange. Further, the Gensia Board of Directors believes it is
desirable that Gensia have the flexibility to issue a substantial number of
shares of Gensia Common Stock without further stockholder action unless
required by applicable law or regulation. The availability of additional
shares will enhance Gensia's flexibility in connection with possible future
actions, such as corporate mergers, acquisitions of property, stock dividends,
stock splits and employee benefit programs. The Gensia Board of Directors will
determine whether, when and on what terms the issuance of shares of Gensia
Common Stock may be warranted in connection with any of the foregoing
purposes.
The Gensia Board of Directors does not intend to seek further stockholder
approval prior to the issuance of any additional shares in future transactions
unless required by law, Gensia's Certificate of Incorporation, or the rules of
any stock exchange upon which the stock may be listed, or unless Gensia deems
it advisable to do so. Further, the Gensia Board of Directors does not intend
to issue any Gensia Common Stock to be authorized under its Certificate of
Incorporation except upon terms the Gensia Board of Directors deems to be in
the best interests of Gensia and its stockholders. The issuance of additional
Gensia Common Stock without further stockholder approval may, among other
things, have a dilutive effect on earnings per share and on the equity of the
present holders of Gensia Common Stock and their voting rights. Holders of
Gensia Common Stock have no preemptive rights.
Under certain circumstances the additional shares of Gensia Common Stock
available for issuance could be used to create voting impediments or to
frustrate persons seeking to effect a takeover or otherwise gain control of
Gensia. Such shares could be privately placed with a purchaser who might side
with the Gensia Board in opposing a hostile takeover bid, or issued in a
merger or transaction that would increase the number of outstanding shares,
thereby possibly diluting the interest of a party attempting to gain control
of Gensia. In addition, the Gensia Board could authorize holders of a series
of Gensia preferred stock to vote as a class, either separately or with the
holders of Gensia Common Stock, on any merger, sale or exchange of assets by
Gensia or any other extraordinary corporate transaction. Another method of
using authorized but unissued Gensia preferred stock or Gensia Common Stock to
discourage unsolicited takeover attempts would be to issue as a dividend to
holders of Gensia Common Stock "poison pill" rights to acquire Gensia
preferred stock or Gensia Common Stock. These rights, issued pursuant to a
stockholder rights plan, are designed to protect against takeovers at an
inadequate price or otherwise not in the best interests of all of the
stockholders. Stockholder rights plans often include provisions empowering the
issuer's board of directors to redeem the rights and thus remove any
impediments to a proposed transaction created by the rights.
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<PAGE>
As a result of the Stock Exchange and related transactions, Gensia intends
to eliminate or establish a separate business for its basic research programs
and to establish a separate subsidiary for its medical products business,
thereby creating a specialty pharmaceutical company with a major focus on the
oncology market and on multisource pharmaceuticals for the acute care market.
Sicor, a Rakepoll Holding subsidiary, is a prominent worldwide supplier of
specialty bulk drug substances with a primary emphasis on oncological
compounds which also offers a broad range of corticosteroids for dermatologic
diseases and asthma. In light of the foregoing, the Gensia Board believes that
a change of Gensia's name to Gensia Sicor Inc. would more appropriately
reflect the modified corporate focus and objectives of the post-Stock Exchange
company and allow Gensia to capitalize on the goodwill associated with the
Sicor name.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSAL TO AMEND AND RESTATE GENSIA'S CERTIFICATE OF INCORPORATION.
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PROPOSAL TO ADOPT THE GENSIA 1997 LONG-TERM INCENTIVE PLAN
By resolution adopted on November 12, 1996, the Gensia Board of Directors
adopted, subject to stockholder approval at the Special Meeting, the 1997
Stock Plan. The 1997 Stock Plan would replace Gensia's 1990 Stock Plan (the
"1990 Stock Plan") and will be effective on the date approved by stockholders
of Gensia. The full text of the 1997 Stock Plan, substantially in the form in
which it will take effect if approved by Gensia stockholders, is set forth in
Annex D to this Proxy Statement. The following summary of the principal
features of the 1997 Stock Plan is subject to, and qualified in its entirety
by, Annex D.
PURPOSE
The purpose of the 1997 Stock Plan is to promote the interests of Gensia and
its stockholders by encouraging key individuals to acquire stock or to
increase their proprietary interest in Gensia. By providing the opportunity to
acquire stock or receive other incentives, Gensia seeks to attract and retain
those key employees upon whose judgment, initiative and leadership the success
of Gensia largely depends. While the maximum number of shares available for
award is modest in comparison to the total number of shares of Gensia Common
Stock outstanding, the Gensia Board of Directors believes that the 1997 Stock
Plan will constitute an important means of compensating key employees.
SHARES SUBJECT TO 1997 STOCK PLAN
There are 2,000,000 shares of Gensia Common Stock reserved for issuance
under the 1997 Stock Plan. This amount will be increased by any shares not
subject to exercise under the 1990 Stock Plan or which are not exercised
because of forfeiture or termination of options granted under the 1990 Stock
Plan.
THE 1990 STOCK PLAN
The 1997 Stock Plan, if approved by Gensia's stockholders, will replace the
1990 Stock Plan. Under the 1990 Stock Plan, 6,383,334 shares of Gensia Common
Stock have been reserved for issuance either by direct sale or upon exercise
of options granted to outside directors, employees (including officers and
directors who are also employees) and independent contractors (who are not
directors). The 1990 Stock Plan provided for the grant of both incentive stock
options and nonstatutory stock options. If any options granted under the 1990
Stock Plan for any reason expire or are canceled or otherwise terminated
without having been exercised in full, the shares allocable to the unexercised
portion of such options again become available for the 1997 Stock Plan. If
shares issued under the 1990 Stock Plan are forfeited, they also become
available for new grants under the 1997 Stock Plan.
As of January 1, 1997, options to purchase an aggregate of 3,655,879 shares
of Gensia Common Stock at a weighted average exercise price of $5.71 per share
were outstanding under the 1990 Stock Plan. As of January 1, 1997,
approximately 469 employees, nine directors and 38 consultants or advisors
were eligible to participate in the 1990 Stock Plan. On January 10, 1997, the
closing price for Gensia's Common Stock on the NNM was $4 17/32. The
foregoing numbers do not include options granted to former employees. To date,
all employee stock options have been granted with exercise prices equal to the
fair market value of Gensia's Common Stock on the date of grant, as determined
by the Stock Option Committee in accordance with the provisions of the 1990
Stock Plan. Of the options granted under the 1990 Stock Plan, 942,152 have
been exercised. As of January 1, 1997, 86,250 shares of Gensia Common Stock
had been issued for direct sale under the 1990 Stock Plan. As of January 1,
1997, a total of 603,774 shares of Gensia Common Stock were available for
future options, grants or direct sales under the 1990 Stock Plan.
As of January 1, 1997, the following persons or groups had in total,
received options to purchase shares of Gensia Common Stock under the 1990 Plan
as follows: (i) the Chief Executive Officer and the other remaining officers
named in the Summary Compensation Table: Mr. Hale 447,500 shares, Mr. Burgess
82,500 shares and Mr. Walsh 45,000 shares; (ii) all current executive officers
of Gensia as a group: 915,850 shares; (iii) all current
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<PAGE>
directors who are not executive officers as a group: 262,000 shares; (iv) each
associate of any of such directors, executive officers or nominees: no shares;
(v) each person who as received five percent of options granted other than
those named above: no shares; and (vi) all employees and consultants of
Gensia, including all current officers who are not executive officers, as a
group: 3,418,331 shares. The foregoing numbers do not include options that
were surrendered in connection with the grant of restricted stock awards or
options for 19,750 shares which have been exercised.
DESCRIPTION OF 1997 STOCK PLAN
ADMINISTRATION
The 1997 Stock Plan will be administered by the Stock Option Committee (the
"Committee"), composed of directors who are disinterested persons under Rule
16b-3 of the Exchange Act ("Rule 16b-3") or Code Section 162(m) and smaller
committees of directors as established by the Gensia Board. In the case of
grants to persons who are not also insiders for purposes of Section 16 of the
Exchange Act, the 1997 Stock Plan may be administered by officers who are not
directors. The Gensia Board of Directors may fill vacancies from time to time
to remove or add members.
The Committee selects those employees of Gensia or its subsidiaries who will
be eligible to receive awards under the 1997 Stock Plan. The 1997 Stock Plan
provides that the Committee may grant to eligible individuals any combination
of nonqualified stock options, incentive stock options, restricted stock,
stock appreciation rights, performance awards, stock payments or dividend
equivalents. Each grant will be memorialized in a separate agreement with the
person receiving the grant. This agreement will indicate the type and terms of
the award. 2,000,000 shares have been reserved for grants under the 1997 Stock
Plan.
NON-EMPLOYEE DIRECTOR GRANTS
Non-employee directors are eligible to receive nonqualified stock options
under the 1997 Stock Plan in the sole discretion of the full Gensia Board of
Directors. These grants are designed to comply with the provisions of Rule
16b-3 and are made at the conclusion of each regular annual meeting of
stockholders to incumbent non-employee directors who will continue to serve on
the Gensia Board of Directors thereafter. The shares of Gensia Common Stock
will be issued for past service by the non-employee directors and without
payment of any purchase price. New non-employee directors will receive an
initial grant of nonqualified stock options unless they had received an
initial grant at the conclusion of the annual stockholder meeting in the same
calendar year.
Total shares available to non-employee directors may not exceed 15% of the
maximum number of shares available under the 1997 Stock Plan.
STOCK OPTIONS
Nonqualified stock options will provide for the right to purchase shares of
Gensia Common Stock at a price which is not less than 85% of the fair market
value of Gensia Common Stock subject to the option on the effective date of
the grant. These options will be granted for a term which may not exceed ten
years.
Incentive stock options will be designed to comply with the provisions of
the Code, and will be subject to restrictions contained in the Code. Incentive
stock options will be granted with an exercise price of not less than 100% of
the fair market value of the Gensia Common Stock subject to the option on the
date of grant and will extend for a term of up to ten years. Incentive stock
options granted to persons who own more than 10% of the combined voting power
of Gensia's outstanding securities must be granted at prices which are not
less than 110% of fair market value on the date of grant and may not extend
for more than five years from the date of grant.
The option exercise price must be paid in full at the time of exercise. The
price may be paid in cash or, as acceptable to the Committee, by loan made by
Gensia to the participant, by arrangement with a broker where payment of the
option price is guaranteed by the broker, by the surrender of shares of Gensia
owned by the participant exercising the option and having a fair market value
on the date of exercise equal to the option price, or by any combination of
the foregoing equal to the option price.
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Options for employees will have such other terms and be exercisable in such
manner and at such times as the Committee may determine. As noted below, all
awards under the 1997 Stock Plan vest fully and immediately upon death,
disability or upon a change in control. In addition, an option agreement for
an employee may provide for accelerated exercisability in the case of other
events as determined by the Committee.
The Committee may, at any time prior to exercise and subject to consent of
the participant, amend, modify or cancel any options previously granted and
may or may not substitute in their place options at a different price and of a
different type under different terms or in different amounts.
RESTRICTED STOCK
Restricted stock may be granted or sold to employees for prices determined
by the Committee and subject to such restrictions as may be appropriate. It is
anticipated that restricted stock would be forfeited and would be resold to
Gensia at cost in the event that "vesting" is not achieved by virtue of
seniority or performance or other criteria. In general, restricted shares may
not be sold, transferred or hypothecated until restrictions are removed or
expire. Purchasers of restricted stock, unlike recipients of options, will
have voting rights and will receive dividends, if any, prior to the time when
the restrictions lapse.
STOCK APPRECIATION RIGHTS
Stock appreciation rights ("SARs") may be granted in tandem with stock
options or separately. If SARs are granted in tandem with options, the options
may be either nonqualified or incentive stock options. SARs granted by the
Committee in tandem with stock options will provide for payments to grantees
based upon increases in the price of Gensia Common Stock over the exercise
price of the related option. The SARs will provide that the holder of the SARs
may exercise the SARs or the option in whole or in part, but the aggregate
exercise may not cover more than the aggregate number of shares upon which the
value of the SARs is based. SARs granted in tandem with options may not extend
beyond the term of the related option. SARs will be transferable only to the
extent that the related option is transferable. The Committee may elect to pay
SARs in cash or in Gensia Common Stock or in a combination of cash and Gensia
Common Stock.
SARs which are issued separately from options will provide for payments
based upon increases in the price of Gensia Common Stock over the fair market
value of Gensia Common Stock or the book value of Gensia Common Stock on the
date of grant. The Committee will determine whether fair market value or book
value will be the appropriate measure. As with other SARs, upon exercise the
Committee may determine to pay the SARs in cash or in Gensia Common Stock or
in a combination of cash and Gensia Common Stock.
PERFORMANCE AWARDS, COMMON STOCK PAYMENTS AND DIVIDEND EQUIVALENTS
Performance awards may be granted by the Committee on an individual basis.
Generally these awards will be paid in cash and will be based upon specific
agreements.
The Committee may approve a payment in Gensia Common Stock to any employee
who otherwise may be entitled to a cash payment other than base salary (e.g.,
a bonus). Similarly, the Committee may award shares as dividend equivalents
with respect to grants of options or SARs.
SECTION 162(M)
In order to permit maximum deductibility of compensation relating to awards
of stock options and SARs, a limitation has been imposed upon the number of
such awards which may be made under the 1997 Stock Plan. Specifically, no more
than 250,000 (350,000 in the event of an option repricing) shares of Gensia
Common Stock shall be subject to stock options and SARs that are granted
annually under the 1997 Stock Plan to any one employee. A maximum of 2,000,000
shares has been authorized for award under the 1997 Stock Plan plus shares
which are not subject to grants under the 1990 Stock Plan as of the effective
date, and shares which become available because options under the 1990 Stock
Plan are forfeited or terminate.
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OTHER PROVISIONS
The 1997 Stock Plan contains customary provisions relating to adjustments
for increases or decreases in the number and kind of Gensia securities.
Furthermore, all awards under the 1997 Stock Plan vest fully and immediately
upon death, disability or upon a change in control. "Change in control"
includes tender offers, mergers, sales of substantially all Gensia assets,
change in a majority of the Gensia Board over a two-year period and the
acquisition of more than 30% of the outstanding shares of Gensia Common Stock
by a person who did not previously own 30% of such stock.
The 1997 Stock Plan will expire ten years after its initial effective date,
unless it is terminated before then by the Gensia Board of Directors.
The Gensia Board of Directors may amend, suspend or terminate the 1997 Stock
Plan at any time without further action of the Gensia stockholders except with
respect to the accelerated vesting or share adjustment provisions and as
required by applicable law.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the federal income tax consequences of the 1997
Stock Plan as it relates to nonqualified stock options, incentive stock
options and share awards is intended to be a summary of applicable federal
law. State and local tax consequences may differ.
OPTIONS
Incentive stock options and nonqualified stock options are treated
differently for federal income tax purposes. Incentive stock options are
intended to comply with the requirements of Section 422 of the Code.
Nonqualified stock options need not comply with such requirements.
An optionee is generally not taxed on the grant or exercise of an incentive
stock option. The difference between the exercise price and the fair market
value of the shares on the exercise date will, however, be a preference item
for purposes of the alternative minimum tax. If an optionee holds the shares
acquired upon exercise of an incentive stock option for at least two years
following grant and at least one year following exercise, the optionee's gain,
if any, upon a subsequent disposition of such shares is a long-term capital
gain (or loss). The measure of the gain is the difference between the proceeds
received on disposition and the optionee's basis in the shares (which
generally equals the exercise price). If an optionee disposes of stock
acquired pursuant to exercise of an incentive stock option before satisfying
the one and two-year holding periods described above, the optionee will
recognize both ordinary income and capital gain (or loss) in the year of
disposition. The amount of the ordinary income will be the lesser of (i) the
amount realized on disposition less the optionee's adjusted basis in the stock
(usually the option price) or (ii) the difference between the fair market
value of the stock on the exercise date and the option price. The balance of
the consideration received on such a disposition will be long-term capital
gain if the stock had been held for at least one year following exercise of
the incentive stock option. Gensia is not entitled to an income tax deduction
on the grant or exercise of an incentive stock option or on the optionee's
disposition of the shares after satisfying the holding period requirement
described above. It the holding periods are not satisfied, Gensia will be
entitled to a deduction in the year the optionee disposes of the shares, in an
amount equal to the ordinary income recognized by the optionee.
An optionee is not taxed on the grant of a nonqualified stock option. On
exercise, however, the optionee recognizes ordinary income equal to the
difference between the option price and the fair market value of the shares on
the date of exercise. Gensia is entitled to an income tax deduction in the
year of exercise in the amount recognized by the optionee as ordinary income.
Any gain on subsequent disposition of the shares is a long-term capital gain
if the shares are held for at least one year following exercise. Gensia does
not receive a deduction for this gain.
SHARE AWARDS
If a participant is awarded or purchases shares, the amount by which the
fair market value of the shares on the date of award or purchase exceeds the
amount paid for the shares will be taxed to the participant as ordinary
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income. Gensia will be entitled to a deduction in the same amount provided it
makes all required withholdings on the compensation element of the sale or
award. The participant's tax basis in the shares acquired is equal to the
share's fair market value on the date of acquisition. Upon a subsequent sale
of any shares, the participant will realize capital gain or loss (long-term or
short-term, depending on whether the shares were held for more than one year
before the sale) in an amount equal to the difference between his or her basis
in the shares and the sale price.
If a participant is awarded or purchases shares that are subject to a
vesting schedule, the participant is deemed to receive an amount of ordinary
income equal to the excess of the fair market value of the shares at the time
they vest over the amount (if any) paid for such shares by the participant.
Gensia is entitled to a deduction equal to the amount of the income recognized
by the participant.
Code Section 83(b) permits a participant to elect, within 30 days after the
transfer of any shares subject to a vesting schedule to him or her, to be
taxed at ordinary income rates on the excess of the fair market value of the
shares at the time of the transfer over the amount (if any) paid by the
participant for such shares. Withholding taxes apply at that time. If the
participant makes a Section 83(b) election, any later appreciation in the
value of the shares is not taxed as ordinary income, but instead is taxed as
capital gain when the shares are sold or transferred.
1997 STOCK PLAN BENEFITS
The Committee has full discretion to determine the number, type and value of
awards to be granted to key employees under the 1997 Stock Plan. Therefore,
the benefits and amounts that will be received by each of the named executive
officers, the executive officers as a group and all other key employees are
not determinable.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSAL TO ADOPT THE 1997 STOCK PLAN.
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OWNERSHIP OF GENSIA
The following table sets forth information as of January 1, 1997, as to
shares of Gensia Common Stock beneficially owned by (i) each director, (ii)
the officers of Gensia named in the Summary Compensation Table set forth in
Gensia's Proxy Statement for its 1996 Annual Meeting, (iii) the directors and
executive officers of Gensia as a group and (iv) each person known by Gensia
to be the beneficial owner of more than 5% of the outstanding shares of Gensia
Common Stock. Except as otherwise indicated and subject to applicable
community property laws, each person has sole investment and voting power with
respect to the shares shown. Ownership information is based upon information
furnished by the respective individuals or entities, as the case may be.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF GENSIA COMMON STOCK
------------------------------
NUMBER OF PERCENT
SHARES(1) OF CLASS(2)
------------- ------------
<S> <C> <C>
Hoechst Marion Roussel, Inc. .................. 3,396,442(3) 8.44%
10236 Marion Park Drive
Kansas City, MO 64134-0627
State of Wisconsin Investment Board ........... 3,161,400(4) 7.86
P. O. Box 7842
Madison, WI 53707
David F. Hale.................................. 927,479(5) 2.31
Jerry C. Benjamin.............................. 32,500(6) *
James C. Blair................................. 102,568(7) *
Daniel D. Burgess.............................. 104,609(8) *
Herbert J. Conrad.............................. 24,345(9) *
Paul K. Laikind................................ 401,367(10) *
Steven C. Mendell.............................. 32,562(11) *
Daniel O. Pegg................................. 39,342(12) *
Alan R. Timms.................................. 43,125(13) *
Patrick D. Walsh............................... 47,098(14) *
L. John Wilkerson.............................. 72,312(15) *
All directors and executive officers as a group
(16 persons).................................. 2,044,943(16) 5.08
</TABLE>
- -------
*Less than one percent
(1) To Gensia's knowledge, the persons named in the table have sole voting
and investment power with respect to all shares of Gensia Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable and the information contained in the footnotes to this
table.
(2) For purposes of computing the percentage of outstanding shares held by
each person or group of persons named above on a given date, shares which
such person or group has the right to acquire within 60 days after such
date are deemed to be outstanding, but are not deemed to be outstanding
for the purposes of computing the percentage ownership of any other
person.
(3) Based on its amended Schedule 13G dated February 12, 1996 wherein Hoechst
Marion Roussel, Inc. (formerly Marion Merrell Dow, Inc.) reported the
beneficial ownership of 3,396,442 shares at December 31, 1995.
(4) Based on its amended Schedule 13G dated February 15, 1996 wherein State
of Wisconsin Investment Board reported the beneficial ownership of
3,161,400 shares at December 31, 1995.
(5) Includes 433,000 shares held by a trust as to which Mr. Hale has shared
voting and investment power, 42,000 shares held by Mr. Hale as custodian
for his minor children as to which Mr. Hale has sole voting and
investment power, and 381,500 shares which Mr. Hale has the right to
acquire within 60 days of January 1, 1997 pursuant to the exercise of
options and warrants.
(6) Includes 30,500 shares Mr. Benjamin has the right to acquire within 60
days of January 1, 1997 pursuant to the exercise of options.
(7) Includes 14,750 shares which Dr. Blair has the right to acquire within 60
days of January 1, 1997 pursuant to the exercise of options and warrants.
Dr. Blair is a General Partner of One Palmer Square Associates, L.P., the
general partner of Domain Partners, L.P. Includes 50,000 shares which
Domain Partners III, L.P.
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has the right to acquire within 60 days of January 1, 1997. Dr. Blair is a
General Partner of One Palmer Square Associates III, L.P., the general
partner of Domain Partners III, L.P. Dr. Blair has an indirect beneficial
interest in these shares. Includes 1,509 shares beneficially owned by
Domain Associates Profit Sharing Plan. Includes 4,125 shares which Domain
Associates has the right to acquire within 60 days of January 1, 1997
pursuant to the exercise of warrants. Dr. Blair is a General Partner of
Domain Associates.
(8) Includes 60,929 shares which Mr. Burgess has the right to acquire within
60 days of January 1, 1997, pursuant to the exercise of options and
warrants.
(9) Includes 24,345 shares which Mr. Conrad has the right to acquire within
60 days of January 1, 1997 pursuant to the exercise of options.
(10) Includes 64,509 shares which Dr. Laikind has the right to acquire within
60 days of January 1, 1997 pursuant to the exercise of options.
(11) Includes 30,500 shares which Mr. Mendell has the right to acquire within
60 days of January 1, 1997 pursuant to the exercise of options and
warrants.
(12) Includes 10,500 shares which Mr. Pegg has the right to acquire within 60
days of January 1, 1997 pursuant to the exercise of options and warrants.
(13) Includes 39,000 shares which Dr. Timms has the right to acquire within 60
days of January 1, 1997 pursuant to the exercise of options and warrants.
(14) Includes 20,061 shares which Mr. Walsh has the right to acquire within 60
days of January 1, 1997 pursuant to the exercise of options.
(15) Includes 29,000 shares which Dr. Wilkerson has the right to acquire within
60 days of January 1, 1997 pursuant to the exercise of warrants. Includes
20,250 shares owned by Longbow Partners and 20,250 shares which Longbow
Partners has the right to acquire within 60 days of January 1, 1997
pursuant to the exercise of options. Longbow Partners is a partnership of
which the partners are certain shareholders of The Wilkerson Group. Dr.
Wilkerson disclaims beneficial ownership of the shares and options held by
Longbow Partners. Dr. Wilkerson is Chairman of The Wilkerson Group.
(16) Includes 850,405 shares which may be acquired within 60 days of January 1,
1997 pursuant to the exercise of options and warrants. Includes 481,736
shares held by trusts for the benefit of family members of directors and
officers as to which such directors and officers have voting and
investment power.
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RAKEPOLL HOLDING B.V.
Financial information as of September 30, 1996 and 1995 and
for the nine months then ended (Unaudited)
F-1
<PAGE>
RAKEPOLL HOLDING B.V.
COMBINED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------
1996 1995
------- ------
(IN THOUSANDS
OF
UNITED STATES
DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash......................................................... 1,221 2,307
Trade accounts receivable, net............................... 26,221 16,882
Other receivables............................................ 6,009 3,705
Inventories.................................................. 30,879 18,557
Prepaid expenses and other current assets.................... 1,370 785
------- ------
Total current assets....................................... 65,700 42,236
Property, plant and equipment, net............................. 34,296 28,367
Other assets, net.............................................. 2,626 2,332
Deferred tax assets............................................ 955 775
------- ------
Total assets............................................... 103,577 73,710
======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings........................................ 16,602 11,951
Current portion of long-term debt:
Third party................................................. 3,843 1,349
Affiliate................................................... 3,040 2,736
Trade accounts payable....................................... 35,751 25,820
Payable to affiliates........................................ 998 59
Income taxes payable......................................... 3,107 688
Other current liabilities.................................... 4,561 3,129
Deferred income tax liability................................ 653 126
------- ------
Total current liabilities.................................. 68,555 45,858
Long-term debt, net of current portion:
Third party................................................. 10,861 11,869
Affiliate................................................... 9,546 6,594
Severance indemnities.......................................... 1,745 1,571
Other long-term liabilities.................................... 1,940 2,413
------- ------
Total liabilities.......................................... 92,647 68,305
Shareholders' equity:
Common stock................................................. 5,152 2,262
Additional paid-in capital................................... 7,182 7,182
Retained earnings............................................ (583) (2,207)
Cumulative translation adjustments........................... (821) (1,832)
------- ------
10,930 5,405
------- ------
Total liabilities and shareholders' equity................. 103,577 73,710
======= ======
</TABLE>
F-2
<PAGE>
RAKEPOLL HOLDING B.V.
COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
------------------
1996 1995
-------- --------
(IN THOUSANDS OF
UNITED STATES
DOLLARS)
<S> <C> <C>
Net Sales................................................. 56,499 45,144
Cost of sales............................................. (35,760) (33,470)
-------- --------
Gross margin............................................ 20,739 11,674
Operating expenses:
Selling, general and administrative..................... 9,483 6,776
Research and development................................ 4,922 2,092
Unusual item--Provision for contamination settlement.... -- 2,400
-------- --------
Total operating expenses.............................. 14,405 11,268
-------- --------
Operating income.......................................... 6,334 406
Interest expense.......................................... (2,729) (2,290)
Interest income........................................... 215 209
Foreign exchange gains (losses), net...................... 2,687 (734)
Other income, net......................................... 383 65
-------- --------
Income (loss) before income taxation and minority inter-
est...................................................... 6,890 (2,344)
Income tax benefit (expense).............................. (3,623) 1,466
-------- --------
Net income (loss) before minority interest................ 3,267 (878)
Minority interest......................................... -- 135
-------- --------
Net income (loss)..................................... 3,267 (743)
======== ========
</TABLE>
F-3
<PAGE>
RAKEPOLL HOLDING B.V.
COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30
---------------
1996 1995
------- ------
(IN THOUSANDS
OF
UNITED STATES
DOLLARS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... 3,267 (743)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................... 3,858 2,850
Provision for contamination settlement...................... -- 2,400
Deferred taxes.............................................. 780 (1,935)
Changes in assets and liabilities, net of effect of
acquisitions:
Increase in receivables.................................... (9,259) (4,326)
Increase in inventories.................................... (11,708) (5,403)
Increase in prepaid expenses and other current assets...... (673) (719)
Increase in accounts payable............................... 11,567 7,610
Increase (decrease) in affiliates payable.................. (58) 58
Increase (decrease) in income taxes payable................ 2,844 (353)
Increase in other current liabilities...................... 467 1,849
Net change in other non current assets..................... 371 (1,068)
Net change in other long term liabilities.................. (661) (176)
------- ------
Net cash provided by operating activities................. 795 44
------- ------
Cash flows from investing activities:
Capital expenditures........................................ (7,665) (7,518)
Payment for acquired business............................... -- (312)
------- ------
Net cash used in investing activities..................... (7,665) (7,830)
------- ------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................... 4,035 7,367
Repayments of long-term debt................................ (822) (336)
Change in short term borrowings............................. 276 1,530
Proceeds from issuance of common stock...................... 1,951 104
------- ------
Net cash provided by financing activities................. 5,440 8,665
------- ------
Effect of exchange rate changes on cash....................... 47 (74)
Increase (decrease) in cash................................... (1,383) 805
Cash at beginning of year..................................... 2,604 1,502
------- ------
Cash at end of year........................................... 1,221 2,307
======= ======
</TABLE>
F-4
<PAGE>
RAKEPOLL HOLDING B.V.
NOTES TO COMBINED FINANCIAL STATEMENTS
1 BASIS OF ACCOUNTING
The combined balance sheet as of September 30, 1996 and 1995, of Rakepoll
Holding B.V., the related combined statements of operations and combined
statements of cash flows for the nine month periods then ended are unaudited.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such financial
statements have been included. These interim financial statements and notes
are presented in condensed form as permitted by the rules and regulations of
the U.S. Securities and Exchange Commission.
2 BASIS OF PRESENTATION
Rakepoll Holding B.V. (Company) is owned 97.5% by Rakepoll Finance N.V.
(Finance) and 2.5% by O.B. Norden Holding N.V. The Company owns 99.64% of
SICOR Societa Italiana Corticosteriodi S.p.A. (Sicor). During January 1995,
Sicor acquired 70% of Zanoni Pharmaceuticals s.r.l., (Zanoni) and in June
1996, Sicor acquired the remaining 30% of Zanoni.
The majority shareholder of Finance indirectly owned 80% of Sintesis, Lerma
S.A. de C.V. (Lerma) since 1994, while the remaining 20% was owned by two
individuals closely related to the group. As of September 26, 1996 the Company
acquired direct ownership of Lerma.
The majority shareholder of Finance indirectly controlled 51% of Lemery,
S.A. de C.V. (Lemery), Lemery Desarrollo y Control, S.A. de C.V. (Ledeco) and
Immobiliaria Lemery S.A. de C.V. (Immobiliaria). The interest in these
companies (the Lemery group) was acquired in 1989. The remaining interest was
controlled by the same individuals owning the minority interest in Lerma. As
of September 26, 1996 the Company acquired direct ownership of a 51% interest
in the Lemery group.
3 ACQUISITION OF 100% INTEREST IN ZANONI S.R.L.
As at June 27, 1996, Sicor S.p.A. acquired the 30% minority interest in its
subsidiary Zanoni s.r.l. The transaction generated an excess cost of
approximately $234,000 allocated to property, plant and equipment. The results
of the period of the subsidiary were not significant.
4 CONTINGENCIES
During the first nine months of 1995 the Sicor began shipping products that
contained elements of contamination and subsequently received claims for
recovery and damages from certain customers. Through September 30, 1996 no
lawsuits have been filed against the Company in regards to this matter.
As at September 30, 1995, a provision has been recorded of approximately
$2,400,000 which represents management's best estimate of product rework
costs, attorney's costs and other settlement costs attributable to sales of
contaminated product made prior to September 30, 1995. For the year ended at
December 31, 1995, Sicor recognised a charge against operations related to the
matter totalling approximately $2,701,000.
During the nine month period ended September 30, 1996, approximately
$425,000 of costs related to this matter were charged against the accrual.
At present the Company believes that it reached a general understanding with
suppliers and customers on a framework to settle the major claims emanating
from the contaminated products. No customer has initiated any legal action
against the Company. On the basis of such information, the Company believes
that the current accrual is adequate.
5 RECENT DEVELOPMENTS
The remaining 49% interest in the Lemery group was transferred to the
Company on October 1, 1996.
F-5
<PAGE>
RAKEPOLL HOLDING B.V.
Combined financial statements as of December 31, 1995 and
1994 and for the three years ended December 31, 1995
F-6
<PAGE>
RAKEPOLL HOLDING B.V.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
NOTES DECEMBER 31
----- --------------
1995 1994
------ ------
(IN THOUSANDS
OF UNITED
STATES
DOLLARS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... 2,604 1,502
Trade accounts receivable, net.......................... 3 19,064 13,707
Other receivables....................................... 2,501 2,192
Inventories............................................. 4 18,553 13,053
Prepaid expenses and other current assets............... 638 666
------ ------
Total current assets.................................. 43,360 31,120
Property, plant and equipment, net........................ 5 28,773 22,732
Other assets, net......................................... 6 2,874 1,227
Deferred tax assets....................................... 7 2,015 --
------ ------
Total assets.......................................... 77,022 55,079
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings................................... 8 14,971 10,307
Current portion of long-term debt:
Third Party............................................ 10 1,137 677
Affiliate.............................................. 10 2,978 --
Trade accounts payable.................................. 23,275 17,918
Payable to affiliates................................... 464 24
Income taxes payable.................................... 7 281 1,029
Other current liabilities............................... 9 3,651 2,789
Deferred income tax liability........................... 7 953 1,305
------ ------
Total current liabilities............................. 47,710 34,049
Long-term debt, net of current portion:
Third party............................................ 10 12,257 7,842
Affiliate.............................................. 10 7,719 5,758
Severance indemnities..................................... 11 1,742 1,057
Other long-term liabilities............................... 12 2,518 --
Deferred income tax liability............................. 7 -- 46
------ ------
Total liabilities..................................... 71,946 48,752
Shareholders' equity...................................... 13
Common stock............................................ 3,201 2,037
Additional paid-in capital.............................. 7,182 7,302
Retained earnings....................................... (3,849) (1,464)
Cumulative translation adjustments...................... (1,458) (1,548)
------ ------
5,076 6,327
------ ------
Total liabilities and shareholders' equity............ 77,022 55,079
====== ======
</TABLE>
F-7
<PAGE>
RAKEPOLL HOLDING B.V.
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NOTES DECEMBER 31
----- -------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS OF
UNITED STATES DOLLARS)
<S> <C> <C> <C> <C>
Net Sales.................................... 17 60,736 50,516 43,799
Cost of sales................................ (46,198) (35,808) (32,853)
------- ------- -------
Gross margin............................... 14,538 14,708 10,946
Operating expenses:
Selling, general and administrative........ 8,761 7,809 6,489
Research and development................... 18 3,132 1,677 315
Unusual item--Provision for contamination
settlement................................ 19 2,701 -- --
------- ------- -------
Total operating expenses................. 14,594 9,486 6,804
------- ------- -------
Operating income (loss)...................... (56) 5,222 4,142
Interest expense............................. 14 (3,084) (1,456) (1,472)
Interest income.............................. 308 111 511
Foreign exchange losses, net................. 16 (1,592) (2,958) (1,258)
Other income, net............................ 15 162 346 84
------- ------- -------
Income (loss) before income taxation and mi-
nority interest............................. (4,262) 1,265 2,007
Income tax benefit (expense)................. 7 1,727 (1,960) (1,476)
------- ------- -------
Net income (loss) before minority interest... (2,535) (695) 531
Minority interest............................ 150 -- --
------- ------- -------
Net income (loss)............................ (2,385) (695) 531
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-8
<PAGE>
RAKEPOLL HOLDING B.V.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL PAID-IN-CAPITAL
-------------------------------------------------------- --------------------------------
LEMERY
DESARROLLO SINTESIS, SINTESIS,
RAKEPOLL LEMERY, Y CONTROL, IMMOBILIARIA LERMA RAKEPOLL LEMERY, LERMA
HOLDING S.A. DE S.A. DE LEMERY S.A. S.A. DE HOLDING S.A. DE S.A. DE
B.V. C.V. C.V. DE C.V. C.V. TOTAL B.V. C.V. C.V. TOTAL
-------- ------- ---------- ------------ --------- ----- -------- ------- --------- --------
(IN THOUSANDS OF UNITED STATES DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993....... 22 1,523 80 120 -- 1,745 7,171 11 -- 7,182
Net income...................... -- -- -- -- -- -- -- -- -- --
--- ----- --- --- --- ----- ----- --- ---- -----
Balance at December 31, 1993..... 22 1,523 80 120 -- 1,745 7,171 11 -- 7,182
Net income...................... -- -- -- -- -- -- -- -- -- --
Acquisition of indirect
controlling interest in Lerma... -- -- -- -- 292 292 -- -- -- --
Capital increase................ -- -- -- -- -- -- -- -- 120 120
Foreign exchange
translation adjustments......... -- -- -- -- -- -- -- -- -- --
--- ----- --- --- --- ----- ----- --- ---- -----
Balance at December 31, 1994..... 22 1,523 80 120 292 2,037 7,171 11 120 7,302
Net income...................... -- -- -- -- -- -- -- -- -- --
Capital increase................ -- 940 -- -- 224 1,164 -- -- (120) (120)
Foreign exchange translation
adjustments..................... -- -- -- -- -- -- -- -- -- --
--- ----- --- --- --- ----- ----- --- ---- -----
Balance at December 31, 1995..... 22 2,463 80 120 516 3,201 7,171 11 -- 7,182
=== ===== === === === ===== ===== === ==== =====
<CAPTION>
CUMULATIVE TOTAL
RETAINED TRANSLATION SHAREHOLDER'S
EARNINGS ADJUSTMENT EQUITY
-------- ----------- -------------
<C> <C> <C>
Balance at January 1, 1993....... (1,121) (1,767) 6,039
Net income...................... 531 -- 531
------ ------ ------
Balance at December 31, 1993..... (590) (1,767) 6,570
Net income...................... (695) -- (695)
Acquisition of indirect
controlling interest in Lerma... (179) -- 113
Capital increase................ -- -- 120
Foreign exchange
translation adjustments......... -- 219 219
---- ------ ------
Balance at December 31, 1994..... (1,464) (1,548) 6,327
Net income...................... (2,385) -- (2,385)
Capital increase................
Foreign exchange translation -- -- 1,044
adjustments..................... -- 90 90
------ ------ ------
Balance at December 31, 1995..... (3,849) (1,458) 5,076
====== ====== ======
</TABLE>
See accompanying notes to combined financial statements
F-9
<PAGE>
RAKEPOLL HOLDING B.V.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
(IN THOUSANDS OF UNITED STATES DOLLARS)
<S> <C> <C> <C>
Cash flows from operating activi-
ties:
Net income (loss)............... (2,385) (695) 531
Adjustments to reconcile net in-
come (loss) to net cash pro-
vided by (used in) operating
activities:
Depreciation and amortization... 4,000 2,866 2,420
Provision for contamination set-
tlement........................ 2,781 --
Deferred taxes.................. (2,431) 750 1,325
Changes in assets and liabili-
ties, net of effect of acquisi-
tions:
Increase in receivables........ (6,483) (3,709) (591)
Increase in inventories........ (5,486) (4,911) (1,592)
(Increase) decrease in prepaid
expenses and other current as-
sets.......................... (336) (724) 1,234
Increase in accounts payable... 6,514 4,470 4,523
Increase (decrease) in affili-
ates payable.................. 496 (309) (789)
(Decrease) increase in income
taxes payable................. (823) 1,023 --
Increase (decrease) in other
current liabilities........... 830 190 (1,856)
Net change in other non current
assets........................ (1,736) (595) 122
Net change in other long-term
liabilities................... -- (468) 487
------------- ------------- -------------
Net cash provided by (used in)
operating activities......... (5,059) (2,112) 5,814
------------- ------------- -------------
Cash flows from investing activi-
ties:
Capital expenditures............ (9,112) (7,438) (4,382)
Payment for acquired business... (312) -- --
------------- ------------- -------------
Net cash used in investing ac-
tivities..................... (9,424) (7,438) (4,382)
------------- ------------- -------------
Cash flows from financing activi-
ties:
Proceeds from issuance of long-
term debt...................... 10,653 8,705 1,697
Repayments of long-term debt.... (675) (746) (496)
Change in short term
borrowings..................... 4,386 1,405 (2,044)
Procceeds from issuance of common
stock............................ 1,392 120 --
------------- ------------- -------------
Net cash provided by (used in)
financing activities......... 15,756 9,484 (843)
------------- ------------- -------------
Effect of exchange rate changes on
cash............................. (171) 160 (119)
------------- ------------- -------------
Increase in cash.................. 1,102 94 470
Cash at beginning of year......... 1,502 1,408 938
------------- ------------- -------------
Cash at end of year............... 2,604 1,502 1,408
============= ============= =============
Supplemental cash flow informa-
tion:
Cash paid during the year for:
Interest....................... 2,658 1,477 1,389
============= ============= =============
Income taxes, net of refunds... 1,026 62 54
============= ============= =============
Acquisition of businesses:
Fair value of assets ac-
quired....................... 2,048 -- --
Liabilities assumed........... (1,736) -- --
------------- ------------- -------------
Cash paid..................... 312 -- --
============= ============= =============
</TABLE>
See accompanying notes to combined financial statements
F-10
<PAGE>
RAKEPOLL HOLDING B.V.
NOTES TO COMBINED FINANCIAL STATEMENTS
1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of presentation
Rakepoll Holding B.V. (Rakepoll) is owned 97.5% by Rakepoll Finance N.V. and
2.5% by O.B. Norden Holding N.V., Rakepoll owns 99.5% of SICOR Societa
Italiana Corticosteriodi S.p.A. (SICOR). SICOR, established in 1983 in Rho,
Italy is a major Italian producer of bulk "active ingredients" which are sold
to large and medium size pharmaceutical companies throughout the world. During
January 1995, SICOR acquired 70% of Zanoni Pharmaceuticals s.r.l. (Zanoni), a
manufacturer of anti-tumor drugs. Proforma disclosures required under APB No.
16 have not been presented as the results of operations for Zanoni have been
included in the combined statement of operations since January 1995. The
disclosures for the preceeding period have been omitted as the amounts were
not significant. In June 1996, SICOR acquired the remaining 30% of Zanoni.
The majority shareholder of Rakepoll indirectly owns 80% of Sintesis, Lerma
S.A. de C.V. (Lerma) located in Mexico. Lerma was acquired in 1994 and
currently manufactures pharmaceutical and chemical products for export to
SICOR. The net assets of Lerma at the date of acquisition were not
significant.
Further, the majority shareholder of Rakepoll indirectly controls 51% of
Lemery, S.A. de C.V. (Lemery), Lemery Desarrollo y Control, S.A. de C.V.
(Ledeco) and Immobiliaria Lemery S.A. de C.V. (Immobiliaria). These companies,
all located in Mexico were acquired in 1989. Lemery is the operating company
and Ledeco and Immobiliaria provide certain administrative service to Lemery.
Considering the related nature of these companies the financial statements of
Lemery, Ledeco and Immobiliaria have been combined and are hereafter referred
to as the Lemery group.
As it has been determined that the aforementioned companies have been under
common control by the majority shareholder of Rakepoll, the accompanying
historical financial statements have been prepared by combining the
consolidated financial statements of Rakepoll with the financial statements of
Lerma and the combined financial statements of the Lemery group. The combined
financial statements are prepared in accordance with generally accepted
accounting principles in the United States of America. The combined entities
are hereafter referred to as "the Company".
The preparation of financial statements in conformity with generally
accepted accounting principles inherently requires management to make
estimates and assumptions that affect the reported amounts of assets and
disclosure of contingent liabilities at the date of the financial statements
and amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
b. Principles of consolidation and combination
The combined financial statements of Rakepoll include the accounts of SICOR,
Zanoni, Lerma and the Lemery group. All significant intercompany transactions
and balances between the entities have been eliminated. Unrealized
intercompany profits in inventories have been eliminated and cost of sales
have been adjusted for the effects of such eliminations.
c. Foreign currencies
Monetary assets and liabilities denominated in currencies other than
functional currencies are translated to functional currencies at rates of
exchange prevailing on the balance sheet date. Exchange gains and losses are
recorded in operating results in the period in which they arise.
The combined financial statements have been prepared in United States
dollars. Assets and liabilities of non-U.S. dollar companies are converted to
U.S. dollars at rates of exchange prevailing on the balance sheet date.
F-11
<PAGE>
RAKEPOLL HOLDING B.V.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Income and expense items of such companies are translated at the average
exchange rates for the year. The resulting translation differences are
included in the cumulative translation adjustment, a separate component of
shareholders' equity.
c. Financial instruments
Off-balance sheet financial instruments such as foreign currency forward
contracts are valued at market prices with the resulting gains and losses
recognized in the statement of operations as foreign currency exchange
results. The Company does not hold or issue financial instruments for trading
purposes.
The Company values financial instruments as required by FAS No. 107,
Disclosures about Fair Value of Financial Instruments. The carrying amounts of
cash, accounts receivable, short-term debt and long-term, variable-rate debt
approximate fair value. The Company estimates that the carrying value of long-
term fixed rate debt approximates fair value based on the Company's estimated
current borrowing rates for debt with similar maturities.
d. Receivables
Receivables are stated at face value, less a provision for doubtful
accounts.
e. Inventories
Inventories are valued at the lower of cost or market. Cost is determined on
the last-in first-out (LIFO) basis for the Company's Italian subsidiaries.
Cost is determined on a first-in first out (FIFO) basis for inventories of
Lerma and the Lemery group.
f. Property, plant and equipment
Property, plant and equipment are valued at historical cost less straight-
line depreciation based on the estimated useful lives of the assets. All
expenditures for additions and improvements that extend the life of assets are
capitalized.
The applicable rates of depreciation are as follows:
<TABLE>
<S> <C>
Buildings and building improvements............................ 5%
Machinery and equipment........................................ 9% to 17.5%
Office furniture and equipment................................. 10% to 30%
Motor vehicles................................................. 20% to 25%
</TABLE>
Normal maintenance and repair costs for property, plant and equipment are
charged to expense as incurred.
g. Research and development expense
Expenditures relating to the development of new products and processes,
including significant improvements and refinement to existing products are
expensed as incurred.
h. Income taxes
The provision for income taxes is computed on the pretax income (loss) of
the entities included in the combined financial statements based on the
current tax law applicable in each taxing country. Deferred taxes result from
the future tax consequences associated with temporary differences between the
amounts of assets and liabilities recorded for financial reporting purposes
and those measured under applicable tax laws.
F-12
<PAGE>
RAKEPOLL HOLDING B.V.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
i. Impairment of long-lived assets
The Company routinely evaluates the carrying value of long-lived assets and
when, in the opinion of management, the value of such assets is impaired, will
write-down the value of such assets to their net realizable value.
In 1995 the Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" (SFAS 121), which requires impairment losses to be recorded
on long-lived assets used in operations such as property, plant and equipment
and intangible assets, when indicators of impairment are present and the
undiscounted cash flows generated by those assets are less than the carrying
amount of those assets. The Company will adopt SFAS 121 in the first quarter
of 1996. Based on the current circumstances, management does not believe the
effect of adoption will be material to its financial position or results of
operations.
j. Concentrations of credit risk
SICOR maintains a significant customer relationship with Alco Chemicals (see
Note 17). Lemery's three largest customers are governmental agencies in Mexico
and account for approximately 65% of Lemery's total revenues. Trade
receivables related to the customers in Mexico as of December 31, 1995 and
1994 were $1,069,000 and $118,000, respectively.
2 GEOGRAPHIC SEGMENT INFORMATION
Selected geographic information is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1995 1994 1993
------------- ------------- -------------
(IN THOUSANDS OF UNITED STATES DOLLARS)
<S> <C> <C> <C>
NET SALES (BY ORIGIN)
Italy........................... 46,603 34,425 33,002
Mexico.......................... 14,133 16,091 10,797
------------- ------------- -------------
Total......................... 60,736 50,516 43,799
============= ============= =============
OPERATING (LOSS) INCOME
Italy........................... (1,394) 2,845 3,801
Mexico.......................... 1,338 2,377 341
------------- ------------- -------------
Total......................... (56) 5,222 4,142
============= ============= =============
IDENTIFIABLE ASSETS
Italy........................... 64,417 44,054 34,629
Mexico.......................... 12,605 11,025 7,041
------------- ------------- -------------
Total......................... 77,022 55,079 41,670
============= ============= =============
</TABLE>
3 ACCOUNTS RECEIVABLE
The trade receivable balance is net of an allowance for doubtful accounts of
$592,000 and $440,000 at December 31, 1995 and 1994, respectively.
Approximately $12,110,000 and $7,136,000 of the trade receivable balance at
December 31, 1995 and 1994, respectively, is pledged as security for short-
term borrowings (see note 8).
F-13
<PAGE>
RAKEPOLL HOLDING B.V.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4 INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1995 1994
------- -------
(IN THOUSANDS
OF UNITED
STATES DOLLARS)
<S> <C> <C>
Raw materials.............................................. 4,713 3,755
Work in process............................................ 2,847 1,781
Finished goods............................................. 10,668 7,177
Packaging and supplies..................................... 325 340
------- -------
18,553 13,053
======= =======
The excess of current cost over the value of inventories based upon the LIFO
method was $912,000 and $404,000 at December 31, 1995 and 1994, respectively.
5 PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
DECEMBER 31
----------------
1995 1994
------- -------
(IN THOUSANDS
OF
UNITED STATES
DOLLARS)
<S> <C> <C>
Land and land improvements................................. 843 604
Buildings and building improvements........................ 8,376 6,881
Machinery and equipment.................................... 35,455 27,685
Office furniture and equipment............................. 1,022 656
Motor vehicles............................................. 701 412
Construction in progress................................... 275 405
------- -------
46,672 36,643
Accumulated depreciation................................... (17,899) (13,911)
------- -------
Net book value......................................... 28,773 22,732
======= =======
Depreciation expense was $3,788,000, $2,865,000 and $2,420,000 for the years
ended December 31, 1995, 1994 and 1993, respectively and is principally
recorded to cost of sales in the combined statement of operations. For the
years ended December 31, 1995, 1994 and 1993, depreciation expense includes
$112,000, $37,000 and $16,000 related to the amortization of capital leases.
Capital leases relate to a manufacturing facility and automobiles. Capital
lease property included in property, plant and equipment is as follows:
<CAPTION>
DECEMBER 31
----------------
1995 1994
------- -------
(IN THOUSANDS
OF
UNITED STATES
DOLLARS)
<S> <C> <C>
Building................................................... 221 --
Motor vehicles............................................. 387 173
------- -------
608 173
Accumulated amortization................................... (151) (52)
------- -------
Net book value......................................... 457 121
======= =======
</TABLE>
F-14
<PAGE>
RAKEPOLL HOLDING B.V.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6 OTHER ASSETS, NET
Other assets include the net book value of a payment of $1,035,000 for
certain proprietary technology rights which were acquired by SICOR from a
third party in February 1995. Pursuant to the original agreement, $500,000 of
the purchase price was to be paid during 1995 and the remaining $535,000 was
to be paid in 1996. Pursuant to an oral agreement between Company and the
third party, only $250,000 was paid during 1995. The remaining balance has
been included in other current liabilities and is payable in two equal
installments during 1996 and 1997. The deferred charge is being amortized to
cost of sales on a straight-line basis over an estimated useful life of 5
years.
The agreement requires SICOR to pay a royalty on the net sales of the
products manufactured using the technology acquired under the agreement. The
royalty is to be paid for a period of six years from the date of SICOR's first
commercial sale of such products. The royalty will be calculated as 5% of net
sales up to $20,000,000, 4% of net sales above $20,000,000 up to $40,000,000
and 3% of net sales above $40,000,000 with a minimum royalty of $1,500,000
paid during the six year period. SICOR commenced the commercial sale of such
products during 1995 and has recorded approximately $17,000 of royalty expense
under the terms of the agreement.
The other principal item included in this balance is VAT reimbursements
receivable from governmental authorities that are not expected to be collected
within one year.
7 INCOME TAXES
The liability for current income taxes is based on estimated taxable income
of companies included in the combined financial statements in accordance with
local fiscal regulations. Details of tax expense for the years ended December
31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
(IN THOUSANDS OF
UNITED STATES
DOLLARS)
<S> <C> <C> <C>
Current tax expense.................................. (704) (1,210) (151)
Deferred tax (expense) benefit....................... 2,431 (750) (1,325)
----- ------ ------
Total tax (expense) benefit...................... 1,727 (1,960) (1,476)
===== ====== ======
The table below reconciles the expected corporate income tax benefit
(expense) in Italy, the principal tax jurisdiction, to the effective combined
income tax expense:
<CAPTION>
DECEMBER 31,
---------------------
(IN THOUSANDS OF
UNITED STATES
DOLLARS)
<S> <C> <C> <C>
Expected corporate tax benefit (expense) in Italy.... 2,267 (673) (1,048)
Foreign tax rate differential -- Mexico.............. (256) (294) 100
Tax credit on fixed asset investments................ 1,060 -- --
Change in deferred tax valuation allowance........... (549) (43) (16)
Provision for fiscal contingencies................... (270) (325) (11)
Non-deductible reserves.............................. (184) (71) (63)
Effect of tax inflation in Mexico.................... (96) (206) (1)
Expiration of net operating loss carryforwards....... -- (179) --
Assets tax........................................... (39) (55) (50)
Other................................................ (206) (114) (387)
----- ------ ------
Total tax benefit (expense)...................... 1,727 (1,960) (1,476)
===== ====== ======
</TABLE>
F-15
<PAGE>
RAKEPOLL HOLDING B.V.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The amounts of deferred taxes included in the combined balance sheets relate
to:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1994
----------- -----------
(IN THOUSANDS OF
UNITED STATES DOLLARS)
<S> <C> <C>
Deferred income tax assets:
Provision for contamina-
tion settlement.......... 1,477 --
Capital leases and other
leasing.................. 926 --
Net operating loss and as-
set tax carryforwards.... 1,301 860
Inventory obsolescence.... 373 72
Intangible assets......... 223 74
Allowance for doubtful ac-
counts................... 120 75
Other..................... 142 342
----------- -----------
Total gross deferred in-
come tax assets........ 4,562 1,423
Less valuation allowance.... (1,871) (176)
----------- -----------
Net deferred tax assets..... 2,691 1,247
Deferred income tax liabili-
ties:
Accelerated deduction for
inventories.............. 1,050 835
Basis in property and
equipment................ 374 810
Inventory overhead capi-
talization............... 165 307
Accrued liabilities....... -- 628
Other..................... 40 18
----------- -----------
Total deferred tax lia-
bilities............... 1,629 2,598
----------- -----------
Net deferred tax asset (lia-
bility).................... 1,062 (1,351)
=========== ===========
</TABLE>
The net deferred tax assets and liabilities relate to the following tax
jurisdictions:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994
----------- -----------
(IN THOUSANDS OF
UNITED STATES DOLLARS)
<S> <C> <C>
Net current deferred tax liability:
Italy............................................. (81) (545)
Mexico............................................ (872) (760)
---------- -----------
Total........................................... (953) (1,305)
========== ===========
Net non-current deferred tax asset (liability):
Italy............................................. 1,002 (782)
Mexico............................................ 1,013 736
---------- -----------
Total........................................... 2,015 (46)
========== ===========
</TABLE>
At December 31, 1995, the Company's Mexican entities have net operating loss
carryforwards of $2,245,000 which are available to offset future taxable
income, if any, through 2005. Additionally, the Mexican companies have
recoverable asset tax carryforwards at December 31, 1995 of $225,000 expiring
at various dates through 2005.
F-16
<PAGE>
RAKEPOLL HOLDING B.V.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
income tax assets will not be realized. The ultimate realization of deferred
income tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
After consideration of the estimated future taxable income generated in each
respective tax jurisdiction, management was unable to conclude that it is more
likely than not that certain deferred income tax assets will be realized and,
accordingly, has established a valuation allowance of $1,871,000 and $176,000
for the years ended December 31, 1995 and 1994 respectively.
It is the Company's intention to reinvest undistributed earnings of its
subsidiaries; accordingly, no deferred income taxes have been provided
thereon.
8 SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1995 1994
------ ------
(IN THOUSANDS
OF UNITED
STATES
DOLLARS)
<S> <C> <C>
Short-term borrowings, repayable in Italian lire............... 12,715 7,177
Short-term borrowings, repayable in U.S. dollars............... 2,040 2,770
Short-term borrowings, repayable in Mexican pesos.............. 216 360
------ ------
Total...................................................... 14,971 10,307
====== ======
</TABLE>
The Company's Italian subsidiaries maintain credit line arrangements with
several banks whereby all receivables denominated in foreign currencies,
principally U.S. dollars, are pledged to the bank in return for short-term
borrowings in Italian lire under the lines of credit. These transactions
effectively eliminate the Company's foreign exchange risk associated with
these transactions. The Company retains all credit risk with respect to the
receivables. Consequently, both the receivables and related borrowings are
included in the accompanying combined financial statements. The weighted
average interest rates on these borrowings is approximately 6.9% and 7% at
December 31, 1995 and 1994, respectively.
The short-term borrowings from banks, repayable in U.S. dollars, are
unsecured. The terms of the borrowings range from three to six months. The
weighted average fixed interest rate on these borrowings is approximately 7.2%
and 6.0% for the years ended December 31, 1995 and 1994, respectively.
The short-term borrowings from banks, repayable in Mexican pesos, are
unsecured. The fixed interest rate on these borrowings is approximately 65%
and 18.5% for the years ended December 31, 1995 and 1994, respectively.
9 OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1994 1994
----- -----
(IN
THOUSANDS
OF UNITED
STATES
DOLLARS)
<S> <C> <C>
Accrued employee compensation and related taxes.................. 1,057 1,056
Accrued payments for proprietary technology (note 6)............. 785 --
Accrued interest................................................. 373 237
Accrual for contamination settlement............................. 321 --
Other............................................................ 1,115 1,496
----- -----
Total........................................................ 3,651 2,789
===== =====
</TABLE>
F-17
<PAGE>
RAKEPOLL HOLDING B.V.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
10 LONG-TERM DEBT
The principal long-term third party loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1994
----------- -----------
(IN THOUSANDS OF
UNITED STATES DOLLARS)
<S> <C> <C>
Mortgage notes payable, repayable in Italian
lire............................................ 7,129 3,576
Notes payable to bank, repayable in U.S.
dollars......................................... 1,595 1,595
Notes payable to Italian Minister of Industry.... 1,292 258
Mortgage note payable, repayable in ECU.......... 1,268 1,407
Notes payable to suppliers....................... 766 886
Note payable to bank, repayable in U.S. dollars.. 716 716
Capitalized lease obligations.................... 628 81
----------- ----------
Total long-term debt........................... 13,394 8,519
Less: current portion.......................... (1,137) (677)
----------- ----------
Total non-current debt....................... 12,257 7,842
=========== ==========
</TABLE>
The mortgage notes, repayable in Italian lire, are secured by certain
production facilities and are repayable in biannual installments of principal
and interest through 2002. The floating interest rate is based on several
financial indicators plus 1.25%. The average effective interest rate on these
loans was 11.6%, 10.5% and 9.6% for the years ended December 31, 1995, 1994
and 1993, respectively.
The notes payable to a bank, repayable in U.S. dollars, are due in 14 equal
semi-annual installments of $114,000 beginning in 1997. The weighted average
fixed interest rate on these notes was 6.1%, 6.1% and 8.0% for the years ended
December 31, 1995, 1994 and 1993, respectively.
The notes payable to The Italian Ministry of Industry are unsecured and
repayable in annual installments of principal and interest through 2009. The
average fixed interest rate on these notes was 7%, 7.9% and 7.9% for the years
ended December 31, 1995, 1994 and 1993, respectively.
The mortgage note, repayable in ECU, are secured by certain production
facilities and are repayable in biannual installments of principal and
interest through 2002. The interest rate is based on the European Investment
Bank rate plus 1.25%. The average effective interest rate on these loans was
9.6%, 8% and 9.6% for the years ended December 31, 1995, 1994 and 1993,
respectively.
Notes payable to suppliers are secured by certain machinery and equipment
and are repayable in biannual installments of principal and interest through
2001. The average effective interest rate on these notes was 9.9%, 9.3% and
7.0% for the years ended December 31, 1995, 1994 and 1993, respectively.
The note payable to a bank, repayable in U.S. dollars, is due in biannual
installments of principal and interest through 1998. The fixed interest rate
on this note is 10.75%
The capitalized lease obligations have lease periods expiring at various
dates through 1998 and bear interest at 16.4%.
F-18
<PAGE>
RAKEPOLL HOLDING B.V.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Affiliate debt, all of which is unsecured, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1994
----------- -----------
(IN THOUSANDS OF
UNITED STATES DOLLARS)
<S> <C> <C>
Loan payable, in Dutch guilders, from Rakepoll Fi-
nance N.V......................................... 2,757 2,389
Loans payable, in Italian lire, from Rakepoll Fi-
nance N.V......................................... 2,324 1,538
Loans payable, in U.S. dollars, from Gallium In-
vestments to Lerma................................ 4,425 1,698
Loans payable, in Italian lire, from Gallium In-
vestments to Lerma................................ 970 --
Loan from minority interest in Zanoni.............. 221 133
----------- ----------
10,697 5,758
Less: current portion.......................... (2,978) --
----------- ----------
7,719 5,758
=========== ==========
</TABLE>
The loan payable in Dutch guilders to Rakepoll Finance N.V. is due December
31, 1996 but can be extended by mutual consent of the parties. Interest on the
loan is payable each December 31 based on the quarterly 12 month AIBOR rate
plus 1%. The average effective interest rate on this note was 5.8% and 6.8%
for the years ended December 31, 1995 and 1994, respectively.
The loan agreement provides for a maximum loan of NLG 7,500,000
($4,680,000). The loan is due on December 31, 1996 unless the term is extended
by mutual consent of the respective parties.
The loans payable, in Italian lire, to Rakepoll Finance N.V. are due at
various dates from September 1999 through January 2000. Interest on the loans
is payable on each January 31 and is based on LIBOR plus 0.375%. The average
effective interest rate on these notes is 9.6% and 8.0% for the years ended
December 31, 1995 and 1994, respectively.
The loans payable to Gallium Investments, a holding company controlled by
the majority shareholder of the Company, are repayable in U.S. dollars at
various dates from 1997 through 2000 and bear interest at 8.75%.
The loans payable to Gallium Investments, repayable in Italian lire, are due
at various dates from 1997 through 2000 and bear interest at 11.625%.
Aggregate annual maturities of long-term debt as of December 31, 1995 were
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF
UNITED STATES DOLLARS)
<S> <C>
1996.................................................. 4,115
1997.................................................. 4,948
1998.................................................. 2,170
1999.................................................. 5,261
2000.................................................. 4,136
Thereafter............................................ 3,461
------
Total............................................. 24,091
======
</TABLE>
F-19
<PAGE>
RAKEPOLL HOLDING B.V.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
11 SEVERANCE INDEMNITIES
Severance indemnity is paid in Italy to employees upon termination of their
employment. Each year, the employer accrues, for each employee, an amount
partly based on the employee's remuneration and partly based on the
revaluation of amounts previously accrued. The indemnity is as unfunded, but
fully provided, liability.
12 OTHER LONG-TERM LIABILITIES
Other long-term liabilities include approximately $2,400,000 of the total
$2,700,000 provided by the Company in connection with certain claims received
from its customers as a result of a shipment of contaminated products (see
note 19). Approximately $321,000 has been accrued in other current liabilities
(note 9).
13 SHAREHOLDERS' EQUITY
The authorized common stock of Rakepoll consists of 2,000 ordinary shares of
NLG 1,000 each of which 40 shares are issued and outstanding at December 31,
1995 and 1994, respectively.
The authorized common stock of Lemery consists of 38,300,000 shares of Ps. 1
each of which 9,932,181 and 3,216,190 shares are issued and outstanding at
December 31, 1995 and 1994, respectively. During 1995, Lemery issued an
additional 6,715,991 shares at par value to the existing shareholders of the
company based on their respective ownership percentages.
The authorized common stock of Immobiliaria consists of 1,500 shares of Ps.
1 all of which are issued and outstanding at December 31, 1995 and 1994.
The authorized common stock of Ledeco consists of 1,000 shares of Ps. 1 all
of which are issued and outstanding at December 31, 1995 and 1994.
The authorized common stock of Lerma consists of 315,917 shares of Ps. 10
each of which 111,800 and 10,000 are issued and outstanding at December 31,
1995 and 1994, respectively. During 1994, the shareholders made capital
contributions to the company of $120,000 for which no shares were issued.
Accordingly, this amount has been recorded as increase to additional paid-in
capital in 1994. During 1995, 101,800 new shares were issued at par value to
the existing shareholders. Of the total $224,000 increase in common stock, the
company received cash of $104,000 and the remaining $120,000 was transferred
from additional paid-in capital to common stock.
14 INTEREST EXPENSE
Interest expense for the years ended December 31, 1995, 1994 and 1993
relates to the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS OF
UNITED STATES DOLLARS)
<S> <C> <C> <C>
Interest expense on loans from banks................. 2,373 1,294 1,421
Interest charged by related parties.................. 711 162 51
------- ------- -------
3,084 1,456 1,472
======= ======= =======
</TABLE>
F-20
<PAGE>
RAKEPOLL HOLDING B.V.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
15 OTHER INCOME, NET
Other income, net for the years ended December 31, 1995, 1994 and 1993
relates to the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS OF
UNITED STATES DOLLARS)
<S> <C> <C> <C>
Insurance recovery................................ 88 -- --
Gain on sale of production rights................. -- 343 --
Other, net........................................ 74 3 84
------- ------- -------
162 346 84
======= ======= =======
</TABLE>
16 FOREIGN CURRENCY EXCHANGE GAINS (LOSSES)
During the years ended December 31, 1995, 1994 and 1993, the Company entered
into foreign currency forward contracts, primarily to sell U.S. dollars. These
forward contracts do not qualify as hedges for financial reporting purposes;
therefore, gains and losses on these contracts are included in income. As of
December 31, 1995, there were no contracts outstanding. For the years ended
December 31, 1995, 1994 and 1993, $351,000, $542,000 and $(306,800) of net
gains (losses) on these contracts is included in foreign currency exchange
gains (losses) in the combined statements of operations.
17 SIGNIFICANT CONTRACTS
SICOR has an agency and distribution agreement with Alco Chemicals (Alco).
Under the terms of this agreement, Alco acts as both an agent and distributor
of certain of SICOR's products to non-Italian customers in return for a
commission of 5% on such sales. The agreement also stipulates that Alco
guarantees minimum sales of $20,000,000 of SICOR's products on a yearly basis
through December 31, 1996. The agreement continues beyond December 31, 1996 on
a year to year basis unless written notice is provided by either party. In the
event the minimum sales level is not met by Alco, the agreement can be
terminated by SICOR. The agreement permits SICOR to sell its products directly
or through other agents. If SICOR pays commissions less than 5% to such
agents, SICOR must pay the differential between the commissions paid and 5% to
Alco.
SICOR has also entered into agreements with Alco which grant exclusive
distribution rights on certain products in certain countries expiring at
various dates through 2005. The agreements continue beyond the stated
expiration date on a year to year basis unless written notice is provided by
either party. These agreements require that Alco purchase minimum quantities
of such products each year during the term of the contracts. The agreements
also fix the price at which the products must be purchased from SICOR. If Alco
does not fulfill the minimum purchase requirements, it must pay to SICOR the
difference between actual purchases and amounts required under the terms of
the agreements. The amount of sales guaranteed to SICOR under these
distribution agreements on an annual basis based on the stated expiration
dates are as follows:
<TABLE>
<S> <C>
1996............................................................ $2,650,000
1997............................................................ $2,650,000
1998............................................................ $ 290,000
Thereafter...................................................... $ 280,000
</TABLE>
Sales to Alco under these agreements were approximately 18%, 20% and 33% of
the Company's revenues for the years ended December 31, 1995, 1994 and 1993,
respectively. Commissions paid to Alco were $880,000, $685,000 and $530,000
for the years ended December 31, 1995, 1994 and 1993, respectively.
F-21
<PAGE>
RAKEPOLL HOLDING B.V.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In September 1996, the majority shareholder of Alco acquired a majority of
the outstanding shares of Rakepoll Finance N.V., the Company's parent company.
18 RESEARCH AND DEVELOPMENT ARRANGEMENTS
During July 1994, SICOR entered into a research and development arrangement
with ZETESIS S.p.A. to develop an anti-tumor drug. The development contract is
renewable at SICOR's discretion every two years. Under the terms of the
contract, SICOR is obligated to fund the scientific and clinical research
related to the drug. During each two year period, SICOR is obligated to fund a
maximum of Lit. 2,000,000,000 (U.S. $1,262,000) for scientific research. There
is no maximum obligation for clinical research funding. Upon successful patent
application and regulatory approval, SICOR will receive the exclusive
manufacturing and commercial rights to the product and will pay a 5% royalty
on commercial sales to ZETESIS S.p.A. For the years ended December 31, 1995
and 1994, approximately $1,934,00 and $1,079,000, respectively, has been
recorded as research and development expense in relation to this contract.
Beginning in 1994, SICOR entered into a long-term consulting contract with
the inventor of an anti-tumor drug. The contract expires upon termination of
the aforementioned development arrangement or commercial sale of the drug.
SICOR is obligated to pay Lit. 500,000,000 (U.S. $307,000) plus certain
expenses each year for consulting services under the contract. If commercial
sales of the drug are realized, SICOR will be obligated to pay royalties in
various percentages on the sales and any subsequent licensing of the product.
For the years ended December 31, 1995 and 1994, approximately $322,000 and
$154,000, respectively, has recorded to research and development expense in
relation to this contract.
19 COMMITMENTS AND CONTINGENCIES
The Company has identified certain fiscal contingencies that could possibly
be assessed if the corporate income tax returns were subject to examination by
the fiscal authorities. As no examinations have been made of the corporate tax
returns in these tax jurisdictions, management has determined that these
contingencies cannot be assessed as probable. Accordingly, no provision for
these amounts has been made in the accompanying combined financial statements.
During 1995, the Company received claims from certain of its customers in
connection with a shipment of contaminated products. As of the date of the
financial statements, no lawsuits have been filed against the Company in
regards to this matter. The Company has recorded a provision of approximately
$2.7 million which represents management's best estimate of product rework
costs, attorney's costs and other settlement costs. Actual costs to be
incurred in relation to the ultimate settlement may vary from the amount
estimated.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of
Directors of Rakepoll Holding B.V.
We have audited the combined balance sheets of Rakepoll Holding B.V. and
subsidiaries ("Rakepoll") as at December 31, 1995 and 1994 and the combined
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1995. These combined
financials statements are the responsibility of Rakepoll's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Rakepoll Holding
B.V. and subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted
accounting principles in the United States of America.
Rotterdam, The Netherlands, October 15, 1996
/s/ KPMG Accountants N.V.
F-23
<PAGE>
ANNEX A
STOCK EXCHANGE AGREEMENT
BETWEEN
GENSIA, INC.
("GENSIA"),
AND
RAKEPOLL FINANCE N.V.
("RAKEPOLL FINANCE")
NOVEMBER 12, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1 EXCHANGE OF SHARES............................................ A-1
1.1 Closing Date.................................................. A-1
1.2 Exchange of Shares and Additional Consideration............... A-1
1.3 Delivery of Shares and Additional Consideration at Closing.... A-1
1.4 Tax Treatment................................................. A-2
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF GENSIA...................... A-2
2.1 Organization and Standing..................................... A-2
2.2 Subsidiaries.................................................. A-2
2.3 Corporate Power and Authority................................. A-3
2.4 Capitalization of Gensia...................................... A-3
2.5 Conflicts, Consents and Approval.............................. A-3
2.6 Taxes......................................................... A-4
2.7 Intellectual Property Rights.................................. A-5
2.8 Title to and Condition of Properties.......................... A-5
2.9 Brokerage and Finder's Fees; Expenses......................... A-6
2.10 Gensia SEC Documents.......................................... A-6
2.11 [This Section intentionally left blank.]...................... A-6
2.12 Compliance with Law........................................... A-6
2.13 Litigation.................................................... A-7
2.14 Employee Benefit Plans........................................ A-7
2.15 Contracts..................................................... A-9
2.16 Accounts Receivable........................................... A-9
2.17 Labor Relations............................................... A-9
2.18 No Material Adverse Change.................................... A-10
2.19 Operation of Gensia's Business; Relationships................. A-10
2.20 Permits; Compliance........................................... A-10
2.21 Product Warranties and Liabilities............................ A-10
2.22 Environmental Matters......................................... A-11
2.23 Opinion of Financial Advisor.................................. A-12
2.24 Board Recommendation.......................................... A-12
2.25 Undisclosed Liabilities....................................... A-12
2.26 Gensia Rights Agreement....................................... A-12
2.27 Takeover Laws................................................. A-13
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF RAKEPOLL FINANCE............ A-13
3.1 Organization and Standing..................................... A-13
3.2 Subsidiaries.................................................. A-13
3.3 Corporate Power and Authority................................. A-13
3.4 Capitalization of Rakepoll Holding............................ A-14
3.5 Conflicts; Consents and Approvals............................. A-14
3.6 Certain Rakepoll Holding Documents............................ A-15
3.7 Taxes......................................................... A-15
3.8 Compliance with Law........................................... A-16
3.9 Intellectual Property Rights.................................. A-16
3.10 Title to and Condition of Properties.......................... A-17
3.11 [This Section intentionally left blank.]...................... A-17
3.12 Litigation.................................................... A-17
3.13 Brokerage and Finder's Fees; Expenses......................... A-17
3.14 Employee Matters.............................................. A-18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
3.15 Contracts...................................................... A-19
3.16 Accounts Receivable............................................ A-19
3.17 Labor Relations................................................ A-20
3.18 No Material Adverse Change..................................... A-20
3.19 Operation of Rakepoll Holding's Business; Relationships........ A-20
3.20 Permits; Compliance............................................ A-20
3.21 Product Warranties and Liabilities............................. A-21
3.22 Environmental Matters.......................................... A-21
3.23 [This section intentionally left blank.]....................... A-21
3.24 Board Recommendation........................................... A-21
3.25 Undisclosed Liabilities........................................ A-21
3.26 Ownership of Rakepoll Holding Shares........................... A-22
3.27 Exchange Entirely for Own Account.............................. A-22
3.28 Restricted Securities.......................................... A-22
3.29 Legends........................................................ A-22
3.30 Takeover Laws.................................................. A-22
3.31 Authorization of Rakepoll Holding Subsidiaries................. A-23
ARTICLE 4 COVENANTS OF THE PARTIES....................................... A-23
4.1 Mutual Covenants............................................... A-23
4.2 Covenants of Gensia............................................ A-26
4.3 Covenants of Rakepoll Finance.................................. A-28
ARTICLE 5 CONDITIONS..................................................... A-29
5.1 Mutual Conditions.............................................. A-29
5.2 Conditions to Obligations of Rakepoll Finance.................. A-29
5.3 Conditions to Obligations of Gensia............................ A-30
ARTICLE 6 TERMINATION AND AMENDMENT...................................... A-31
6.1 Termination.................................................... A-31
6.2 Effect of Termination.......................................... A-31
6.3 Amendment...................................................... A-32
6.4 Extension; Waiver.............................................. A-32
ARTICLE 7 MISCELLANEOUS.................................................. A-32
7.1 Survival of Representations and Warranties..................... A-32
7.2 Notices........................................................ A-33
7.3 Interpretation................................................. A-33
7.4 Counterparts................................................... A-33
7.5 Entire Agreement............................................... A-34
7.6 Governing Law; Consent to Jurisdiction......................... A-34
7.7 Specific Performance........................................... A-34
7.8 Assignment..................................................... A-34
7.9 Expenses....................................................... A-34
</TABLE>
Exhibit A--Form of Opinion of Counsel to Gensia
Exhibit B--Form of Opinions of Counsel to Rakepoll Finance
ii
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STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT (this "Agreement") is made and entered into as
of the 12th day of November, 1996, by and between GENSIA, INC., a Delaware
corporation ("Gensia"), and RAKEPOLL FINANCE N.V., a corporation organized
under the laws of the Netherlands Antilles ("Rakepoll Finance").
PRELIMINARY STATEMENTS
A. Gensia and Rakepoll Holding B.V., a company organized under the laws of
the Netherlands ("Rakepoll Holding"), desire to combine their respective
businesses. In order to effectuate this combination, all of the outstanding
shares of Rakepoll Holding Common Stock (as defined in Section 3.4)
outstanding at the Closing Date (as defined in Section 1.1) will be exchanged
(the "Stock Exchange") for Gensia Common Shares (as defined in Section 2.4)
and additional consideration, as more fully provided herein.
B. The respective Boards of Directors of Gensia and Rakepoll Finance have
determined the Stock Exchange in the manner contemplated herein to be
desirable and in the best interests of their respective stockholders and, by
resolutions duly adopted, have approved and adopted this Agreement. The
shareholders of Rakepoll Finance (the "Rakepoll Finance Shareholders") have
approved this Agreement and the Stock Exchange.
C. Concurrently with the execution and delivery of this Agreement, and as a
condition and inducement to Gensia's and Rakepoll Finance's willingness to
enter into this Agreement, Gensia and the Rakepoll Finance Shareholders have
entered into the Shareholder's Agreement, dated as of the date hereof (the
"Shareholder's Agreement").
AGREEMENT
NOW, THEREFORE, in consideration of these premises and the mutual and
dependent promises hereinafter set forth, the parties hereto agree as follows:
ARTICLE 1
EXCHANGE OF SHARES
1.1 Closing Date. The date on which the Closing is held shall be referred to
as the "Closing Date." Subject to the satisfaction of the conditions to
closing set forth in Article 5, the closing of the exchange of shares
contemplated hereby (the "Closing") shall be held at the offices of Pillsbury
Madison & Sutro LLP, 235 Montgomery Street, San Francisco, California, at
10:00 A.M. California time on a date specified by the parties, which date
shall be as soon as practicable, but in any event within two business days
following the date upon which all conditions set forth in Article 5 hereof
have been satisfied or waived, or at such other time and place as the parties
mutually may agree.
1.2 Exchange of Shares and Additional Consideration. On the terms and
subject to the satisfaction or waiver of the conditions set forth herein, at
the Closing, (a) Rakepoll Finance shall sell, transfer, convey and assign all
of the outstanding shares of Rakepoll Holding Common Stock to Gensia, (b) and
shall receive in exchange for such shares of Rakepoll Holding Common Stock
29,500,000 newly issued shares of Gensia Common Shares and U.S. $100,000 in
cash.
1.3 Delivery of Shares and Additional Consideration at Closing. At the
Closing, Rakepoll Finance shall deliver to Gensia certificates evidencing the
Rakepoll Holding Common Stock which are duly endorsed for transfer thereon or
by means of duly executed stock powers attached thereto against delivery by
Gensia of that
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number of shares of Gensia Common Shares provided in Section 1.2 in the name
of Rakepoll Finance and U.S.$100,000 by check or wire transfer.
1.4 Tax Treatment. The parties intend that the purchase and sale of the
Shares will not qualify as a "plan of reorganization" under Section 368 of the
United States Internal Revenue Code of 1986, as amended (the "Code"), within
the meaning of the regulations promulgated under Section 368 of the Code. The
parties intend that the purchase of the shares of Rakepoll Holding Common
Stock by Gensia will qualify as a "purchase" within the meaning of section 338
of the Code and that Gensia will be permitted, if it elects, to make a section
338 election with respect to Rakepoll Holding in accordance with the Code.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF GENSIA
In order to induce Rakepoll Finance to enter into this Agreement, Gensia
hereby represents and warrants to Rakepoll Finance that the statements
contained in this Article 2 are true, correct and complete.
2.1 Organization and Standing. Gensia and each of its subsidiaries listed in
Section 2.1 to the disclosure schedule (the "Gensia Subsidiaries" or
individually a "Gensia Subsidiary"), delivered by Gensia to Rakepoll Finance
and dated the date hereof (the "Gensia Disclosure Schedule") is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with full corporate power and authority to
own, lease, use and operate its properties and to conduct its business as and
where now owned, leased, used, operated and conducted. Gensia and each Gensia
Subsidiary is duly qualified to do business and in good standing in each
jurisdiction listed in Section 2.1 to the Gensia Disclosure Schedule, is not
qualified to do business in any other jurisdiction and neither the nature of
the business conducted by it nor the property it owns, leases or operates
requires it to qualify to do business as a foreign corporation in any
jurisdiction where it is not so qualified, except where the failure to be so
qualified or in good standing in such jurisdiction would not have a material
adverse effect on the assets, liabilities, results of operations or financial
condition (a "material adverse effect") on Gensia and the Gensia Subsidiaries
taken as a whole. Gensia and each Gensia Subsidiary is not in default in the
performance, observance or fulfillment of any provision of its articles or
certificate of incorporation or incorporation deed or bylaws or other charter
documents or corporate organizational documents ("Charter Documents").
2.2 Subsidiaries. Gensia does not own, directly or indirectly, any equity or
other ownership interest in any corporation, partnership, joint venture or
other entity or enterprise, except as set forth in Section 2.2 to the Gensia
Disclosure Schedule. Except as set forth in Section 2.2 to the Gensia
Disclosure Schedule, Gensia is not subject to any obligation or requirement to
provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such entity. Gensia owns directly or
indirectly each of the outstanding shares of capital stock (or other ownership
interests having by their terms ordinary voting power to elect a majority of
directors or others performing similar functions with respect to such Gensia
Subsidiary) of each Gensia Subsidiary. Each of the outstanding shares of
capital stock of each Gensia Subsidiary is duly authorized, validly issued,
fully paid and nonassessable, and, is owned, directly or indirectly, by Gensia
free and clear of all liens, pledges, security interests, claims or other
encumbrances. The following information for each Gensia Subsidiary is set
forth in Section 2.2 to the Gensia Disclosure Schedule, as applicable: (i) its
name and jurisdiction of incorporation or organization; (ii) its authorized
capital stock or share capital; and (iii) the number of issued and outstanding
shares of capital stock or share capital and the record owner(s) thereof.
Other than as set forth in Section 2.2 to the Gensia Disclosure Schedule,
there are no outstanding subscriptions, options, warrants, puts, calls,
agreements, understandings, claims or other commitments or rights of any type
relating to the issuance, sale or transfer of any securities of any Gensia
Subsidiary, nor are there outstanding any securities which are convertible
into or exchangeable for any shares of capital stock of any Gensia Subsidiary;
and no Gensia Subsidiary has any obligation of any kind to issue any
additional securities or to pay for securities of any Gensia Subsidiary or any
predecessor thereof.
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<PAGE>
2.3 Corporate Power and Authority. Gensia has all requisite corporate power
and authority to enter into this Agreement and, subject to authorization of
the issuance of Gensia Common Shares issuable in the Stock Exchange and the
transactions contemplated hereby by the stockholders of Gensia (the "Gensia
Stockholders"), to consummate the transactions contemplated by this Agreement.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Gensia, subject to authorization of the
issuance of Gensia Common Shares issuable in the Stock Exchange and the
transactions contemplated hereby by Gensia Stockholders. This Agreement has
been duly executed and delivered by Gensia and constitutes the legal, valid
and binding obligation of Gensia enforceable against it in accordance with its
terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of
good faith and fair dealing.
2.4 Capitalization of Gensia. As of September 30, 1996, Gensia's authorized
capital stock consisted solely of (a) 75,000,000 common shares, $.01 par value
("Gensia Common Shares"), of which (i) 36,950,792 shares were issued and
outstanding and (ii) 12,503,294 shares were reserved for issuance upon the
exercise or conversion of options, warrants or contingent value rights granted
or issuable by Gensia or pursuant to Gensia's Employee Stock Purchase Plan,
(b) 5,000,000 preferred shares, $.01 par value ("Gensia Preferred Stock"), of
which (i) 1,894,000 shares have been designated as $3.75 Convertible
Exchangeable Preferred Stock of which 1,600,000 shares were issued and
outstanding or reserved for issuance, and (ii) 100,000 shares have been
designated as Series I Participating Preferred Stock, none of which were
issued or outstanding, all of which were reserved for issuance under the
Gensia Preferred Stock Purchase Rights. Each outstanding share of Gensia
capital stock is, and all Gensia Common Shares to be issued in connection with
the Stock Exchange will be, duly authorized and validly issued, fully paid and
nonassessable, and each outstanding share of Gensia capital stock has not
been, and all Gensia Common Shares to be issued in connection with the Stock
Exchange will not be, issued in violation of any preemptive or similar rights.
As of the date hereof, other than as set forth in the first sentence hereof or
in Section 2.4 to the Gensia Disclosure Schedule there are no outstanding
subscriptions, options, warrants, puts, calls, agreements, understandings,
claims or other commitments or rights of any type relating to the issuance,
sale or transfer by Gensia of any equity securities of Gensia, nor are there
outstanding any securities which are convertible into or exchangeable for any
shares of capital stock of Gensia. Except as set forth in Section 2.4 to the
Gensia Disclosure Schedule, all dividends on all series of Gensia Preferred
Stock have been paid in full. Except as set forth in Section 2.4 to the Gensia
Disclosure Schedule, Gensia has not agreed to register any securities under
the Securities Act of 1933, as amended (the "Securities Act"), or under any
state securities law or granted registration rights to any person or entity.
Except for the Shareholder's Agreement or as set forth in Section 2.4 to the
Gensia Disclosure Schedule, there are no voting trusts, stockholders
agreements, proxies or other similar agreements or understandings in effect
with respect to the voting or transfer of any of the shares of Gensia Common
Shares.
2.5 Conflicts, Consents and Approval. Other than as set forth in Section 2.5
of the Gensia Disclosure Schedule neither the execution and delivery of this
Agreement by Gensia nor the consummation of the transactions contemplated
hereby will:
(a) violate, conflict with, or result in a breach of any provision of the
Charter Documents of Gensia or of any Gensia Subsidiary;
(b) violate, conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with the giving of notice, the
passage of time or otherwise, would constitute a default) under, require
any consent under, or entitle any party (with the giving of notice, the
passage of time or otherwise) to terminate, accelerate, modify or call a
default under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties, shares of Gensia Common
Shares or assets of Gensia or any Gensia Subsidiary under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, contract, undertaking, agreement, lease or other
instrument or obligation to which Gensia or any Gensia Subsidiary is a
party;
A-3
<PAGE>
(c) violate any order, writ, injunction, decree, statute, rule or
regulation, applicable to Gensia or any Gensia Subsidiary or any of their
respective business, properties or assets; or
(d) require any action or consent or approval of, or review by, or
registration or filing by Gensia or any Gensia Subsidiary or any of their
respective affiliates with any third party or any court, arbitral tribunal,
administrative agency or commission or other governmental or regulatory
body, agency, instrumentality or authority (a "Governmental Authority"),
other than (i) authorization of the issuance of Gensia Common Shares
issuable in the Stock Exchange and the transactions contemplated hereby by
Gensia Stockholders, (ii) authorization for trading and quotation of the
Gensia Common Shares to be issued in the Stock Exchange and the
transactions contemplated hereby on the Nasdaq National Market ("Nasdaq"),
subject to official notice of issuance, (iii) actions required by the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder (the "HSR Act"), the voluntary
notification to be made pursuant to section 721 of the Defense Production
Act of 1950, as amended (the "Exon-Florio Amendment"), and any necessary
Mexican approvals, and (iv) registrations or other actions required under
applicable securities laws as are contemplated by this Agreement;
except in the case of (b), (c) and (d) for any of the foregoing that would
not, individually or in the aggregate, have a material adverse effect on
Gensia and the Gensia Subsidiaries taken as a whole or on its ability to
consummate the transactions contemplated by this Agreement.
2.6 Taxes. Except for matters that would not have a material adverse effect
on Gensia and the Gensia Subsidiaries taken as a whole (i) all tax returns
(including, without limitation, income, profit, franchise, sales and use,
excise, severance, occupation, property, gross receipts, payroll and
withholding tax returns and information returns), deposits and reports (all
such returns, deposits and reports herein referred to collectively as "Tax
Returns" or singularly as a "Tax Return") of or relating to any federal,
state, local or foreign or other governmental tax (all together with any
penalties, additions to tax, fines and interest thereon or related thereto,
herein referred to collectively as "Taxes" or singularly as a "Tax") that are
required to be filed or deposited for, by, on behalf of or with respect to
Gensia and the Gensia Subsidiaries, including, but not limited to, those
relating to the income, business, operations or property of Gensia and the
Gensia Subsidiaries and those which include or should include Gensia and the
Gensia Subsidiaries have been filed or deposited duly and on a timely basis
and all Taxes and filing fees shown to be due and payable on such Tax Returns
have been paid in full and all installments, assessments and charges of which
Gensia or any Gensia Subsidiary is aware or has received notice and which are
due and payable by Gensia or any Gensia Subsidiary have been paid in full;
(ii) to the knowledge of Gensia or any Gensia Subsidiary, no such Tax Return
contains any material misstatement or omits any material statement that should
have been included; (iii) all Taxes imposed on Gensia or any Gensia Subsidiary
(or for which Gensia or any Gensia Subsidiary is or could be liable, whether
to any Governmental Authority or to other persons (as, for example, under tax
allocation agreements)), for all periods up to the Closing Date which are due
and payable on or before the Closing Date, have been paid or will be paid when
due; (iv) none of such Tax Returns are now under audit or examination by any
federal, state, local or foreign or other Governmental Authority and there are
no agreements, waivers or other arrangements providing for an extension of
time with respect to the assessment or collection of any Tax or deficiency of
any nature against Gensia or any Gensia Subsidiary or with respect to any such
Tax Return or any suits or other judicial or administrative actions,
proceedings, investigations or claims now pending or, to the knowledge of
Gensia or any Gensia Subsidiary, threatened against Gensia or any Gensia
Subsidiary with respect to any Tax, governmental charge or assessment; (v) the
latest balance sheet included in the Gensia Documents reflects and includes
adequate provisions for the payment in full of any and all Taxes imposed on
Gensia or any Gensia Subsidiary and not yet due for any and all periods up to
and including the date of such balance sheet; (vi) all Taxes for which Gensia
or any Gensia Subsidiary is liable for periods through the Closing Date
(whether or not the period ends for tax purposes on the Closing Date) have
been or will be, paid when due or adequately reserved against on the books of
the Gensia or any Gensia Subsidiary on or prior to the Closing Date; (vii)
Gensia and the Gensia Subsidiaries have withheld and remitted all amounts
required to be withheld and have paid such amounts due to the appropriate
authority on a timely basis and in the form required under the appropriate
legislation; (viii) Gensia and the Gensia Subsidiaries have not been and are
currently not required to file a Tax Return in any jurisdiction other than the
United States,
A-4
<PAGE>
Germany and the United Kingdom; and (ix) Gensia and the Gensia Subsidiaries
have not acquired property from or disposed of property for proceeds less than
the fair market value thereof to any person who is considered a related party
to Gensia or the Gensia Subsidiaries under the transfer pricing rules of the
applicable jurisdiction. The Gensia balance sheets at December 31, 1995 and
June 30, 1996 contain adequate reserves against any liability for Taxes for
which Gensia or any Gensia Subsidiaries could be liable in respect of any
audit or examination set forth on the Gensia Disclosure Schedule. There is no
Tax lien, whether imposed by any federal, state, county, local or foreign
taxing authority, outstanding against the assets, properties or business of
Gensia or any Gensia Subsidiary other than liens for current Taxes not yet due
for which adequate reserves have been provided for. All material elections and
consents with respect to any Tax (or the computation thereof) affecting Gensia
and the Gensia Subsidiaries as of the date hereof are obvious from the Tax
Returns or are set forth on the Gensia Disclosure Schedule. After the date
hereof, no election or consent with respect to any Tax (or the computation
thereof) affecting Gensia and the Gensia Subsidiaries will be made without the
written consent of Rakepoll Finance. Gensia and the Gensia Subsidiaries have
not agreed to make and are not required to make any adjustment under Section
481(a) of the Code, by reason of a change in accounting method or otherwise.
Gensia and the Gensia Subsidiaries are not a party to any agreement, contract,
arrangement or plan that has resulted, or as a consequence of the transactions
contemplated hereby will result, separately or in the aggregate, in the
payment of any excess parachute payments within the meaning of Section 280G of
the Code. Gensia and the Gensia Subsidiaries have not filed a consent under
Section 341(f) concerning collapsible corporations. Gensia is not, and was not
at any time during the previous 5 years, a United States real property holding
corporation, as defined in Section 897 of the Code.
2.7 Intellectual Property Rights. Except as disclosed in Section 2.7 to the
Gensia Disclosure Schedule:
(a) To Gensia's knowledge and except as set forth in Section 2.7(a) to
the Gensia Disclosure Schedule, Gensia or a Gensia Subsidiary owns or has a
license to use all patents and patent applications, trademark registrations
and applications and copyright registrations and applications, and all
other material intangible property and technology ("Intellectual Property")
which are used by Gensia or any Gensia Subsidiary free and clear of all
mortgages, liens, loans and encumbrances, except such encumbrances and
liens which arise in the ordinary course of business and do not materially
impair such ownership or use of such Intellectual Property or materially
detract from the value thereof. With respect to such Intellectual Property
licensed by Gensia or any Gensia Subsidiary, to Gensia's knowledge such
licenses are in full force and effect, Gensia or such Gensia Subsidiary is
in compliance with the terms and provisions thereof, and no event has
occurred which, with notice or lapse of time or both, would constitute a
breach or violation thereof which could have a material adverse effect on
Gensia and the Gensia Subsidiaries taken as a whole, and Gensia or such
Gensia Subsidiary holds a valid license to use such Intellectual Property,
free of any liens, claims or encumbrances except those liens, claims or
encumbrances which do not and will not, individually or in the aggregate,
have a material adverse effect on Gensia and the Gensia Subsidiaries taken
as a whole.
(b) To Gensia's knowledge, Gensia and the Gensia Subsidiaries have the
right and authority to use such Intellectual Property in connection with
the conduct of the business of Gensia and the Gensia Subsidiaries in the
manner and to the extent such business is presently conducted, and neither
Gensia nor any Gensia Subsidiary has been notified of any claim that such
use conflicts with, infringes upon or violates any rights of any other
person or entity, except to the extent that such conflict, infringement or
violation does not and will not, individually or in the aggregate, have a
material adverse effect on Gensia and the Gensia Subsidiaries taken as a
whole.
2.8 Title to and Condition of Properties. Gensia and each Gensia Subsidiary
owns or holds under valid leases all real property, plants, machinery and
equipment necessary for the conduct of the business of Gensia and each Gensia
Subsidiary, respectively, as presently conducted, except where the failure to
own or hold such property, plants, machinery and equipment would not have a
material adverse effect on Gensia and the Gensia Subsidiaries taken as a
whole. Section 2.8 to the Gensia Disclosure Schedule lists, and Gensia and
each Gensia Subsidiary have furnished or made available to Rakepoll Finance,
copies of all third party environmental or other
A-5
<PAGE>
reports prepared by or for Gensia or any Gensia Subsidiary with respect to the
real property owned, leased or used by Gensia or any Gensia Subsidiary.
2.9 Brokerage and Finder's Fees; Expenses. Except as disclosed on Schedule
2.9 to the Gensia Disclosure Schedule, and except for Gensia's obligations to
CS First Boston ("First Boston") (a copy of the written agreement, as amended,
relating to such obligations having previously been provided to Rakepoll
Finance), neither Gensia nor any Gensia Subsidiary, nor any stockholder,
director, officer or employee of Gensia or any Gensia Subsidiary thereof, has
incurred or will incur on behalf of Gensia or any Gensia Subsidiary, any
brokerage, finder's or similar fee in connection with the transactions
contemplated by this Agreement. Section 2.9 to the Gensia Disclosure Schedule
discloses a bona fide estimate of the aggregate amount of all fees and
expenses (including, without limitation, fees and expenses payable to all
banks, investment banking firms and other financial institutions and their
respective agents and counsel for arranging or providing financial advice with
respect to the Stock Exchange and all reasonable fees and expenses of counsel,
accountants, experts and consultants to Gensia) expected to be paid by Gensia
and each Gensia Subsidiary up to and including the Closing Date to all
attorneys, accountants and investment bankers in connection with the Stock
Exchange ("Gensia Stock Exchange Fees").
2.10 Gensia SEC Documents. Gensia has timely filed with the Securities and
Exchange Commission ("Commission") all forms, reports, schedules, statements
and other documents required to be filed by it since December 31, 1992 under
the Securities Exchange Act of 1934, as amended (together with the rules and
regulations thereunder, the "Exchange Act") or the Securities Act, including,
without limitation, any financial statements or schedules included therein
(such documents, as supplemented and amended since the time of filing,
collectively, the "Gensia SEC Documents"). The Gensia SEC Documents at the
time filed (and, in the case of registration statements and proxy statements,
on the dates of effectiveness and the dates of mailing, respectively) (a) did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (b) complied as to form in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the
case may be. The financial statements of Gensia included in the Gensia SEC
Documents (including the notes and schedules relating thereto) at the time
filed (and, in the case of registration statements and proxy statements, on
the date of effectiveness and the date of mailing, respectively) complied as
to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the Commission with respect
thereto, were prepared in accordance with United States generally accepted
accounting principles stated in United States Dollars applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by Form 10-Q of
the Commission), include all adjustments (consisting of any normal recurring
accruals) that are necessary for a fair presentation of the consolidated
financial condition of Gensia and the Gensia Subsidiaries and the results of
operations of Gensia and the Gensia Subsidiaries, and fairly present (subject
in the case of unaudited statements to normal, recurring audit adjustments)
the consolidated financial condition of Gensia and its consolidated
subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended.
2.11 [This Section intentionally left blank.]
2.12 Compliance with Law. To the knowledge of Gensia, Gensia and each Gensia
Subsidiary is in material compliance with, and at all times since December 31,
1992 has been in material compliance with, all applicable laws, statutes,
orders, rules, regulations, policies or guidelines promulgated, or judgments,
decisions or orders entered by any Governmental Authority (collectively,
"Applicable Laws") relating to Gensia or any Gensia Subsidiary or their
respective business or properties, including, without limitation, laws
regarding the provision of insurance, third party administration and primary
health care services, the Prescription Drug Marketing Act, the Federal
Controlled Substances Act of 1970, the Food, Drug and Cosmetic Act, any
federal or state Pharmacy Practice Acts, Controlled Substance Acts, Dangerous
Drugs Acts and Food, Drug and Cosmetic Acts, the Occupational Safety and
Health Act and the regulations promulgated thereunder ("OSHA") and all
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rules of professional conduct applicable to Gensia or any Gensia Subsidiary by
which any of its properties are bound or subject, except where the failure to
be in compliance therewith could not reasonably be expected to have a material
adverse effect on Gensia and the Gensia Subsidiaries taken as a whole.
2.13 Litigation. Except as set forth in Section 2.13 to the Gensia
Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation (an "Action") pending or, to the knowledge of Gensia, threatened
against Gensia or any Gensia Subsidiary which, individually or in the
aggregate, could reasonably be expected to have a material adverse effect on
Gensia and the Gensia Subsidiaries taken as a whole or a material adverse
effect on the ability of Gensia to consummate the transactions contemplated
hereby. None of Gensia and the Gensia Subsidiaries is subject to any
outstanding order, writ, injunction or decree which, individually or in the
aggregate, insofar as can be reasonably foreseen, could have a material
adverse effect on Gensia and the Gensia Subsidiaries taken as a whole or a
material adverse effect on the ability of Gensia to consummate the
transactions contemplated hereby. Except as set forth in Section 2.13 to the
Gensia Disclosure Schedule, since December 31, 1992, Gensia and each Gensia
Subsidiary have not been subject to any outstanding order, writ, injunction or
decree relating to Gensia's or any Gensia Subsidiary's method of doing
business or its relationship with past, existing or future users or purchasers
of any goods or services of Gensia or any Gensia Subsidiary.
2.14 Employee Benefit Plans.
(a) For purposes of this Section 2.14, the following terms have the
definitions given below:
"Controlled Group Liability" means any and all liabilities under (i)
Title IV of ERISA, (ii) section 302 of ERISA, (iii) sections 412 and 4971
of the Code, (iv) the continuation coverage requirements of section 601 et
seq. of ERISA and section 4980B of the Code, and (v) corresponding or
similar provisions of foreign laws or regulations, in each case other than
pursuant to the Gensia Plans.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder and corresponding or similar
provisions of foreign laws or regulations.
"ERISA Affiliate" means, with respect to any entity, trade or business,
any other entity, trade or business that is a member of a group described
in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of
ERISA that includes the first entity, trade or business, or that is a
member of the same "controlled group" as the first entity, trade or
business pursuant to Section 4001(a)(14) of ERISA.
"Gensia Plans" means all employee benefit plans, programs, policies,
practices, and other arrangements providing benefits to any employee or
former employee or beneficiary or dependent thereof, whether or not
written, and whether covering one person or more than one person, sponsored
or maintained by Gensia and each Gensia Subsidiary or to which Gensia or
any Gensia Subsidiary contributes or is obligated to contribute. Without
limiting the generality of the foregoing, the term "Gensia Plans" includes
all employee welfare benefit plans within the meaning of Section 3(1) of
ERISA and all employee pension benefit plans within the meaning of Section
3(2) of ERISA.
(b) Section 2.14(b) to the Gensia Disclosure Schedule lists all Gensia
Plans. With respect to each Gensia Plan, Gensia and each Gensia Subsidiary
have made available to Rakepoll Holding a true, correct and complete copy of:
(i) each writing constituting a part of such Gensia Plan, including without
limitation all plan documents, benefit schedules, trust agreements, and
insurance contracts and other funding vehicles; (ii) the most recent Annual
Report (Form 5500 Series) and accompanying schedule, if any; (iii) the current
summary plan description, if any; (iv) the most recent annual financial
report, if any; and (v) the most recent determination letter from the IRS, if
any.
(c) The Internal Revenue Service has issued a favorable determination letter
with respect to each Gensia Plan that is intended to be a "qualified plan"
within the meaning of Section 401(a) of the Code (a "Qualified Plan") and
there are no existing circumstances nor any events that have occurred that
could adversely affect the qualified status of any Qualified Plan or the
related trust.
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(d) All contributions required to be made to any Gensia Plan by Applicable
Laws or by any plan document or other contractual undertaking, and all
premiums due or payable with respect to insurance policies funding any Gensia
Plan, for any period through the date hereof have been timely made or paid in
full and through the Closing Date will be timely made or paid in full or, to
the extent not required to be made or paid on or before the date hereof or the
Closing Date, as applicable, have been or will be fully reflected in the
Gensia SEC Documents filed or to be filed with the Commission.
(e) Gensia and all Gensia Subsidiaries have complied, and are now in
compliance, in all material respects, with all provisions of ERISA, the Code
and all laws and regulations applicable to the Gensia Plans. There is not now,
and there are no existing circumstances that could give rise to, any
requirement for the posting of security with respect to a Gensia Plan or the
imposition of any lien on the assets of Gensia or any Gensia Subsidiary under
ERISA or the Code.
(f) No Gensia Plan is subject to Title IV or Section 302 of ERISA or Section
412 or 4971 of the Code. No Gensia Plan is a "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA (a "Multiemployer Plan") or a plan that
has two or more contributing sponsors at least two of whom are not under
common control, within the meaning of Section 4063 of ERISA (a "Multiple
Employer Plan"), nor has Gensia or any Gensia Subsidiary or any of their
respective ERISA Affiliates, at any time within five years before the date
hereof, contributed to or been obligated to contribute to any Multiemployer
Plan or Multiple Employer Plan.
(g) There does not now exist, and there are no existing circumstances that
could result in, any Controlled Group Liability that would be a liability of
Gensia or any Gensia Subsidiary following the Closing. Without limiting the
generality of the foregoing, neither Gensia nor any Gensia Subsidiary nor any
of their respective ERISA Affiliates has engaged in any transaction described
in Section 4069 or Section 4204 of ERISA.
(h) Except for health continuation coverage as required by Section 4980B of
the Code or Part 6 of Title I of ERISA, neither Gensia nor any Gensia
Subsidiary has any liability for life, health, medical or other welfare
benefits to former employees or beneficiaries or dependents thereof.
(i) Except as set forth in Section 2.14(i) to the Gensia Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in, cause the
accelerated vesting or delivery of, or increase the amount or value of, any
payment or benefit to any employee of Gensia or any Gensia Subsidiary. Without
limiting the generality of the foregoing and except as set forth in Section
2.14(i) to the Gensia Disclosure Schedule, no amount paid or payable by Gensia
or any Gensia Subsidiary in connection with the transactions contemplated
hereby will be an "excess parachute payment" within the meaning of Section
280G of the Code.
(j) There are no pending or threatened claims (other than claims for
benefits in the ordinary course), lawsuits or arbitrations which have been
asserted or instituted against the Employee Plans, any fiduciaries thereof
with respect to their duties to the Employee Plans or the assets of any of the
trusts under any of the Employee Plans which could reasonably be expected to
result in any material liability of Gensia or any Gensia Subsidiary to the
Pension Benefit Guaranty Corporation, the Department of Treasury, the
Department of Labor or any multiemployer plan.
(k) Section 2.14(k) to the Gensia Disclosure Schedule sets forth the names
of all directors and officers of Gensia and each Gensia Subsidiary, the total
salary, bonus, fringe benefits and perquisites each received in the fiscal
year ended December 31, 1995, and any changes to the foregoing which have
occurred subsequent to December 31, 1995; Section 2.14(k) to the Gensia
Disclosure Schedule also lists and describes the current compensation of any
other employee of Gensia or any Gensia Subsidiary whose salary and bonus in
1995 exceeded U.S. $150,000. Except as disclosed in Section 2.14(k) to the
Gensia Disclosure Schedule or in the Gensia SEC Documents, there are no other
material forms of compensation paid to any such director, officer or employee
of Gensia or any Gensia Subsidiary. Except as set forth in Section 2.14(k) to
the Gensia Disclosure Schedule, no officer, director, or employee of Gensia or
any other affiliate of Gensia, or any immediate family
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member of any of the foregoing, provides or causes to be provided to Gensia or
any Gensia Subsidiary any material assets, services or facilities and Gensia
and each Gensia Subsidiary does not provide or cause to be provided to any
such officer, director, employee or affiliate, or any immediate family member
of any of the foregoing, any material assets, services or facilities.
2.15 Contracts. Section 2.15 to the Gensia Disclosure Schedule lists all
written or oral contracts, agreements, guarantees, leases and executory
commitments (each a "Contract") to which Gensia or any Gensia Subsidiary is a
party and which fall within any of the following categories: (a) Contracts
valued at over U.S. $250,000 obligating any party to pay or receive money,
goods or services, (b) joint venture, partnership and similar agreements, (c)
Contracts which are service contracts or equipment leases involving payments
by Gensia or any Gensia Subsidiary of more than U.S. $100,000 per year, (d)
Contracts containing covenants purporting to limit the freedom of Gensia or
any Gensia Subsidiary to compete in any line of business in any geographic
area or to hire any individual or group of individuals, (e) Contracts which
after the Closing Date would have the effect of limiting the freedom of
Rakepoll Holding or the Rakepoll Holding Subsidiaries (other than Gensia and
each Gensia Subsidiary) to compete in any line of business in any geographic
area or to hire any individual or group of individuals, (f) Contracts which
contain minimum purchase conditions or requirements or other terms that
restrict or limit the purchasing relationships of Gensia or any Gensia
Subsidiary, (g) Contracts relating to any outstanding commitment for capital
expenditures in excess of U.S. $250,000, (h) Contracts relating to the lease
or sublease of or sale or purchase of real or personal property involving any
annual expense or price in excess of U.S. $100,000 and not cancelable by
Gensia or any Gensia Subsidiary (without premium or penalty) within one month,
(i) Contracts with any labor organization, (j) indentures, mortgages,
promissory notes, loan agreements, guarantees of amounts in excess of U.S.
$100,000, letters of credit or other agreements or instruments of Gensia or
any Gensia Subsidiary or commitments for the borrowing or the lending of
amounts in excess of U.S. $100,000 or by Gensia or any Gensia Subsidiary or
providing for the creation of any charge, security interest, encumbrance or
lien upon any of the assets of Gensia or any Gensia Subsidiary, (k) Contracts
involving annual revenues or expenditures to the business of Gensia or any
Gensia Subsidiary in excess of 5.0% of Gensia's annual revenues and (l)
Contracts with or for the benefit of any officer, director or affiliate of
Gensia or any Gensia Subsidiary or immediate family member thereof. All such
Contracts are valid and binding obligations of Gensia or the Gensia
Subsidiary, as the case may be, and, to the knowledge of Gensia and each
Gensia Subsidiary, are the valid and binding obligation of each other party
thereto except such Contracts which if not so valid and binding would not,
individually or in the aggregate, have a material adverse effect on Gensia and
the Gensia Subsidiaries taken as a whole. Neither Gensia or any Gensia
Subsidiary nor, to the knowledge of Gensia or any Gensia Subsidiary, any other
party thereto is in violation of or in default in respect of, nor has there
occurred an event or condition which with the passage of time or giving of
notice (or both) would constitute a default under, any such Contract except
such violations or defaults under such Contracts which, individually or in the
aggregate, would not have a material adverse effect on Gensia and each Gensia
Subsidiary.
2.16 Accounts Receivable. Except as disclosed in Section 2.16 to the Gensia
Disclosure Schedule, all accounts and notes receivable (including lease and
finance notes receivable) and accrued interest receivable of Gensia and each
Gensia Subsidiary have arisen in the ordinary course of business and the
accounts receivable reserves reflected on the balance sheet as of September
30, 1996 are as of such date established in accordance with United States
generally accepted accounting principles consistently applied and to the best
knowledge of Gensia and each Gensia Subsidiary will be collectible in the
ordinary course of business in an amount not less than the amounts thereof
carried on the balance sheet as of such date included in the Gensia Documents,
net of any reserves included thereon, as applicable, except for any
uncollectible amount which, individually or in the aggregate, would not have a
material adverse effect on Gensia and each Gensia Subsidiary.
2.17 Labor Relations. There is no unfair labor practice complaint against
Gensia or any Gensia Subsidiary pending and there is no labor strike, dispute,
slowdown or stoppage, or any union organizing campaign, actually pending or,
to the knowledge of Gensia or any Gensia Subsidiary, threatened against or
involving Gensia or any Gensia Subsidiary.
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2.18 No Material Adverse Change. Except as set forth in Section 2.18 to the
Gensia Disclosure Schedule, since December 31, 1995, Gensia and each Gensia
Subsidiary have conducted their respective business in the ordinary course,
consistent with past practice, and there has been no (i) material adverse
change in the assets, liabilities, results of operations or financial
condition of Gensia and the Gensia Subsidiaries taken as a whole except for
(1) operating losses in the ordinary course of business not exceeding $60
million for 1996 and $15 million per quarter thereafter until the Closing Date
in the aggregate, (2) any failure to receive regulatory approval of the GenESA
System and (3) any failure to receive regulatory approval of pending
Abbreviated New Drug Applications of Gensia or any Gensia Subsidiary or (ii)
material adverse effect on the ability of Gensia to consummate the
transactions contemplated hereby.
2.19 Operation of Gensia's Business; Relationships.
(a) Since December 31, 1995, Gensia and each Gensia Subsidiary have not
engaged in any transaction which, if entered into and/or consummated after
execution of this Agreement, would violate Section 4.1(h) hereof except as
described or reflected in the Gensia SEC Documents or as set forth in Section
2.19 to the Gensia Disclosure Schedule. Section 2.19 to the Gensia Disclosure
Schedule describes each termination or nonrenewal that has occurred with
respect to any Contract with any lessee or licensee of Intellectual Property,
from December 31, 1995 to the date hereof.
(b) Except as set forth in Section 2.19(b) of the Gensia Disclosure
Schedule, the relationships of Gensia and each Gensia Subsidiary with its
customers and suppliers are satisfactory and the execution of this Agreement,
the Stock Exchange and the transactions contemplated hereby will not
materially adversely affect the relationships of Gensia or any Gensia
Subsidiary with such customers or suppliers.
(c) Except as disclosed in Section 2.19(c) of the Gensia Disclosure
Schedule, no product produced by Gensia or any Gensia Subsidiary or produced
for Gensia or any Gensia Subsidiary by a third party and bearing a Gensia or
any Gensia Subsidiary trademark or other Proprietary Right of Gensia or any
Gensia Subsidiary, has been recalled voluntarily or involuntarily since
December 31, 1992, no such recall is being considered by Gensia, and, to the
knowledge of Gensia and each Gensia Subsidiary, no such recall is being
considered by or has been requested or ordered by any Governmental Authority
or consumer group.
2.20 Permits; Compliance. Gensia and each Gensia Subsidiary are in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate their respective properties and to carry
on their respective business as it is now being conducted other than those
which are immaterial (collectively, the "Gensia Permits"), and there is no
Action pending or, to the knowledge of Gensia and each Gensia Subsidiary,
threatened regarding suspension or cancellation of any of the Gensia Permits,
except for any such Action which, if determined adversely, could not
reasonably be expected, individually or in the aggregate, to have a material
adverse effect on Gensia. Gensia and each Gensia Subsidiary is not in conflict
with, or in default or violation of, any of the Gensia Permits, except for any
such conflicts, defaults or violations which, individually or in the
aggregate, could not reasonably be expected to have a material adverse effect
on Gensia and the Gensia Subsidiaries taken as a whole. Since December 31,
1992, Gensia and each Gensia Subsidiary have not received any notification
with respect to possible conflicts, defaults or violations of Applicable Laws,
except for notices relating to possible conflicts, defaults or violations,
which conflicts, defaults or violations could not reasonably be expected to
have a material adverse effect on Gensia and the Gensia Subsidiaries taken as
a whole.
2.21 Product Warranties and Liabilities. Except as set forth in Section 2.21
to the Gensia Disclosure Schedule, Gensia and each Gensia Subsidiary have no
forms of warranties or guarantees of its products and services that are in
effect or proposed to be used by it. Section 2.21 to the Gensia Disclosure
Schedule sets forth a description, which is true and correct in all material
respects, of each pending or, to the knowledge of Gensia, threatened material
Action under any warranty or guaranty against Gensia and each Gensia
Subsidiary. Gensia and each Gensia Subsidiary have not incurred, nor does
Gensia or any Gensia Subsidiary know or have any reason to believe there is
any basis for alleging, any material liability, damage, loss, cost or expense
as a result
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of any material defect or other deficiency (whether of design, materials,
workmanship, labeling instructions or otherwise) ("Product Liability") with
respect to any product sold or services rendered by or on behalf of Gensia or
any Gensia Subsidiary (including any lessee thereof) prior to the Closing
Date, whether such Product Liability is incurred by reason of any express or
implied warranty (including, without limitation, any warranty of
merchantability or fitness), any doctrine of common law (tort, contract or
other), any statutory provision or otherwise and irrespective of whether such
Product Liability is covered by insurance.
2.22 Environmental Matters.
(a) As used in this Agreement, the term "Mexican Environmental Laws" means
all federal, state, local or foreign laws, including common law and Mexican
Civil Law, relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without
limitation, laws relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, or industrial, toxic or
hazardous substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated or approved
thereunder.
In specific reference to the Mexican component of this Agreement:
"Environment" means soil, surface waters, groundwaters, stream sediments,
surface or subsurface strata, ambient air and any environmental media.
"Environmental Authorizations" means any permit, license, manifest,
consent agreement, acknowledgment, report, log or approval related to
environmental, health and safety compliance established in the
Environmental Laws or required by any federal, state or local Mexican
government agency.
"Mexican Environmental Laws" means any of the following laws of Mexico:
the General Environmental Law for Ecological Equilibrium and Environmental
Protection, the Environmental Law for the Federal District, the
Environmental Law for the State of Mexico, the Regulations on Air
Emissions, Hazardous Waste, Environmental Impact and Noise, the National
Water Law and its Regulation, the Regulation for the Land Transportation of
Hazardous Material and Waste, the federal and state Civil and Criminal
Codes, and all civil, administrative and criminal jurisprudence, decrees,
agreements, guidelines, ordinances and Official Mexican Standards (NOMs),
at the federal, state or local level, pertaining to the environment, health
or safety in effect at any time up to the date of closing or during the
period of post-closing occupancy of the properties.
"Mexican Hazardous Materials" means any material or waste in any physical
form, which is either corrosive, reactive, explosive, toxic, flammable or
biologically infectious, in accordance with the General Environmental Law
for Ecological Equilibrium and Environmental Protection, its Hazardous
Waste Regulation, Official Mexican Standard NOM-052-ECOL-1993 which defines
the criteria for hazardous classification and contains a list of hazardous
waste regulated under Mexican Law, the Regulation for the Land
Transportation of Hazardous Material and Waste, the General Health Law, the
Federal Labor Law, the National Water Law or any other material or waste
classified by its characteristics or in official lists as hazardous to
human health or the environment by Mexican legislation or authorities.
Except as listed in Section 2.22 to the Gensia Disclosure Schedule:
(b) There are, with respect to Gensia and each Gensia Subsidiary, or any
predecessor of the foregoing, no past or present material violations of
Environmental Laws, nor actions, activities, circumstances, conditions,
events, incidents, or contractual obligations which may give rise to any
liability pursuant to any Environmental Law and none of Gensia or any
Gensia Subsidiary has received any notice with respect to any of the
foregoing, nor is any Action pending or threatened in connection with any
of the foregoing.
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(c) No Hazardous Materials are present on or about any real property
currently owned, leased or used by Gensia or any Gensia Subsidiary and no
Hazardous Materials were present on or about any real property previously
owned, leased or used by Gensia or any Gensia Subsidiary during the period
the property was owned, leased or used by Gensia or any Gensia Subsidiary,
except in the normal course of Gensia's or any Gensia Subsidiary's
business.
(d) No Hazardous Materials have been released on or about, or where they
may pose a threat of migration to, any real property currently owned,
leased or used by Gensia or any Gensia Subsidiary and no Hazardous
Materials were released on or about any real property previously owned,
leased or used by Gensia or any Gensia Subsidiary during the period the
property was owned, leased or used by Gensia or any Gensia Subsidiary,
except as may be required in the normal course of business and in
compliance with applicable Environmental Laws in all material respects.
(e) No asbestos-containing materials or polychlorinated biphenyls
("PCBs") are present on or about any property currently owned, leased or
used by Gensia or any Gensia Subsidiary.
(f) There are not now nor have there ever been any underground storage
tanks or similar facilities of any kind on or under any real property
currently or previously owned, leased or used by Gensia or any Gensia
Subsidiary.
2.23 Opinion of Financial Advisor. Gensia has received the written opinion
of First Boston, its financial advisor, to the effect that, as of November 12,
1996, the Stock Exchange is fair to Gensia from a financial point of view,
Gensia has heretofore provided a copy of such opinion to Rakepoll Finance and
such opinion has not been withdrawn, revoked or modified.
2.24 Board Recommendation. The Board of Directors of Gensia, at a meeting
duly called and held, has (i) determined that this Agreement and the
transactions contemplated hereby, including the Stock Exchange, are fair to
and in the best interests of the Gensia Stockholders, and (ii) resolved to
recommend that the Gensia Stockholders approve and authorize the issuance of
Gensia Common Shares in the Stock Exchange and the transactions contemplated
hereby.
2.25 Undisclosed Liabilities. Except (i) as and to the extent disclosed or
reserved against on the consolidated balance sheet of Gensia as of June 30,
1996 included in the Gensia SEC Documents, (ii) as incurred after June 30,
1996 in the ordinary course of business consistent with prior practice and not
prohibited by this Agreement or (iii) as set forth in Section 2.25 to the
Gensia Disclosure Schedule, Gensia and the Gensia Subsidiaries do not have any
liabilities or obligations of any nature, whether known or unknown, absolute,
accrued, contingent or otherwise and whether due or to become due, that,
individually or in the aggregate, have or could reasonably be expected to have
a material adverse effect on Gensia and the Gensia Subsidiaries taken as a
whole. All payments by or for the benefit of Gensia and the Gensia
Subsidiaries to agents, consultants and others have been in payment of bona
fide fees and commissions and not as bribes or illegal or improper payments.
Gensia and the Gensia Subsidiaries have complied with the Foreign Corrupt
Practices Act of 1977 and the rules and regulations thereunder and, in each
case, have not made any payment to or on behalf of any person with respect to
which a deduction could be disallowed under Section 162(c) of the Code.
Neither the Internal Revenue Service nor any other federal, state, local or
foreign government agency or entity has initiated or threatened any
investigation of any payment made by Gensia or any Gensia Subsidiary of, or
alleged to be of, the type described in this Section 2.25.
2.26 Gensia Rights Agreement. The Stockholder Rights Agreement dated as of
March 16, 1992, between Gensia and ChaseMellon Shareholder Services, L.L.C.,
as successor in interest to First Interstate Bank (the "Rights Agreement"),
has been amended, and will remain amended (and no replacement plan will be
adopted), so as to provide that none of Rakepoll Finance and its affiliates
will become an "Acquiring Person" and that no "Stock Acquisition Date" or
"Distribution Date" (as such terms are defined in the Rights Agreement) will
occur as a result of the execution of this Agreement or the consummation of
the Stock Exchange pursuant to this Agreement.
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2.27 Takeover Laws. Prior to the date hereof, the Board of Directors of
Gensia has taken all action necessary to approve for purposes of, or to exempt
under, or make not subject to any takeover law or law that purports to limit
or restrict business combinations or the ability to acquire or vote shares,
including without limitation, Section 203 of the Delaware General Corporation
Law: (i) the execution of this Agreement, (ii) the Stock Exchange and (iii)
the transactions contemplated hereby.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF RAKEPOLL FINANCE
In order to induce Gensia to enter into this Agreement, Rakepoll Finance
hereby represents and warrants to Gensia that the statements contained in this
Article 3 are true, correct and complete.
3.1 Organization and Standing. Rakepoll Finance, Rakepoll Holding and each
of the Rakepoll Holding subsidiaries listed in Section 3.1 of the disclosure
schedule (the "Rakepoll Holding Subsidiaries" or individually a "Rakepoll
Holding Subsidiary") delivered by Rakepoll Finance to Gensia and dated the
date hereof (the "Rakepoll Holding Disclosure Schedule") is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with full corporate power and authority to
own, lease, use and operate its properties and to conduct its business as and
where now owned, leased, used, operated and conducted. Rakepoll Finance,
Rakepoll Holding and each Rakepoll Holding Subsidiary is duly qualified to do
business and in good standing in each jurisdiction listed in Section 3.1 to
the Rakepoll Holding Disclosure Schedule, is not qualified to do business in
any other jurisdiction and neither the nature of the business conducted by it
nor the property it owns, leases or operates requires it to qualify to do
business as a foreign corporation in any jurisdiction where it is not so
qualified, except where the failure to be so qualified or in good standing in
such jurisdiction would not have a material adverse effect on Rakepoll Holding
and the Rakepoll Holding Subsidiaries taken as a whole. Rakepoll Holding and
each Rakepoll Holding Subsidiary is not in default in the performance,
observance or fulfillment of any provision of its Charter Documents.
3.2 Subsidiaries. Rakepoll Holding does not own, directly or indirectly, any
equity or other ownership interest in any corporation, partnership, joint
venture or other entity or enterprise, except as set forth in Section 3.2 to
the Rakepoll Holding Disclosure Schedule. Except as set forth in Section 3.2
to the Rakepoll Holding Disclosure Schedule, Rakepoll Holding is not subject
to any obligation or requirement to provide funds to or make any investment
(in the form of a loan, capital contribution or otherwise) in any such entity.
Rakepoll Holding owns directly or indirectly each of the outstanding shares of
capital stock (or other ownership interests having by their terms ordinary
voting power to elect a majority of directors or others performing similar
functions with respect to such Rakepoll Holding Subsidiary) of each Rakepoll
Holding Subsidiary. Each of the outstanding shares of capital stock of each
Rakepoll Holding Subsidiary is duly authorized, validly issued, fully paid and
nonassessable, and, is owned, directly or indirectly, by Rakepoll Holding free
and clear of all voting trust arrangements, liens, pledges, security
interests, restrictions, claims or other encumbrances. The following
information for each Rakepoll Holding Subsidiary is set forth in Section 3.2
to the Rakepoll Holding Disclosure Schedule, as applicable: (i) its name and
jurisdiction of incorporation or organization; (ii) its authorized capital
stock or share capital; and (iii) the number of issued and outstanding shares
of capital stock or share capital and the record owner(s) thereof. Other than
as set forth in Section 3.2 to the Rakepoll Holding Disclosure Schedule, there
are no outstanding subscriptions, options, warrants, puts, calls, agreements,
understandings, claims or other commitments or rights of any type relating to
the issuance, sale or transfer of any securi ties of any Rakepoll Holding
Subsidiary, nor are there outstanding any securities which are convertible
into or exchangeable for any shares of capital stock of any Rakepoll Holding
Subsidiary; and no Rakepoll Holding Subsidiary has any obligation of any kind
to issue any additional securities or to pay for securities of any Rakepoll
Holding Subsidiary or any predecessor thereof.
3.3 Corporate Power and Authority. Rakepoll Finance has all requisite
corporate power and authority to enter into this Agreement and to consummate
the transactions contemplated by this Agreement. The execution
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and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Rakepoll Finance. This Agreement has been duly executed
and delivered by Rakepoll Finance and constitutes the legal, valid and binding
obligation of Rakepoll Finance enforceable against it in accordance with its
terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of
good faith and fair dealing.
3.4 Capitalization of Rakepoll Holding. As of September 30, 1996, Rakepoll
Holding's authorized capital stock consisted solely of 40 shares of common
stock, Dfl.1,000 par value per share ("Rakepoll Holding Common Stock"), of
which (i) 40 shares were issued and outstanding and (ii) no shares were issued
and held in treasury. Each outstanding share of Rakepoll Holding capital stock
is duly authorized and validly issued, fully paid and nonassessable, and has
not been issued in violation of any preemptive or similar rights. Other than
as set forth in the first sentence hereof or in Section 3.4 to the Rakepoll
Holding Disclosure Schedule, there are no outstanding subscriptions, options,
warrants, puts, calls, agreements, understandings, claims or other commitments
or rights of any type relating to the issuance, sale or transfer of any
securities of Rakepoll Holding, nor are there outstanding any securities which
are convertible into or exchangeable for any shares of capital stock of
Rakepoll Holding; and Rakepoll Holding has no obligation of any kind to issue
any additional securities or to pay for securities of Rakepoll Holding or any
predecessor. The issuance and sale of all of the shares of capital stock
described in this Section 3.4 have been in compliance with all applicable
securities laws. Except as set forth in Section 3.4 to the Rakepoll Holding
Disclosure Schedule, Rakepoll Holding has not agreed to register any
securities under any applicable securities law or granted registration rights
to any person or entity.
3.5 Conflicts; Consents and Approvals. Other than as set forth in Section
3.5 of the Rakepoll Holding Disclosure Schedule neither the execution and
delivery of this Agreement by Rakepoll Finance, nor the consummation of the
transactions contemplated hereby will:
(a) violate, conflict with, or result in a breach of any provision of the
Charter Documents of Rakepoll Finance, Rakepoll Holding or any Rakepoll
Holding Subsidiary;
(b) violate, conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with the giving of notice, the
passage of time or otherwise, would constitute a default) under, require
any consent under, or entitle any party (with the giving of notice, the
passage of time or otherwise) to terminate, accelerate, modify or call a
default under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties, shares of Rakepoll
Holding Common Stock or assets of Rakepoll Finance, Rakepoll Holding or any
Rakepoll Holding subsidiary under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
contract, undertaking, agreement, lease or other instrument or obligation
to which Rakepoll Finance, Rakepoll Holding or any Rakepoll Holding
Subsidiary is a party;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Rakepoll Finance, Rakepoll Holding or any Rakepoll
Holding Subsidiary or any of their respective business, properties or
assets; or
(d) require any action or consent or approval of, or review by, or
registration or filing by Rakepoll Finance, Rakepoll Holding or any
Rakepoll Holding Subsidiary or any of their respective affiliates with any
third party or any Governmental Authority, other than (i) authorization of
the Stock Exchange and the transactions contemplated hereby by Rakepoll
Finance Shareholders, which authorization has been obtained, (ii) actions
required by the HSR Act, the voluntary notification to be made pursuant to
the Exon-Florio Amendment, and any necessary Mexican approvals, (iii)
registrations or other actions required under any applicable securities
laws as are contemplated by this Agreement and (iv) consents or approvals
of any Governmental Authority set forth in Section 3.5 to the Rakepoll
Holding Disclosure Schedule;
except in the case of (b), (c) and (d) for any of the foregoing that would
not, individually or in the aggregate, have a material adverse effect on
Rakepoll Finance or Rakepoll Holding and the Rakepoll Holding Subsidiaries
taken as a whole or on its ability to consummate the transactions contemplated
by this Agreement.
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3.6 Certain Rakepoll Holding Documents. Rakepoll Holding has delivered to
Gensia consolidated/combined statements of operations, statements of cash flow
and statements of stockholders equity of Rakepoll Holding and the Rakepoll
Holding Subsidiaries for the years ended December 31, 1993, 1994 and 1995
(audited) and the six month periods ended June 30, 1995 and 1996 (unaudited)
and consolidated balance sheets at December 31, 1994 and 1995 (audited) and at
June 30, 1995 and 1996 (unaudited) and the notes thereto, including, without
limitation, any financial statements, notes or schedules included therein
(collectively, the "Rakepoll Holding Documents"). The Rakepoll Holding
Documents comply as to form in all material respects with the applicable
requirements of applicable law. The financial statements of Rakepoll Holding
included in the Rakepoll Holding Documents (including the notes and schedules
relating thereto) comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of
applicable governmental authorities with respect thereto, were prepared in
accordance with United States generally accepted accounting principles stated
in United States Dollars applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto), include all
adjustments (consisting only of normal recurring accruals) that are necessary
for a fair presentation of the consolidated financial condition of Rakepoll
Holding and the Rakepoll Holding Subsidiaries and the result of operations of
Rakepoll Holding and the Rakepoll Holding Subsidiaries, and fairly present
(subject in the case of unaudited statements to normal, recurring audit
adjustments) the consolidated financial condition of Rakepoll Holding as at
the dates thereof and the consolidated results of its operations and cash
flows for the periods then ended.
3.7 Taxes. Except for items that are disclosed in Section 3.7 to the
Rakepoll Holding Disclosure Schedule or for matters that would not have a
material adverse effect on Rakepoll Holding and the Rakepoll Holding
Subsidiaries taken as a whole (i) all Tax Returns of or relating to any Tax
that are required to be filed or deposited for, by, on behalf of or with
respect to Rakepoll Holding and the Rakepoll Holding Subsidiaries, including,
but not limited to, those relating to the income, business, operations or
property of Rakepoll Holding and the Rakepoll Holding Subsidiaries and those
which include or should include Rakepoll Holding and the Rakepoll Holding
Subsidiaries have been filed or deposited duly and on a timely basis and all
Taxes and filing fees shown to be due and payable on such Tax Returns have
been paid in full and all installments, assessments and charges of which
Rakepoll Finance, Rakepoll Holding or any Rakepoll Holding Subsidiary is aware
or has received notice and which are due and payable by Rakepoll Holding or
any Rakepoll Holding Subsidiary have been paid in full; (ii) Rakepoll Holding
and the Rakepoll Holding Subsidiaries have complied with all fiscal and
monetary statutory regulations; (iii) to the knowledge of Rakepoll Finance,
Rakepoll Holding or any Rakepoll Holding Subsidiary, no such Tax Return
contains any material misstatement or omits any material statement that should
have been included; (iv) all Taxes imposed on Rakepoll Holding or any Rakepoll
Holding Subsidiary (or for which Rakepoll Holding or any Rakepoll Holding
Subsidiary is liable) for all periods up to the Closing Date which are due and
payable on or before the Closing Date have been paid or will be paid when due;
(v) none of such Tax Returns are now under audit or examination by any
federal, state, local or foreign or other Governmental Authority and there are
no agreements, waivers or other arrangements providing for an extension of
time with respect to the assessment or collection of any Tax or deficiency of
any nature against Rakepoll Holding or any Rakepoll Holding Subsidiary or with
respect to any such Tax Return or any suits or other judicial or
administrative actions, proceedings, investigations or claims now pending or,
to the knowledge of Rakepoll Finance, Rakepoll Holding or any Rakepoll Holding
Subsidiary, threatened against Rakepoll Holding or any Rakepoll Holding
Subsidiary with respect to any Tax, governmental charge or assessment; (vi)
the latest balance sheet included in the Rakepoll Holding Documents reflects
and includes adequate provisions for the payment in full of any and all Taxes
imposed on Rakepoll Holding or any Rakepoll Holding Subsidiary and not yet due
for any and all periods up to and including the date of such balance sheet;
(vii) all Taxes for which Rakepoll Holding or any Rakepoll Holding Subsidiary
is liable for periods through the Closing Date (whether or not the period ends
for tax purposes on the Closing Date) have been or will be, paid when due or
adequately reserved against on the books of Rakepoll Holding or any Rakepoll
Holding Subsidiary on or prior to the Closing Date; (viii) Rakepoll Holding
and the Rakepoll Holding Subsidiaries have withheld and remitted all amounts
required to be withheld and have paid such amounts due to the appropriate
authority on a timely basis and in the form required under the appropriate
legislation; (ix) Rakepoll Holding and the Rakepoll Holding Subsidiaries have
not been and are currently not required to file a Tax Return in any
jurisdiction other than Italy, Mexico and the
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Netherlands; (x) Rakepoll Holding and the Rakepoll Holding Subsidiaries have
not acquired property from or disposed of property for proceeds less than the
fair market value thereof to, any person who is considered a related party to
Rakepoll Holding and the Rakepoll Holding Subsidiaries under the transfer
pricing rules of the applicable jurisdiction; (xi) Rakepoll Holding and each
Rakepoll Holding Subsidiary, to the extent it was required to file tax returns
in Italy, has filed all appropriate documents and applications and paid all
fees for the settlement ("condono") of any "formal" violations of tax
regulations for the fiscal periods from 1991 to 1994; and (xii) Rakepoll
Holding and each Rakepoll Holding Subsidiary, to the extent it was required to
file tax returns in Italy, has filed all appropriate documents and
applications and paid all fees for the settlement ("condono") of any
violations of income tax regulations for fiscal periods up to 1990, such
"condono" having the effect of a settlement with respect to orders of payment
issued by the income tax department, as set forth in Section 3.7(xiii) to the
Rakepoll Holding Disclosure Schedule. The Rakepoll Holding balance sheets at
December 31, 1995 and June 30, 1996 contain adequate reserves against any
liability for Taxes for which Rakepoll Holding or any Rakepoll Holding
Subsidiaries could be liable in respect of any audit or examination set forth
on the Rakepoll Holding Disclosure Schedule. There is no Tax lien, whether
imposed by any federal, state, county, local or foreign taxing authority,
outstanding against the assets, properties or business of Rakepoll Holding or
any Rakepoll Holding Subsidiary other than liens for current Taxes not yet due
for which adequate reserves have been provided for. All material elections and
consents with respect to any Tax (or the computation thereof) affecting
Rakepoll Holding and the Rakepoll Holding Subsidiaries as of the date hereof
are obvious from the Tax Returns or are set forth on Section 3.7 to the
Rakepoll Holding Disclosure Schedule. After the date hereof, no election or
consent with respect to any Tax (or the computation thereof) affecting
Rakepoll Holding and the Rakepoll Holding Subsidiaries will be made without
the written consent of Gensia. Except as set forth in Section 3.7 to the
Rakepoll Holding Disclosure Schedule, Rakepoll Holding and the Rakepoll
Holding Subsidiaries are not a party to any Tax sharing or allocation
agreement. Neither Rakepoll Holding nor any Rakepoll Holding Subsidiary has
engaged in a trade or business in the United States nor had income effectively
connected with a trade or business in the United States. Neither Rakepoll
Holding nor any Rakepoll Holding Subsidiary has ever filed United States
Federal or State Tax returns or been required to do so, and no tax elections
have been filed with the Internal Revenue Service. Rakepoll Holding and the
Rakepoll Holding Subsidiaries have never been "controlled foreign
corporations" as defined in section 957 of the Code. Except as set forth in
Section 3.7 to the Rakepoll Holding Disclosure Schedule, Rakepoll Holding and
the Rakepoll Holding Subsidiaries have no U.S. persons as shareholders.
3.8 Compliance with Law. To the knowledge of Rakepoll Finance, each of
Rakepoll Holding and each Rakepoll Holding Subsidiary is in material
compliance with, and at all times since December 31, 1992 has been in material
compliance with, all Applicable Laws relating to Rakepoll Holding and each
Rakepoll Holding Subsidiary or its respective business or properties
including, without limitation, social security laws, workers' protection laws,
laws regarding the provision of insurance, third party administration and
primary health care services, the Prescription Drug Marketing Act, the Federal
Controlled Substances Act of 1970, the Food, Drug, and Cosmetic Act, any
federal or state Pharmacy Practice Acts, Controlled Substance Acts, Dangerous
Drugs Acts and Food, Drug and Cosmetic Acts, OSHA and with all consents,
licenses, and permits granted by any Governmental Authority and all rules of
professional conduct applicable to Rakepoll Holding or any Rakepoll Holding
Subsidiary by which any of its properties are bound or subject, except where
the failure to be in compliance therewith could not reasonably be expected to
have a material adverse effect on Rakepoll Holding and the Rakepoll Holding
Subsidiaries taken as a whole.
3.9 Intellectual Property Rights. Except as disclosed in Section 3.9 of the
Rakepoll Holding Disclosure Schedule:
(a) To the knowledge of Rakepoll Finance, and except as disclosed in the
Rakepoll Holding Documents, Rakepoll Holding and the Rakepoll Holding
Subsidiaries own or have a license to the Intellectual Property which is
used by Rakepoll Holding or any Rakepoll Holding Subsidiaries free and
clear of all mortgages, liens, loans and encumbrances, except such
encumbrances and liens which arise in the ordinary course of business and
do not materially impair Rakepoll Holding's or any Rakepoll Holding
Subsidiaries' ownership or use of such Intellectual Property or materially
detract from the value thereof.
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With respect to such Intellectual Property licensed by Rakepoll Holding or
any Rakepoll Holding Subsidiary, such licenses are in full force and
effect, Rakepoll Holding or such Rakepoll Holding Subsidiary is in
compliance with the terms and provision thereof, and no event has occurred
which, with notice or lapse of time or both, would constitute a breach or
violation thereof which could have a material adverse effect on Rakepoll
Holding and the Rakepoll Holding Subsidiaries taken as a whole and Rakepoll
Holding or such Rakepoll Holding Subsidiary holds a valid license free of
any liens, claims or encumbrances except those liens, claims or
encumbrances which do not and will not, individually or in the aggregate,
have a material adverse effect on Rakepoll Holding and the Rakepoll Holding
Subsidiaries taken as a whole.
(b) To the knowledge of Rakepoll Finance, Rakepoll Holding and the
Rakepoll Holding Subsidiaries have the right and authority to use such
Intellectual Property in connection with the conduct of the business of
Rakepoll Holding and the Rakepoll Holding Subsidiaries in the manner and to
the extent such business is presently conducted, and neither Rakepoll
Finance nor Rakepoll Holding nor any Rakepoll Holding Subsidiary has been
notified of any claim that such use conflicts with, infringes upon or
violates any rights of any other person or entity, except to the extent
that such conflict, infringement or violation does not and will not,
individually or in the aggregate, have a material adverse effect on
Rakepoll Holding and the Rakepoll Holding Subsidiaries taken as a whole.
3.10 Title to and Condition of Properties. Rakepoll Holding and each
Rakepoll Holding Subsidiary owns or holds under valid leases all real
property, plants, machinery and equipment necessary for the conduct of the
business of Rakepoll Holding and each Rakepoll Holding Subsidiary,
respectively, as presently conducted, except where the failure to own or hold
such property, plants, machinery and equipment would not have a material
adverse effect on Rakepoll Holding and the Rakepoll Holding Subsidiaries taken
as a whole. Section 3.10 to the Rakepoll Holding Disclosure Schedule lists,
and Rakepoll Holding and each Rakepoll Holding Subsidiary have furnished or
made available to Gensia, copies of all third party environmental or other
reports prepared by or for Rakepoll Holding or any Rakepoll Holding Subsidiary
with respect to the real property owned, leased or used by Rakepoll Holding or
any Rakepoll Holding Subsidiary.
3.11 [This Section intentionally left blank.]
3.12 Litigation. Except as set forth in Section 3.12 to the Rakepoll Holding
Disclosure Schedule, there is no Action pending or, to the knowledge of
Rakepoll Finance, threatened against Rakepoll Finance, Rakepoll Holding or any
Rakepoll Holding Subsidiary which, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on Rakepoll Holding
and the Rakepoll Holding Subsidiaries taken as a whole or a material adverse
effect on the ability of Rakepoll Finance or Rakepoll Holding or any Rakepoll
Holding Subsidiary to consummate the transactions contemplated hereby. None of
Rakepoll Finance, Rakepoll Holding and each Rakepoll Holding Subsidiary is
subject to any outstanding order, writ, injunction or decree which,
individually or in the aggregate, insofar as can be reasonably foreseen, could
have a material adverse effect on Rakepoll Holding and the Rakepoll Holding
Subsidiaries taken as a whole or a material adverse effect on the ability of
Rakepoll Finance or Rakepoll Holding or any Rakepoll Holding Subsidiary to
consummate the transactions contemplated hereby. Except as set forth in
Section 3.12 to the Rakepoll Holding Disclosure Schedule, since December 31,
1992, Rakepoll Finance, Rakepoll Holding and each Rakepoll Holding Subsidiary
have not been subject to any outstanding order, writ, injunction or decree
relating to Rakepoll Holding's or any Rakepoll Holding Subsidiary's method of
doing business or its relationship with past, existing or future lessees,
users, purchasers or licensees of any Intellectual Property, goods or services
of Rakepoll Holding or any Rakepoll Holding Subsidiary.
3.13 Brokerage and Finder's Fees; Expenses. Except for Rakepoll Finance's
obligations to Lehman Brothers International ("Lehman") (a copy of the written
agreement relating to such obligations having previously been provided to
Gensia), neither Rakepoll Finance nor Rakepoll Holding nor any Rakepoll
Holding Subsidiary, nor any stockholder, director, officer or employee of
Rakepoll Finance or Rakepoll Holding or any Rakepoll Holding Subsidiary
thereof, has incurred or will incur on behalf of Rakepoll Finance, Rakepoll
Holding or any Rakepoll Holding Subsidiary, any brokerage, finder's or similar
fee in connection with the transactions
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contemplated by this Agreement. Section 3.13 to the Rakepoll Holding
Disclosure Schedule discloses a bona fide estimate of the aggregate amount of
all out-of-pocket fees and expenses (including, without limitation, fees and
expenses payable to all banks, investment banking firms and other financial
institutions and their respective agents and counsel for arranging or
providing financial advice with respect to the Stock Exchange and all
reasonable fees and expenses of counsel, accountants, experts and consultants
to Rakepoll Finance) expected to be paid by Rakepoll Finance, Rakepoll Holding
and each Rakepoll Holding Subsidiary up to and including the Closing Date to
all attorneys, accountants and investment bankers in connection with the Stock
Exchange ("Rakepoll Finance Stock Exchange Fees").
3.14 Employee Matters.
(a)(i) The official registers of employees and salaries of Rakepoll Holding
and the Rakepoll Holding Subsidiaries set forth the names of all the employees
of Rakepoll Holding and the Rakepoll Holding Subsidiaries, including, with
respect to each employee, such employee's actual function, position, seniority
and compensation; (ii) Section 3.14(a)(ii) of the Rakepoll Holding Disclosure
Schedule contains the name of each independent contractor engaged by Rakepoll
Holding or the Rakepoll Holding Subsidiaries.
(b) At all times since December 31, 1992, all employees of Rakepoll Holding
and each Rakepoll Holding Subsidiary have been fully compensated in accordance
with applicable regulation, and applicable collective agreement or individual
contract, as the case may be.
(c) The latest balance sheet included in the Rakepoll Holding Documents
reflects and includes adequate provision for the payment in full of any and
all compensation which has accrued with respect to each employee, but which
was not due as of the date of such balance sheet. All such accrued
compensation, and all such compensation which will accrue from the date hereof
to the Closing Date, has been or will be adequately reserved against on the
books of Rakepoll Holding or any Rakepoll Holding Subsidiary, as the case may
be, on or prior to the Closing Date.
(d) Rakepoll Holding and the Rakepoll Holding Subsidiaries have withheld and
remitted all amounts required to be withheld under all applicable regulations,
including concerning employees' social insurance, employees' retirement
pensions and employees' income taxes.
(e) With respect to Rakepoll Holding, and except as set forth in Section
3.14(e) of the Rakepoll Holding Disclosure Schedule, all terms and conditions
of employment are those terms and conditions required by statutory regulations
and national collective agreements.
(f) Other than any benefit required to be provided by applicable law, and
except as set forth in Section 3.14(f) of the Rakepoll Holding Disclosure
Schedule, no benefit has been granted to any employee of Rakepoll Holding or
the Rakepoll Holding Subsidiaries.
(g) Except as set forth in Section 3.14(i) to the Rakepoll Holding
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will result in or
cause the accelerated vesting or delivery of any payment or benefit to any
employee of Rakepoll Holding or any Rakepoll Holding Subsidiary.
(h) Section 3.14(h) to the Rakepoll Holding Disclosure Schedule sets forth
the names of all directors and officers of Rakepoll Holding and each Rakepoll
Holding Subsidiary, the total salary, bonus, fringe benefits and perquisites
each received in the fiscal year ended December 31, 1995, and any changes to
the foregoing which have occurred subsequent to December 31, 1995; Section
3.14(h) to the Rakepoll Holding Disclosure Schedule also lists and describes
the current compensation of any other employee of Rakepoll Holding or any
Rakepoll Holding Subsidiary whose salary and bonus in 1995 exceeded
U.S.$150,000. Except as disclosed in Section 3.14(h) to the Rakepoll Holding
Disclosure Schedule or in the Rakepoll Holding Documents, there are no other
material forms of compensation paid to any such director, officer or employee
of Rakepoll Holding or any
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Rakepoll Holding Subsidiary. Except as set forth in Section 3.14(h) to the
Rakepoll Holding Disclosure Schedule, no officer, director, or employee of
Rakepoll Holding or any other affiliate of Rakepoll Holding, or any immediate
family member of any of the foregoing, provides or causes to be provided to
Rakepoll Holding or any Rakepoll Holding Subsidiary any material assets,
services or facilities and Rakepoll Holding and each Rakepoll Holding
Subsidiary does not provide or cause to be provided to any such officer,
director, employee or affiliate, or any immediate family member of any of the
foregoing, any material assets, services or facilities.
3.15 Contracts. Section 3.15 to the Rakepoll Holding Disclosure Schedule
lists all Contracts to which Rakepoll Holding or any Rakepoll Holding
Subsidiary is a party and which fall within any of the following categories:
(a) Contracts valued at over U.S.$250,000 obligating any party to pay or
receive money, goods or services, (b) joint venture, partnership and similar
agreements, (c) Contracts which are service contracts or equipment leases
involving payments by Rakepoll Holding or any Rakepoll Holding Subsidiary of
more than U.S. $100,000 per year, (d) Contracts containing covenants
purporting to limit the freedom of Rakepoll Holding or any Rakepoll Holding
Subsidiary to compete in any line of business in any geographic area or to
hire any individual or group of individuals, (e) Contracts which after the
Closing Date would have the effect of limiting the freedom of Gensia or the
Gensia Subsidiaries (other than Rakepoll Holding and each Rakepoll Holding
Subsidiary) to compete in any line of business in any geographic area or to
hire any individual or group of individuals, (f) Contracts which contain
minimum purchase conditions or requirements or other terms that restrict or
limit the purchasing relationships of Rakepoll Holding or any Rakepoll Holding
Subsidiary, (g) Contracts relating to any outstanding commitment for capital
expenditures in excess of U.S. $250,000; (h) Contracts relating to the lease
or sublease of or sale or purchase of real or personal property involving any
annual expense or price in excess of U.S. $100,000 and not cancelable by
Rakepoll Holding or any Rakepoll Holding Subsidiary (without premium or
penalty) within one month, (i) Contracts with any labor organization, (j)
indentures, mortgages, promissory notes, loan agreements, guarantees of
amounts in excess of U.S. $100,000, letters of credit or other agreements or
instruments of Rakepoll Holding or any Rakepoll Holding Subsidiary or
commitments for the borrowing or the lending of amounts in excess of U.S.
$100,000 or by Rakepoll Holding or any Rakepoll Holding Subsidiary or
providing for the creation of any charge, security interest, encumbrance or
lien upon any of the assets of Rakepoll Holding or any Rakepoll Holding
Subsidiary, (k) Contracts involving annual revenues or expenditures to the
business of Rakepoll Holding or any Rakepoll Holding Subsidiary in excess of
5.0% of Rakepoll Holding's annual revenues and (l) Contracts with or for the
benefit of any officer, director or affiliate of Rakepoll Holding or any
Rakepoll Holding Subsidiary or immediate family member thereof. All such
Contracts are valid and binding obligations of Rakepoll Holding or the
Rakepoll Holding Subsidiary, as the case may be, and, to the knowledge of
Rakepoll Holding and each Rakepoll Holding Subsidiary, are the valid and
binding obligation of each other party thereto except such Contracts which if
not so valid and binding would not, individually or in the aggregate, have a
material adverse effect on Rakepoll Holding and the Rakepoll Holding
Subsidiaries taken as a whole. Neither Rakepoll Holding or any Rakepoll
Holding Subsidiary nor, to the knowledge of Rakepoll Holding or any Rakepoll
Holding Subsidiary, any other party thereto is in violation of or in default
in respect of, nor has there occurred an event or condition which with the
passage of time or giving of notice (or both) would constitute a default
under, any such Contract except such violations or defaults under such
Contracts which, individually or in the aggregate, would not have a material
adverse effect on Rakepoll Holding and each Rakepoll Holding Subsidiary.
3.16 Accounts Receivable. All accounts and notes receivable (including lease
and finance notes receivable) and accrued interest receivable of Rakepoll
Holding and each Rakepoll Holding Subsidiary have arisen in the ordinary
course of business and the accounts receivable reserves reflected on the
balance sheet as of June 30, 1996 included in the Rakepoll Holding Documents
are as of such date established in accordance with United States generally
accepted accounting principles consistently applied and to the best knowledge
of Rakepoll Holding and each Rakepoll Holding Subsidiary will be collectible
in the ordinary course of business in an amount not less than the amounts
thereof carried on the balance sheet as of such date included in the Rakepoll
Holding Documents, net of any reserves included thereon, as applicable, except
for any uncollectible amount which, individually or in the aggregate, would
not have a material adverse effect on Rakepoll Holding and each Rakepoll
Holding Subsidiary.
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3.17 Labor Relations. There is no unfair labor practice complaint against
Rakepoll Holding or any Rakepoll Holding Subsidiary pending and there is no
labor strike, dispute, slowdown or stoppage, or any union organizing campaign,
actually pending or, to the knowledge of Rakepoll Holding or any Rakepoll
Holding Subsidiary, threatened against or involving Rakepoll Holding or any
Rakepoll Holding Subsidiary. Except as disclosed in Section 3.17 to the
Rakepoll Holding Disclosure Schedule, there is no Union Agreement in effect
with respect to any Rakepoll Holding Subsidiary which operates in Mexico.
3.18 No Material Adverse Change. Except as set forth in Section 3.18 to the
Rakepoll Holding Disclosure Schedule, since December 31, 1995, each of
Rakepoll Finance, Rakepoll Holding and each Rakepoll Holding Subsidiary has
conducted its business in the ordinary course, consistent with past practice,
and there has been no (i) material adverse change in the assets, liabilities,
results of operations, business or financial condition of Rakepoll Holding and
the Rakepoll Holding Subsidiaries taken as a whole or (ii) material adverse
effect on the ability of Rakepoll Finance to consummate the transactions
contemplated hereby.
3.19 Operation of Rakepoll Holding's Business; Relationships.
(a) Since December 31, 1995, each of Rakepoll Holding and each Rakepoll
Holding Subsidiary has not engaged in any transaction which, if entered into
and/or consummated after execution of this Agreement, would violate Section
4.1(h) hereof except as described or reflected in the Rakepoll Holding
Documents or as set forth in Section 3.19 to the Rakepoll Holding Disclosure
Schedule. Section 3.19 to the Rakepoll Holding Disclosure Schedule describes
each termination or nonrenewal that has occurred with respect to any Contract
with any lessee or licensee of Intellectual Property, from December 31, 1995
to the date hereof.
(b) Except as set forth in Section 3.19(b) of the Rakepoll Holding
Disclosure Schedule, the relationships of Rakepoll Holding and each Rakepoll
Holding Subsidiary with its customers and suppliers are satisfactory and the
execution of this Agreement, the Stock Exchange and the transactions
contemplated hereby will not materially adversely affect the relationships of
Rakepoll Holding or any Rakepoll Holding Subsidiary with such customers or
suppliers.
(c) Except as disclosed in Section 3.19(c) of the Rakepoll Holding
Disclosure Schedule no product produced by Rakepoll Holding or any Rakepoll
Holding Subsidiary or produced for Rakepoll Holding or any Rakepoll Holding
Subsidiary by a third party and bearing a Rakepoll Holding or any Rakepoll
Holding Subsidiary trademark or other Proprietary Right of Rakepoll Holding or
any Rakepoll Holding Subsidiary, has been recalled voluntarily or
involuntarily since December 31, 1992, no such recall is being considered by
Rakepoll Holding, and, to the knowledge of Rakepoll Holding and each Rakepoll
Holding Subsidiary, no such recall is being considered by or has been
requested or ordered by any Governmental Authority or consumer group.
3.20 Permits; Compliance. Each of Rakepoll Finance, Rakepoll Holding and
each Rakepoll Holding Subsidiary is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted other
than those which are immaterial (collectively, the "Rakepoll Holding
Permits"), and there is no Action pending or, to the knowledge of Rakepoll
Holding and each Rakepoll Holding Subsidiary, threatened regarding suspension
or cancellation of any of the Rakepoll Holding Permits, except for any such
Action which, if determined adversely, could not reasonably be expected,
individually or in the aggregate, to have a material adverse effect on
Rakepoll Holding. Rakepoll Holding and each Rakepoll Holding Subsidiary is not
in conflict with, or in default or violation of, any of the Rakepoll Holding
Permits, except for any such conflicts, defaults or violations which,
individually or in the aggregate, could not reasonably be expected to have a
material adverse effect on Rakepoll Holding and the Rakepoll Holding
Subsidiaries taken as a whole. Since December 31, 1992, Rakepoll Holding and
each Rakepoll Holding Subsidiary have not received any notification with
respect to possible conflicts, defaults or violations of Applicable Laws,
except for notices relating to possible conflicts, defaults or violations,
which conflicts, defaults or violations could not reasonably be expected to
have a material adverse effect on Rakepoll Holding and the Rakepoll Holding
Subsidiaries taken as a whole.
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3.21 Product Warranties and Liabilities. Except as listed in Section 3.21 to
the Rakepoll Holding Disclosure Schedule, Rakepoll Holding and each Rakepoll
Holding Subsidiary have no forms of warranties or guarantees of its products
and services that are in effect or proposed to be used by it. Section 3.21 to
the Rakepoll Holding Disclosure Schedule sets forth a description, which is
true and correct in all material respects, of each pending or, to the
knowledge of Rakepoll Finance, threatened material Action under any warranty
or guaranty against Rakepoll Holding and each Rakepoll Holding Subsidiary.
Rakepoll Holding and each Rakepoll Holding Subsidiary have not incurred, nor
does Rakepoll Finance, Rakepoll Holding or any Rakepoll Holding Subsidiary
know or have any reason to believe there is any basis for alleging, any
Product Liability with respect to any product sold or services rendered by or
on behalf of Rakepoll Holding or any Rakepoll Holding Subsidiary (including
any lessee thereof) prior to the Closing Date, whether such Product Liability
is incurred by reason of any express or implied warranty (including, without
limitation, any warranty of merchantability or fitness), any doctrine of
common law (tort, contract or other), any statutory provision or otherwise and
irrespective of whether such Product Liability is covered by insurance.
3.22 Environmental Matters. Except as listed in Section 3.22 to the Rakepoll
Holding Disclosure Schedule:
(a) There are, with respect to Rakepoll Holding and each Rakepoll Holding
Subsidiary, or any predecessor of the foregoing, no past or present
material violations of Environmental Laws or Mexican Environmental Laws,
nor actions, activities, circumstances, conditions, events, incidents, or
contractual obligations which may give rise to any liability pursuant to
any Environmental Law and none of Rakepoll Holding and each Rakepoll
Holding Subsidiary has received any notice with respect to any of the
foregoing, nor is any Action pending or threatened in connection with any
of the foregoing.
(b) No Hazardous Materials or Mexican Hazardous Materials are present on
or about any real property currently owned, leased or used by Rakepoll
Holding or any Rakepoll Holding Subsidiary and no Hazardous Materials or
Mexican Hazardous Materials were present on or about any real property
previously owned, leased or used by Rakepoll Holding or any Rakepoll
Holding Subsidiary during the period the property was owned, leased or used
by Rakepoll Holding or any Rakepoll Holding Subsidiary, except in the
normal course of Rakepoll Holding's or any Rakepoll Holding Subsidiary's
business.
(c) No Hazardous Materials or Mexican Hazardous Materials have been
released on or about, or where they may pose a threat of migration to, any
real property currently owned, leased or used by Rakepoll Holding or any
Rakepoll Holding Subsidiary and no Hazardous Materials or Mexican Hazardous
Materials were released on or about any real property previously owned,
leased or used by Rakepoll Holding or any Rakepoll Holding Subsidiary
during the period the property was owned, leased or used by Rakepoll
Holding or any Rakepoll Holding Subsidiary, except as may be required in
the normal course of business and in compliance with applicable
Environmental Laws in all material respects.
(d) No asbestos-containing materials or PCBs are present on or about any
property currently owned, leased or used by Rakepoll Holding or any
Rakepoll Holding Subsidiary.
(e) There are not now nor have there ever been any underground storage
tanks or similar facilities of any kind on or under any real property
currently or previously owned, leased or used by Rakepoll Holding or any
Rakepoll Holding Subsidiary.
3.23 [This section intentionally left blank.]
3.24 Board Recommendation. The Board of Directors of Rakepoll Finance, at a
meeting duly called and held, has (i) determined that this Agreement and the
transactions contemplated hereby, including the Stock Exchange, are fair to
and in the best interests of the Rakepoll Finance Shareholders, and (ii)
resolved to recommend that the Rakepoll Finance Shareholders approve this
Agreement and the transactions contemplated herein, including the Stock
Exchange, and (iii) such Rakepoll Finance Shareholders have approved this
Agreement, the Stock Exchange and the transactions contemplated hereby.
3.25 Undisclosed Liabilities. Except (i) as and to the extent disclosed or
reserved against on the consolidated balance sheet of Rakepoll Holding as of
June 30, 1996 included in the Rakepoll Holding
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Documents, (ii) as incurred after June 30, 1996, in the ordinary course of
business consistent with prior practice and not prohibited by this Agreement
or (iii) as set forth in Section 3.25 to the Rakepoll Holding Disclosure
Schedule, Rakepoll Holding and the Rakepoll Holding Subsidiaries do not have
any liabilities or obligations of any nature, whether known or unknown,
absolute, accrued, contingent or otherwise and whether due or to become due,
that, individually or in the aggregate, have or could reasonably be expected
to have a material adverse effect on Rakepoll Holding and the Rakepoll Holding
Subsidiaries taken as a whole. All payments by or for the benefit of Rakepoll
Holding and the Rakepoll Holding Subsidiaries to agents, consultants and
others have been in payment of bona fide fees and commissions and not as
bribes or illegal or improper payments. Rakepoll Holding and the Rakepoll
Holding Subsidiaries have complied with the Foreign Corrupt Practices Act of
1977 and the rules and regulations thereunder and, in each case, have not made
any payment to or on behalf of any person with respect to which a deduction
could be disallowed under Section 162(c) of the Code. Neither the Internal
Revenue Service nor any other federal, state, local or foreign government
agency or entity has initiated or threatened any investigation of any payment
made by Rakepoll Holding or any Rakepoll Holding Subsidiary of, or alleged to
be of, the type described in this Section 3.25.
3.26 Ownership of Rakepoll Holding Shares. Rakepoll Finance owns all of the
issued and outstanding capital stock of Rakepoll Holding and through Rakepoll
Holding owns all of the issued and outstanding capital stock of the Rakepoll
Holding Subsidiaries. Upon delivery of and in exchange for such shares under
this Agreement pursuant to the Stock Exchange, Gensia will acquire good and
valid title to all of the issued and outstanding capital stock of Rakepoll
Holding, free and clear of all voting trust arrangements, liens, encumbrances,
security interests, restrictions and claims whatsoever.
3.27 Exchange Entirely for Own Account. The Rakepoll Holding Common Stock to
be received by Rakepoll Finance under this Agreement will be acquired for
investment for Rakepoll Finance's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof. Rakepoll
Finance has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, Rakepoll Finance
further represents that it does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participations to
such person or to any third person, with respect to any of such Gensia Common
Shares and further that it will not transfer, sell or exchange any of the
shares of Gensia Common Shares which it receives pursuant to the terms of this
Agreement for a period of 12 months following the Closing Date. Rakepoll
Finance is not a "U.S. person" as such term is used in Regulation S under the
Securities Act.
3.28 Restricted Securities. Rakepoll Finance understands that the Gensia
Common Shares to be received hereunder may not be sold, transferred or
otherwise disposed of without registration under the Securities Act or an
exemption therefrom, and that in the absence of an effective registration
statement covering such Gensia Common Shares or an available exemption from
registration under the Securities Act, the Gensia Common Shares must be held
indefinitely. In particular, Rakepoll Finance is aware that the Gensia Common
Shares may not be sold pursuant to Rule 144 promulgated under the Securities
Act unless all of the conditions of that Rule are met.
3.29 Legends. It is understood that the certificates evidencing the Gensia
Common Shares may bear one or all of the following legends:
(a) "These securities have not been registered under the Securities Act
of 1933. They may not be sold, offered for sale, pledged or hypothecated in
the absence of a registration statement in effect with respect to the
securities under such Act or an opinion of counsel satisfactory to Gensia
that such registration is not required or unless sold pursuant to Rule 144
of such Act or another applicable exemption."
(b) Any legend required by the laws of the State of California or other
jurisdiction or by the Shareholder's Agreement dated as of the date hereof
between the parties hereto.
3.30 Takeover Laws. Prior to the date hereof, the Board of Directors of
Rakepoll Finance has taken all action necessary to approve for purposes of, or
exempt under or make not subject to any takeover law or law
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that purports to limit or restrict business combinations or the ability to
acquire or vote shares: (i) the execution of this Agreement, (ii) the Stock
Exchange and (iii) the transactions contemplated hereby.
3.31 Authorization of Rakepoll Holding Subsidiaries. Prior to the date
hereof, to the extent required by law, regulation or their respective Charter
Documents, each Rakepoll Holding Subsidiary shall have granted Rakepoll
Finance the necessary power and authority to make the representations and
warranties contained herein applicable to such Rakepoll Holding Subsidiary.
ARTICLE 4
COVENANTS OF THE PARTIES
The parties hereto agree as follows with respect to the period from and
after the execution of this Agreement.
4.1 Mutual Covenants.
(a) General. Each of the parties shall use its reasonable efforts to take
all action and to do all things necessary, proper or advisable to consummate
the Stock Exchange and the transactions contemplated by this Agreement
(including, without limitation, using its reasonable efforts to cause the
conditions set forth in Article 5 for which they are responsible to be
satisfied as soon as reasonably practicable and to prepare, execute and
deliver such further instruments and take or cause to be taken such other and
further action as any other party hereto shall reasonably request).
(b) HSR Act. As soon as practicable, and in any event no later than ten (10)
business days after the date hereof, each of the parties hereto will file any
Notification and Report Forms and related material required to be filed by it
with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the HSR Act with respect to the Stock
Exchange, will use its reasonable efforts to obtain an early termination of
the applicable waiting period, and shall promptly make any further filings
pursuant thereto that may be necessary, proper or advisable; provided,
however, that neither Gensia nor any of the Gensia Subsidiaries shall be
required hereunder to divest or hold separate any portion of their business or
assets.
(c) Automedics. The parties intend that Gensia shall contribute to its
Subsidiary, Automedics Development, Inc. ("Automedics"), the assets (tangible
and intangible), licenses, contracts, intellectual property and other
associated rights related to the Laryngeal Mask Airway products, the Brevibloc
product, the distribution rights related to the GenESA System, the Heparin
closed loop drug delivery system and any medical device products in-licensed
by Gensia between the date hereof and the Closing Date. Gensia shall endeavor
to obtain all necessary consents to permit such asset contributions to
Automedics. Gensia, after consultation with Rakepoll Finance, shall be
permitted to sell or grant equity interests in Automedics to facilitate
obtaining the necessary consents to permit such asset contributions and to
obtain financing for Automedics. Gensia, after consultation with Rakepoll
Finance, shall determine who is to staff and operate Automedics. Any actions
taken by Gensia in consultation with Rakepoll Finance pursuant to the
provisions of this Section 4.1(c) shall not be breaches of the representations
and warranties or the covenants of Gensia contained in this Agreement.
(d) Other Governmental Matters. Each of the parties shall use its reasonable
efforts to take any additional action that may be necessary, proper or
advisable in connection with any other notices to, filings with, and
authorizations, consents and approvals of any Governmental Authority that it
may be required to give, make or obtain.
(e) Tax Treatment. Each of the parties shall use its reasonable efforts so
as to ensure that the Stock Exchange does not constitute a tax-free
reorganization under the Code and instead is a "purchase" within the meaning
of section 338 of the Code so that Gensia will be permitted to cause a section
338 election to be made with respect to Rakepoll Holding.
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(f) Public Announcements. Unless otherwise required by Applicable Laws or
requirements of the National Association of Securities Dealers, as advised by
outside counsel (and in that event only if time does not permit), at all times
prior to the earlier of the Closing Date or termination of this Agreement
pursuant to Section 6.1, Gensia and Rakepoll Finance shall consult with each
other before issuing any press release with respect to the Stock Exchange or
the transaction contemplated hereby and shall not issue any such press release
prior to such consultation.
(g) Access. From and after the date of this Agreement until the Closing Date
(or the termination of this Agreement), upon the reasonable request of the
other party, Gensia and Rakepoll Finance (including Rakepoll Holding and all
Rakepoll Holding Subsidiaries and Alco Chemical Ltd. ("ALCO")) shall permit
representatives of the other to have appropriate access at all reasonable
times to the other's premises, properties, books, records, contracts, tax
records, documents, customers and suppliers ("Information"), in the case of
ALCO, only to the extent such information is necessary to the consummation of
the transactions contemplated by this Agreement. Information obtained by
Gensia, Rakepoll Finance, Rakepoll Holding and the Rakepoll Holding
Subsidiaries and ALCO pursuant to this Section 4.1(g) shall be subject to the
provisions of the confidentiality agreement between them dated March 5, 1996
(the "Confidentiality Agreement"), which agreement remains in full force and
effect until the Closing Date; provided, however, that the Confidentiality
Agreement shall continue in full force and effect with respect to Information
provided by ALCO.
(h) Conduct of Operations. During the period from the date of this Agreement
to the Closing Date, Gensia and each Gensia Subsidiary on the one hand and
Rakepoll Holding and each Rakepoll Holding Subsidiary, on the other hand,
shall conduct its operations in the ordinary course consistent with past
practice except with the prior written consent of the other party or as
expressly contemplated by this Agreement and the transactions contemplated
hereby and shall use its reasonable efforts to maintain and preserve its
business organization and its material rights and franchises and to retain the
services of its officers and key employees and maintain relationships with
customers, suppliers, lessees, licensees and other third parties to the end
that their goodwill and ongoing business shall not be impaired in any material
respect. Without limiting the generality of the foregoing, during the period
from the date of this Agreement to the Closing Date, neither party to this
Agreement shall, except with the prior written consent of the other party or
as otherwise expressly contemplated by this Agreement and the transactions
contemplated hereby, by the Shareholder's Agreement or the Business Plan:
(i) (A) adjust, split, combine or reclassify its capital stock, (B) make,
declare or pay any dividend except for the payment of dividends on
outstanding shares of the $3.75 Convertible Exchangeable Preferred Stock of
Gensia and except for the spinout of Gensia research assets as contemplated
by this Agreement or distribution on, or directly or indirectly redeem,
purchase or otherwise acquire, any shares of capital stock or any
securities or obligations convertible into or exchangeable for any shares
of capital stock, (C) grant any person any right or option to acquire any
shares of capital stock except pursuant to Gensia Stock Plans existing on
the date of this Agreement consistent with past practice, (D) issue,
deliver or sell or agree to issue, deliver or sell any additional shares of
capital stock or any securities or obligations convertible into or
exchangeable or exercisable for any shares of its capital stock or such
securities except pursuant to Preferred Stock, options, warrants or other
agreements or instruments outstanding on the date hereof, or (E) enter into
any agreement, understanding or arrangement with respect to the sale or
voting of capital stock;
(ii) sell, transfer, lease, pledge, mortgage, encumber or otherwise
dispose of any property or assets of Gensia or any Gensia Subsidiary on the
one hand and Rakepoll Holding or any Rakepoll Holding Subsidiary, on the
other hand other than sales or leases of inventory or licensing of
Intellectual Property of Gensia or a Gensia Subsidiary on the one hand and
Rakepoll Holding or any Rakepoll Holding Subsidiary, on the other hand made
in the ordinary course of business consistent with past practice;
(iii) make or propose any changes in the Charter Documents of Gensia or
any Gensia Subsidiary on the one hand or of Rakepoll Holding or any
Rakepoll Holding Subsidiary, on the other hand;
(iv) merge or consolidate with any other person or acquire a material
amount of assets or capital stock of any other person;
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(v) incur, create, assume or otherwise become liable for indebtedness in
excess of U.S. $250,000 for borrowed money or assume, guarantee, endorse or
otherwise as an accommodation become responsible or liable for obligations
in excess of U.S. $250,000 of any other individual, corporation or other
entity;
(vi) create any subsidiaries (other than Automedics and to facilitate the
spin out of the Gensia research assets);
(vii) enter into or modify any employment, severance, termination or
similar agreements or arrangements with, or grant or announce any bonuses,
salary increases, severance or termination pay to, any officer or director
or employee of Gensia or any Gensia Subsidiary on the one hand, or Rakepoll
Holding or any Rakepoll Holding Subsidiary on the other hand, other than
salary, stock or option grants, bonuses and benefits, increases granted in
the ordinary course of business consistent with past practices and
established plans made known to the other party prior to the date hereof,
or otherwise increase the compensation or benefits provided to any officer
or director except as may be required by Applicable Law or a binding
written contract in effect on the date of this Agreement or enter into any
new consulting agreements with a duration of greater than twelve months or
compensation of greater than U.S. $100,000;
(viii) change any method or principle of accounting in a manner that is
inconsistent with past practice except as may be required to meet the
requirements of United States securities laws and United States GAAP;
(ix) settle any Actions, whether now pending or hereafter made or brought
involving an amount in excess of U.S. $200,000 affecting Gensia or any
Gensia Subsidiary, on the one hand, or Rakepoll Holding or any Rakepoll
Holding Subsidiary, on the other hand;
(x) modify, amend or terminate, or waive, release or assign any material
rights or claims with respect to, any Contract set forth in Section 2.15 to
the Gensia Disclosure Schedule or Section 3.15 to the Rakepoll Holding
Disclosure Schedule, as applicable, or any other material Contract to which
Gensia or any Gensia Subsidiary, on the one hand, or Rakepoll Holding or
any Rakepoll Holding Subsidiary, on the other hand, is a party if such
modification, amendment, termination, waiver, release or assignment would
have a material adverse effect on Gensia and the Gensia Subsidiaries taken
as a whole or on Rakepoll Holding and the Rakepoll Holding Subsidiaries
taken as a whole, as applicable;
(xi) incur or commit to any capital expenditures, obligations or
liabilities in respect thereof which in the aggregate exceed or would
exceed U.S. $250,000 unless otherwise disclosed on the Gensia Disclosure
Schedule or the Rakepoll Holding Disclosure Schedule, as applicable;
(xii) pay (or agree to become obligated to pay) any Gensia Stock Exchange
Fees on the one hand, or Rakepoll Finance Stock Exchange Fees on the other
hand, in excess of the amount set forth in Section 2.9 to the Gensia
Disclosure Schedule or Section 3.13 of the Rakepoll Holding Disclosure
Schedule, as applicable, other than any excess amounts which are immaterial
in the aggregate incurred in connection with and in furtherance of
consummation of the transactions contemplated hereby;
(xiii) take any action to exempt or make not subject to any takeover law
or law that purports to limit or restrict business combinations or the
ability to acquire or vote shares by any person or entity (other than as
contemplated herein) or any action taken thereby, which person, entity or
action would have otherwise been subject to the restrictive provisions
thereof and not exempt therefrom;
(xiv) take any action that could reasonably be expected to result in the
representations and warranties set forth in Article 2 or Article 3, as
applicable, becoming false or inaccurate;
(xv) permit or cause any subsidiary or affiliate to do any of the
foregoing or agree or commit to do any of the foregoing; or
(xvi) agree in writing or otherwise to take any of the foregoing actions.
None of the information provided by Gensia and Rakepoll Finance,
respectively, for inclusion in the proxy statement and form of proxies to be
filed with the Commission by Gensia under the Exchange Act relating to the
vote of the Gensia Stockholders with respect to the Stock Exchange
(collectively and as amended, supplemented
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or modified, the "Proxy Statement") at the date of mailing the Proxy Statement
will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading.
(i) Indemnification and Insurance. Gensia and Rakepoll Finance shall cause
(i) Gensia to maintain and perform in the same manner as prior to the date
hereof Gensia's existing indemnification provisions with respect to present
and former directors and officers of Gensia for all losses, claims, damages,
expenses or liabilities arising out of actions or omissions or alleged actions
or omissions occurring at or prior to the Closing Date to the extent permitted
or required under applicable law and Gensia's Restated Certificate of
Incorporation and By-Laws in effect at the date hereof (to the extent
consistent with applicable law), (ii) Gensia to provide, maintain and perform
in the same manner as prior to the date hereof Gensia's existing
indemnification provisions with respect to present and future directors and
officers of Gensia for all losses, claims, damages, expenses or liabilities
arising out of actions or omissions or alleged actions or omissions occurring
after the Closing Date to the extent permitted or required under applicable
law and Gensia's Restated Certificate of Incorporation and By-Laws in effect
at the date hereof (to the extent consistent with applicable law); and (iii)
Gensia to maintain, for a period of no less than three (3) years after the
Closing Date, Directors and Officers Liability coverage, with limits, terms
and conditions no less advantageous than in effect on the date hereof. Said
coverage will be maintained with the current insurance carriers or insurance
carriers of financial strength equal to or greater than the financial strength
of the current insurance carriers. Evidence of such coverage will be provided
to the individual officers and directors upon request. Any new directors or
officers of Gensia will be added to such policies.
4.2 Covenants of Gensia.
(a) Gensia Stockholders Meeting. Gensia shall take all action in accordance
with the federal securities laws, the NASD Rules, the Delaware General
Corporation Law including, without limitation, Section 203 thereof and the
Gensia Certificate and Bylaws, as amended and restated, necessary to obtain
the consent and approval of Gensia Stockholders with respect to the
authorization of the issuance of Gensia Common Shares in the Stock Exchange
and the transactions contemplated hereby.
Without limiting the generality of the foregoing, Gensia, acting through its
Board of Directors, shall, subject to and in accordance with applicable law
and its Certificate of Incorporation and By-Laws, promptly and duly call, give
notice of, convene and hold as soon as practicable following the date upon
which the Proxy Statement is mailed a meeting of the holders of Gensia Common
Shares for the purpose of voting to approve and adopt this Agreement and the
transactions contemplated hereby, and, subject to its fiduciary duties under
applicable law as determined in good faith by a majority of the Board of
Directors of Gensia based on, among other things, the advice of outside legal
counsel to Gensia (A) recommend that the Gensia stockholders approve and adopt
this Agreement and the transactions contemplated hereby, (B) include in the
Proxy Statement such recommendation and the written opinion of CS First Boston
that the consideration to be received by the Company in the transaction is
fair to the Company from a financial point of view and (C) take all reasonable
and lawful action to solicit and obtain such approval.
(b) Preparation of Proxy Statement. Gensia shall, as soon as is reasonably
practicable, prepare and file the Proxy Statement with the Commission on a
confidential basis. Gensia shall use all reasonable efforts to mail at the
earliest practicable date to Gensia Stockholders the Proxy Statement, which
shall include all information required under Applicable Law to be furnished to
Gensia Stockholders in connection with the Stock Exchange and the transactions
contemplated thereby. If at any time prior to the Closing Date, any
information pertaining to Gensia or any Gensia Subsidiary contained in or
omitted from the Proxy Statement makes such statements contained in the Proxy
Statement false or misleading, Gensia shall promptly inform Rakepoll Finance
and take such action necessary to make such statements contained in the Proxy
Statement not false and misleading. Gensia also shall take such other
reasonable actions (other than qualifying to do business in any jurisdiction
in which it is not so qualified) required to be taken under any applicable
state securities laws in connection with the issuance of Gensia Common Shares
in the Stock Exchange.
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(c) Intellectual Property Matters. Gensia and each Gensia Subsidiary shall
use reasonable commercial efforts to preserve Gensia's and the Gensia
Subsidiaries' ownership rights to their Intellectual Property free and clear
of any liens, claims or encumbrances and shall use reasonable commercial
efforts to assert, contest and prosecute any infringement of any issued
foreign or domestic patent, trademark, service mark, trade name or copyright
that forms a part of such Intellectual Property or any misappropriation or
disclosure of any trade secret, confidential information or know-how that
forms a part of such Intellectual Property consistent with past practices of
Gensia and each Gensia Subsidiary.
(d) No Solicitation. Gensia agrees that, during the term of this Agreement,
it shall not, and shall not authorize or permit any Gensia Subsidiary or
affiliate or any of its or their respective directors, officers, employees,
agents or representatives, directly or indirectly, to solicit, initiate,
encourage, facilitate, or accept or furnish or disclose non-public information
in furtherance of, any inquiries or the making of any proposal with respect to
any recapitalization, merger, consolidation or other business combination
involving Gensia or any Gensia Subsidiary, or acquisition of any capital stock
or any material portion of the assets (except for acquisition of assets in the
ordinary course of business consistent with past practice) of Gensia or any
Gensia Subsidiary, or any combination of the foregoing (a "Competing
Transaction"), or negotiate, explore or otherwise engage in discussions with
any person (other than Rakepoll Finance, or its directors, officers,
employees, agents and representatives) with respect to any Competing
Transaction or enter into any agreement, arrangement or understanding
requiring it to abandon, terminate or fail to consummate the Stock Exchange or
any other transactions contemplated by this Agreement; provided that Gensia
may furnish information to, and negotiate or otherwise engage in discussions
(i) in connection with financings contemplated by this Agreement and
associated documents provided, that prior to the furnishing to prospective
investors of any such information in respect of such financing, the identities
of such prospective investors are made available to Rakepoll Finance and the
prior written consent of Rakepoll Finance is obtained, which consent shall not
be unreasonably withheld, as to the furnishing of such information to each
such prospective investor, and (ii) with any bona fide party who delivers an
unsolicited written proposal for a Competing Transaction if and so long as (x)
the Board of Directors of Gensia determines in good faith by a majority vote
of its disinterested directors that failing to take such action would
constitute a breach of the fiduciary duties of the Board and (y) such a
proposal is, based upon the advice of First Boston, more favorable to Gensia's
Stockholders from a financial point of view than the Stock Exchange. In the
case of any proposal meeting the requirements of clauses (d)(ii), (x) and (y),
the Board of Directors of Gensia may withdraw its recommendation of this
Agreement and the Stock Exchange. Gensia and each Gensia Subsidiary will
immediately cease all existing activities, discussions and negotiations with
any parties conducted heretofore with respect to any of the foregoing and
except for financings contemplated by this Agreement and associated documents.
From and after the execution of this Agreement, Gensia and each Gensia
Subsidiary and affiliates shall promptly advise Rakepoll Finance in writing of
the receipt, directly or indirectly, of any inquiries, discussions,
negotiations, or proposals relating to a Competing Transaction (including the
specific terms thereof) and promptly furnish to Rakepoll Finance a copy of any
such proposal or inquiry in addition to any information provided to or by any
third party relating thereto, and shall state in such notice whether Gensia
has determined that it is required to take any action with respect thereto in
accordance with the proviso contained in this paragraph. The Board shall keep
Rakepoll Finance promptly advised of all developments which could reasonably
be expected to culminate in the Board of Directors withdrawing, modifying or
amending its recommendation of the Stock Exchange and the transactions
contemplated by this Agreement.
(e) Employee Benefits. Gensia covenants and agrees that (i) it will cause
Rakepoll Holding to provide benefits to employees of Rakepoll Holding in
accordance with the applicable laws of the jurisdictions in which such
employees are employed and (ii) it will provide for the participation of the
employees of Rakepoll Holding set forth on Schedule 4.2(e) hereto in the
Gensia stock option plan as of the Closing Date on substantially the same
terms and conditions as similarly situated employees of Gensia.
(f) Notification of Certain Matters. Gensia shall give prompt notice to
Rakepoll Finance of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would cause any Gensia representation or
warranty contained in this Agreement to be untrue or inaccurate at or prior to
the Closing Date
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and (ii) any material failure of Gensia or any Gensia Subsidiary to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 4.2(f) shall not limit or otherwise affect the
remedies available hereunder to Rakepoll Finance.
(g) Contribution of Intercompany Debt to Equity. Rakepoll Finance shall
cause all intercompany and affiliate debt between and among Rakepoll Finance,
Rakepoll Holding, and the Rakepoll Holding Subsidiaries and affiliates thereof
to be converted and contributed into equity of Rakepoll Holding prior to the
Closing Date.
Gensia will use reasonable efforts to maintain the availability of Rule 144
to Rakepoll Finance, provided that failure to maintain such availability
because of a failure of Rakepoll Holding or any Rakepoll Holding Subsidiary to
deliver appropriate information to Gensia shall not be deemed a breach of this
covenant.
4.3 Covenants of Rakepoll Finance.
(a) Information for the Preparation of Proxy Statement. Rakepoll Finance
shall as soon as reasonably practicable furnish Gensia with all information
concerning it as may be required for inclusion in the Proxy Statement.
Rakepoll Finance shall cooperate with Gensia in the preparation of the Proxy
Statement in a timely fashion and shall use all reasonable efforts to assist
Gensia in having the Proxy Statement cleared by the Commission as promptly as
practicable. If at any time prior to the Closing Date, any information
pertaining to Rakepoll Finance or Rakepoll Holding or any Rakepoll Holding
Subsidiary contained in or omitted from the Proxy Statement makes such
statements contained in the Proxy Statement false or misleading, Rakepoll
Finance shall promptly so inform Gensia and provide Gensia with the
information necessary to make statements contained therein not false and
misleading. Rakepoll Finance shall use all reasonable efforts to cooperate
with Gensia in the preparation and filing of the Proxy Statement with the
Commission on a confidential basis.
(b) Intellectual Property Matters. Rakepoll Finance, Rakepoll Holding and
each Rakepoll Holding Subsidiary shall use reasonable commercial efforts to
preserve Rakepoll Holding's and the Rakepoll Holding Subsidiaries' ownership
rights to their Intellectual Property free and clear of any liens, claims or
encumbrances and shall use reasonable commercial efforts to assert, contest
and prosecute any infringement of any issued foreign or domestic patent,
trademark, service mark, trade name or copyright that forms a part of such
Intellectual Property or any misappropriation or disclosure of any trade
secret, confidential information or know-how that forms a part of such
Intellectual Property consistent with past practices of each of Rakepoll
Finance, Rakepoll Holding and each Rakepoll Holding Subsidiary.
(c) No Solicitation. Rakepoll Finance agrees that, during the term of this
Agreement, it shall not, and shall not authorize or permit Rakepoll Holding or
any Rakepoll Holding Subsidiary or affiliate or any of its or their respective
directors, officers, employees, agents or representatives, directly or
indirectly, to solicit, initiate, encourage, facilitate, or accept or furnish
or disclose non-public information in furtherance of, any inquiries or the
making of any proposal with respect to any recapitalization, merger,
consolidation or other business combination involving Rakepoll Holding or any
Rakepoll Holding Subsidiary, or acquisition of any capital stock or any
material portion of the assets (except for acquisition of assets in the
ordinary course of business consistent with past practice) of Rakepoll Holding
or any Rakepoll Holding Subsidiary, or any combination of the foregoing (a
"Competing Transaction"), or negotiate, explore or otherwise engage in
discussions with any person (other than Gensia, or its directors, officers,
employees, agents and representatives) with respect to any Competing
Transaction or enter into any agreement, arrangement or understanding
requiring it to abandon, terminate or fail to consummate the Stock Exchange or
any other transactions contemplated by this Agreement. Rakepoll Finance,
Rakepoll Holding and each Rakepoll Holding Subsidiary will immediately cease
all existing activities, discussions and negotiations with any parties
conducted heretofore with respect to any of the foregoing except for
financings contemplated by this Agreement and association documents. From and
after the execution of this Agreement, Rakepoll Finance, Rakepoll Holding and
each Rakepoll Holding Subsidiary and affiliates shall promptly advise Gensia
in writing of the receipt, directly or indirectly, of any inquiries,
discussions, negotiations, or proposals relating to a Competing Transaction
(including the specific terms thereof) and promptly furnish to Gensia a copy
of any such proposal or inquiry in addition to any information provided to or
by any third party relating thereto.
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(d) Notification of Certain Matters. Rakepoll Finance shall give prompt
notice to Gensia of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would cause any Rakepoll Finance
representation or warranty contained in this Agreement to be untrue or
inaccurate at or prior to the Closing Date and (ii) any material failure of
Rakepoll Finance or Rakepoll Holding or any Rakepoll Holding Subsidiary to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 4.3(d) shall not limit or otherwise affect the
remedies available hereunder to Gensia.
ARTICLE 5
CONDITIONS
5.1 Mutual Conditions. The obligations of the parties hereto to consummate
the Stock Exchange shall be subject to satisfaction or waiver on or prior to
the Closing Date of the following conditions:
(a) No temporary restraining order, preliminary or permanent injunction
or other order or decree which prevents the consummation of the Stock
Exchange shall have been issued and remain in effect, and no statute, rule
or regulation shall have been enacted by any Governmental Authority which
prevents the consummation of the Stock Exchange; provided, however, that
the parties shall use their reasonable best efforts to cause any such
decree, ruling, injunction or other order to be vacated or lifted.
(b) All waiting periods (and any extensions thereof) applicable to the
consummation of the Stock Exchange under the HSR Act and applicable Mexican
law shall have expired or been terminated and the consummation of the
transactions contemplated hereby shall be permitted thereunder.
(c) [This paragraph intentionally left blank.]
(d) The issuance of the Gensia Common Shares to be issued in the Stock
Exchange and the other transactions contemplated hereby shall have been
approved by the Gensia Stockholders in the manner required by any
Applicable Law.
(e) The Commission shall have approved the Gensia Proxy Statement. On the
Closing Date, no stop order or similar restraining order shall have been
threatened by the Commission or entered by the Commission or any state
securities administrator prohibiting the Stock Exchange.
(f) No Action shall be instituted by any Governmental Authority,
including under the HSR Act or the Exon-Florio Amendment, which seeks to
prevent consummation of the Stock Exchange or seeking material damages in
connection with the transactions contemplated hereby which continues to be
outstanding; provided, however, that the parties shall use their reasonable
best efforts to cause any such decree, ruling, injunction or other order to
be vacated or lifted.
Should the consent of the competent antitrust authorities not be granted
on or before the Closing Date, the parties shall meet in order to review
the situation and establish a new Closing Date without any undue delay.
(g) The Shareholder's Agreement shall be in full force and effect and the
appointment of directors contemplated therein shall have been made in
accordance therewith.
5.2 Conditions to Obligations of Rakepoll Finance. The obligations of
Rakepoll Finance to consummate the Stock Exchange and the transactions
contemplated hereby shall be subject to the satisfaction or waiver on or prior
to the Closing Date of the following conditions unless waived by Rakepoll
Finance:
(a) The representations and warranties of Gensia set forth in Article 2
shall be true and correct in all material respects on the date hereof and
on and as of the Closing Date as though made on and as of the Closing Date
(except for representations and warranties made as of a specified date,
which need be true and correct only as of the specified date), except for
such inaccuracies which have not had and would not reasonably be expected
to have in the reasonably foreseeable future a material adverse effect on
Gensia and the Gensia Subsidiaries taken as a whole.
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(b) Gensia shall have performed in all material respects each obligation
and agreement and shall have complied in all material respects with each
covenant to be performed and complied with by it hereunder at or prior to
the Closing Date.
(c) Gensia shall have furnished Rakepoll Finance with a certificate dated
the Closing Date signed on behalf of it by the Chairman, President or any
Vice President to the effect that the conditions set forth in Sections
5.1(g), 5.2(a), (b), (f) (g) and (h) have been satisfied.
(d) Rakepoll Finance shall have received the legal opinion, dated the
Closing Date, of Pillsbury Madison & Sutro LLP counsel to Gensia,
substantially in the form of Exhibit A hereto.
(e) The Gensia Common Shares to be issued in the Stock Exchange and the
transactions contemplated hereby shall have been authorized for inclusion
on Nasdaq, subject to official notice of issuance.
(f) Gensia shall have paid, or caused to be paid, all dividends owing in
connection with any Gensia Preferred Stock, commencing with the dividend
payment due as of September 1, 1996.
(g) Gensia shall have filed, or caused to be filed, all amendments to its
Certificate of Incorporation and Bylaws as contemplated by, and necessary
to effectuate, this Agreement and the Shareholder's Agreement.
(h) Gensia shall have eliminated research expenses (other than ongoing
property lease related expenses), which may include, prior to the Closing
Date, a spinout of the Gensia research business to Gensia stockholders and
a concurrent cash contribution to the spun out entity as contemplated by
the funding plan agreed to by the parties hereto. Any actions taken by
Gensia pursuant to the provisions of this Section 5.2(h) shall not be
breaches of the representations and warranties or the covenants of Gensia
contained in this Agreement.
5.3 Conditions to Obligations of Gensia. The obligations of Gensia to
consummate the Stock Exchange and the other transactions contemplated hereby
shall be subject to the satisfaction or waiver on or prior to the Closing Date
of the following conditions:
(a) The representations and warranties of Rakepoll Finance set forth in
Article 3 shall be true and correct in all material respects on the date
hereof and on and as of the Closing Date as though made on and as of the
Closing Date (except for representations and warranties made as of a
specified date, which need be true and correct only as of the specified
date), except for such inaccuracies which have not had and would not
reasonably be expected to have in the reasonably foreseeable future a
material adverse effect on Rakepoll Holding and the Rakepoll Holding
Subsidiaries, taken as a whole.
(b) Rakepoll Finance shall have performed in all material respects each
obligation and agreement and shall have complied in all material respects
with each covenant to be performed and complied with by it hereunder at or
prior to the Closing Date.
(c) Rakepoll Finance shall have furnished Gensia with a certificate dated
the Closing Date signed on its behalf by its Chairman, President or any
Vice President to the effect that the conditions set forth in Sections
5.1(g), 5.3(a) and (b) have been satisfied.
(d) Gensia shall have received the legal opinions, dated the Closing
Date, of Simpson Thacher & Bartlett, Santamarina Y Steta, Studio Legale
Nodari, Saletti & Associati and Nauta Dutilh, counsel to Rakepoll Finance,
and a legal opinion concerning Kew Investments Limited, in substantially
the forms attached hereto as Exhibit B.
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ARTICLE 6
TERMINATION AND AMENDMENT
6.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date, whether before or after approval and adoption of this Agreement
by Gensia Stockholders:
(a) by mutual consent of Gensia and Rakepoll Finance;
(b) by either Gensia or Rakepoll Finance if any permanent injunction or
other order, decree or ruling of a court of competent jurisdiction or other
competent Governmental Authority preventing the consummation of the Stock
Exchange shall have become final and nonappealable;
(c) by either Gensia or Rakepoll Finance if the Stock Exchange shall not
have been consummated before June 30, 1997, unless extended by the Boards
of Directors of both Gensia and Rakepoll Finance (provided that the right
to terminate this Agreement under this Section 6.1(c) shall not be
available to any party whose failure or whose affiliate's failure to
perform any material covenant or obligation under this Agreement has been
the cause of or resulted in the failure of the Stock Exchange to occur on
or before such date);
(d) by Gensia or Rakepoll Finance if the authorization of the Gensia
Stockholders with respect to the issuance of Gensia Common Shares in the
Stock Exchange shall not have been obtained by reason of the failure to
obtain the required vote at a meeting held for such purpose and any
adjournment thereof;
(e) by Rakepoll Finance if prior to the Closing Date (i) any
representation or warranty on the part of Gensia or any Gensia Subsidiary
contained in this Agreement is incorrect in any material respect and which
has a material adverse effect or which materially adversely affects the
ability of the parties to consummate the transactions contemplated hereby,
(ii) there shall have been a breach of any covenant or agreement on the
part of Gensia or any Gensia Subsidiary contained in this Agreement which
has material adverse effect or which materially adversely affects the
ability of the parties to consummate the transactions contemplated hereby,
which breach, in the case of clauses (i) and (ii), shall not have been
cured prior to 30 days following notice thereof, (iii) Gensia's Board of
Directors shall have withdrawn or modified (including by amendment of or
supplement to the Proxy Statement) in a manner adverse to Rakepoll Finance
its approval or recommendation of this Agreement or the transactions
contemplated hereby or shall have recommended a Third Party Acquisition (as
defined below), or shall have resolved to effect any of the foregoing or
(iv) any person other than Rakepoll Finance or any of its affiliates shall
have become the beneficial owner of more than 15% of the shares of Gensia
Common Shares; and
(f) by Gensia if prior to the Closing Date (i) any representation or
warranty on the part of Rakepoll Finance or any Rakepoll Finance Subsidiary
contained in this Agreement is incorrect in any material respect and which
has a material adverse effect or which materially adversely affects the
ability of the parties to consummate the transactions contemplated hereby
or, (ii) there shall have been a breach of any covenant or agreement on the
part of Rakepoll Finance or any Rakepoll Finance Subsidiary contained in
this Agreement which has a material adverse effect or which materially
adversely affects the ability of the parties to consummate the transactions
contemplated hereby, which breach, in the case of clauses (i) and (ii),
shall not have been cured prior to 30 days following notice thereof.
6.2 Effect of Termination.
(a) In the event of the termination of this Agreement pursuant to Section
6.1, this Agreement, except for the provisions of Sections 6.2 and 7.9, shall
become void and have no effect, without any liability on the part of any party
or its directors, officers or stockholders. Notwithstanding the foregoing,
nothing in this Section 6.2 shall relieve any party to this Agreement of
liability for a material breach of any provision of this Agreement.
(b) If (i) Rakepoll Finance terminates this Agreement pursuant to Section
6.1(d) or (ii) Rakepoll Finance terminates this Agreement pursuant to Section
6.1(c) or clause (i), (ii) or (iv) of Section 6.1(e) hereof and, within
twenty-four months thereafter, Gensia enters into an agreement with respect to
a Third Party Acquisition, or a
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Third Party Acquisition occurs, then Gensia shall pay to Rakepoll Finance (A)
within one business day following any occurrence contemplated in clause (ii)
hereof or simultaneously with any termination contemplated by clause (i)
hereof, a fee, in cash, of $5 million, provided, however, that Gensia shall in
no event be obligated to pay more than one such fee with respect to all such
occurrences and such termination, and (B) within one business day after being
requested by Rakepoll Finance (accompanied by reasonably detailed
documentation to the extent reasonably requested by Gensia) from time to time,
all of the Rakepoll Finance Stock Exchange Fees.
(c) If (i) Gensia terminates this Agreement pursuant to Section 6.1(d) or
(ii) Gensia terminates this Agreement pursuant to Section 6.1(c) or clause (i)
or (ii) of Section 6.1(f) hereof and, within twenty-four months thereafter,
Rakepoll Finance enters into an agreement with respect to a Third Party
Acquisition, or a Third Party Acquisition occurs, then Rakepoll Finance shall
pay to Gensia (A) within one business day following any occurrence
contemplated in clause (ii) hereof or simultaneously with any termination
contemplated by clause (i) hereof, a fee, in cash, of $5 million, provided,
however, that Gensia shall in no event be obligated to pay more than one such
fee with respect to all such occurrences and such termination, and (B) within
one business day after being requested by Gensia (accompanied by reasonably
detailed documentation to the extent reasonably requested by Rakepoll Finance)
from time to time, all of the Gensia Stock Exchange Fees.
For purposes of this Agreement, "Third Party Acquisition" means any of the
following events: (i) the acquisition of Gensia by merger, tender offer or
otherwise by any person other than Parent, Sub or any affiliate thereof (a
"Third Party"); (ii) the acquisition by a Third Party of 30% or more of the
assets of the Company and its subsidiaries, taken as a whole; (iii) the
acquisition by a Third Party of 15% or more of the outstanding shares of
Gensia Common Shares, directly or indirectly; (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 15%
or more of the outstanding shares of Company Common Stock or (vi) the
acquisition by Gensia of a Third Party resulting in the issuance to such Third
Party or its affiliates, directly or indirectly, of 15% or more of the
outstanding shares of Gensia Common Shares.
6.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any
time before or after adoption of this Agreement by Rakepoll Finance
Shareholders or authorization of issuance of Gensia Common Shares in the Stock
Exchange by Gensia Stockholders, but after such approval or authorization, no
amendment shall be made which by law requires further approval or
authorization by the Rakepoll Finance Shareholders or Gensia Stockholders, as
the case may be, without such further approval or authorization.
Notwithstanding the foregoing, this Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
6.4 Extension; Waiver. At any time prior to the Closing Date, Gensia (with
respect to Rakepoll Finance) and Rakepoll Finance (with respect to Gensia) by
action taken or authorized by their respective Boards of Directors, may, to
the extent legally allowed, (a) extend the time for the performance of any of
the obligations or other acts of such party, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
ARTICLE 7
MISCELLANEOUS
7.1 Survival of Representations and Warranties. The representations and
warranties made herein by the parties hereto shall survive until the second
anniversary of the Closing Date, except that the representations and
warranties set forth in Sections 2.6 and 3.7, shall survive until the earlier
to occur of the expiration of the applicable statute of limitations period or
the sixth anniversary of the Closing Date.
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7.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which
is confirmed) or dispatched by a nationally/internationally recognized
overnight courier service to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Gensia:
Gensia, Inc.
9360 Towne Centre Drive
San Diego, CA 92121
Attention: David Hale
Telecopy No.: (619) 453-0095
with a copy to
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, California 94104
United States of America
Attention: Thomas E. Sparks, Jr.
Telecopy No.: (415) 983-1200
(b) if to Rakepoll Finance:
Rakepoll Finance N.V.
14JB Gorsiraweg
Curacao, Netherlands Antilles
Attention: Carlo Salvi
Telecopy No.: (41)(91)994-9777
with a copy to:
Carlo Salvi
Via San Salvatore, 7
Ch 6902 Lugano
Switzerland
with a copy to
Simpson Thacher & Bartlett
99 Bishopsgate
London, England EC2M 3YH
Attention: Alan M. Klein
Telecopy No.: 011-44-171-422-4022
7.3 Interpretation. When a reference is made in this Agreement to an Article
or Section, such reference shall be to an Article or Section of this Agreement
unless otherwise indicated. The headings and the table of contents contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. When a reference is made
in this Agreement to Rakepoll Finance, such reference shall be deemed to
include any and all subsidiaries of Rakepoll Finance, individually and in the
aggregate, including Rakepoll Finance. When a reference is made in this
Agreement to Gensia, such reference shall be deemed to include any and all
subsidiaries of Gensia, individually and in the aggregate, including Gensia.
When a reference is made in this Agreement to Gensia Common Shares or shares
thereof, such reference shall be deemed to include the preferred share
purchase rights issued pursuant to the Rights Agreement that trade together
with the Gensia Common Shares.
7.4 Counterparts. This Agreement may be executed in counterparts, which
together shall constitute one and the same Agreement. The parties may execute
more than one copy of the Agreement, each of which shall constitute an
original.
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7.5 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein), and the Confidentiality Agreement constitute
the entire agreement among the parties and supersede all prior agreements and
understandings, agreements or representations by or among the parties, written
and oral, with respect to the subject matter hereof and thereof.
7.6 Governing Law; Consent to Jurisdiction. This Agreement shall be governed
and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of law.
The parties hereto unconditionally and irrevocably agree and consent to the
exclusive jurisdiction of, and service of process and value in, the United
States District Court for the Southern District of New York and the courts of
the State of New York located in the City of New York, and waive any objection
with respect thereto, for the purpose of any action, suit or proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby and further agree not to commence any such action, suit or proceeding
except in any such court. Each party irrevocably waives any objections or
immunities to jurisdiction to which it may otherwise be entitled or become
entitled (including immunity to pre-judgment attachment, post-judgment
attachment and execution) in any legal suit, action or proceeding against it
arising out of or relating to this Agreement or the transactions contemplated
hereby which is instituted in any such court. Rakepoll Finance hereby appoints
CT Corporation, located at 1633 Broadway, New York, New York 10019 as its
authorized agent (the "Rakepoll Finance Authorized Agent") upon whom process
may be served in any such action arising out of or relating to this Agreement
or the transactions contemplated hereby which may be instituted in the United
States District Court for the Southern District of New York or the courts of
the State of New York located in the City of New York by any other party
hereto. Such appointment shall be irrevocable. Rakepoll Finance agrees to take
any and all action, including the filing of any and all documents and
instruments, that may be necessary to continue such appointment in full force
and effect as aforesaid. Service of process upon the Rakepoll Finance
Authorized Agent and written notice of such service to Rakepoll Holding shall
be deemed, in every respect, effective service of process upon Rakepoll
Finance.
7.7 Specific Performance. The transactions contemplated by this Agreement
are unique. Accordingly, each of the parties acknowledges and agrees that, in
addition to all other remedies to which it may be entitled, each of the
parties hereto is entitled to a decree of specific performance, provided such
party is not in material default hereunder.
7.8 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the
other parties. Subject to the preceding sentence, this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
7.9 Expenses. Subject to the provisions of Section 6.2, Gensia shall pay all
costs and expenses owed at closing associated with the transactions
contemplated by this Agreement, including, without limitation, the Rakepoll
Finance Stock Exchange Fees.
IN WITNESS WHEREOF, Gensia and Rakepoll Finance have signed this Agreement
as of the date first written above.
GENSIA, INC.
By __________________________________
/s/ David F. Hale
Chairman of the Board
RAKEPOLL FINANCE N.V.
By __________________________________
/s/ Carlo Salvi
Chairman of the Board
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AMENDMENT NO. 1 TO STOCK EXCHANGE AGREEMENT
AMENDMENT NO. 1 (the "Amendment"), dated as of December 16, 1996 to the
Stock Exchange Agreement dated as of November 12, 1996 (the "Agreement")
between GENSIA, INC., a Delaware corporation (the "Company"), and RAKEPOLL
FINANCE N.V., a corporation organized under the laws of the Netherlands
Antilles ("Rakepoll Finance").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Amendment of the Agreement. Pursuant to Section 6.3 of the Agreement,
Section 5.2(h) of the Agreement is hereby amended and restated to read in its
entirety as follows:
"(h) Gensia shall have eliminated its net use of cash for ongoing
research activities (other than ongoing property lease related expenses)
either (i) as a result of Gensia having obtained cash or contractually
committed payments for such research activities from third parties in the
form of research collaborations or otherwise, or (ii) by the termination of
such research activities; provided, however, that in any event, Gensia
shall be permitted to expend such amounts on research as are required for
Gensia to fulfill its obligations under its agreement with Pfizer Inc.,
dated as of May 1, 1996. It is further understood by Gensia and Rakepoll
Finance that Gensia will not borrow money in order to eliminate the net use
of cash as described in subclause (i) above. In the event that such net use
of cash has been eliminated pursuant to subclause (i) above, it is the
intent of the parties hereto that, subsequent to the Closing Date, they
will use their best efforts to present to the Board of Directors of Gensia
a plan to effectuate the spinoff of the research activities of Gensia into
an independent company, so long as such spinoff is reasonably feasible.
Such spinoff plan shall include as assets of the company to be spunoff the
five million dollar ($5,000,000) cash contribution contemplated by the
funding plan agreed to by the parties hereto and other cash payments
received (and unspent) or to be received under research collaborations
between third parties and Gensia. If there has been no such spinoff within
six months after the Closing Date, any such research activities not fully
paid for by third parties will be terminated, so that no such research
activities will produce losses."
2. Full Force and Effect. Except as modified, amended or supplemented above,
all rights, terms and conditions of the Agreement shall remain in full force
and effect.
3. Definitions; References. All terms used, but not defined in this
Amendment shall have the respective meanings set forth in the Agreement.
4. Governing Law. This Amendment shall be governed by and construed under
the laws of the State of New York (irrespective of its choice of law
principles).
5. Counterparts. This Amendment may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Agreement as of the date first written above.
GENSIA, INC.
By __________________________________
/s/ David F. Hale
Chairman of the Board
RAKEPOLL FINANCE N.V.
By _____________________________
/s/ Carlo Salvi
Chairman of the Board
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ANNEX B
LOGO
CS First Boston Corporation 55 East 52nd Street
New York, NY 10055-0186
Telephone (212) 909-2000
November 12, 1996
Board of Directors
Gensia, Inc.
9360 Towne Centre Drive
San Diego, CA 92121
Dear Sirs:
You have asked CS First Boston Corporation ("CS First Boston", "we" or "us")
to advise you with respect to the fairness to Gensia, Inc. ("Gensia") from a
financial point of view of the consideration to be paid by Gensia pursuant to
the terms of the Stock Exchange Agreement dated as of November 12, 1996 (the
"Exchange Agreement") between Rakepoll Finance N.V. (the "Parent") and Gensia.
The Exchange Agreement provides for the exchange (the "Exchange") of all
outstanding shares of common stock of Rakepoll Holding B.V. ("Rakepoll") for
29.5 million shares (the "Gensia Shares") of Common Stock of Gensia and
$100,000 in cash.
In arriving at our opinion, we have reviewed certain business and financial
information relating to Rakepoll, as well as the Exchange Agreement and the
Shareholder's Agreement dated as of November 12, 1996, between the Parent and
Gensia. We have also reviewed certain other information, including financial
forecasts, provided to us by Rakepoll and Gensia, and have met with Rakepoll's
management and Gensia's management to discuss the business and prospects of
Rakepoll.
We have also considered certain financial data of each of Rakepoll and
Gensia, and we have compared those data with similar data for other publicly
held companies in businesses similar to those of Rakepoll and Gensia and we
have considered the financial terms of certain other business combinations and
certain other transactions which have recently been effected. We also
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant, including analyses of the pro forma impact of the Exchange on
stockholders of Gensia and the benefits expected to be achieved through the
combination of the businesses of Gensia and Rakepoll. In connection with our
engagement we approached third parties to solicit indications of interest in a
possible strategic transaction with Gensia and had preliminary discussions
with certain of these parties prior to the date hereof.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied
on its being complete and accurate in all material respects. With respect to
the financial forecasts, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of Rakepoll's management and Gensia's management as to the future
financial performance of each of Rakepoll and Gensia. In addition, we have not
been requested to make, and have not made, an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Rakepoll
or Gensia, nor have we been furnished with any such evaluations or appraisals.
Our opinion is necessarily based upon financial, economic, market and other
conditions as they exist and can be evaluated on the date hereof. We are not
expressing any opinion as to the actual value of the Gensia Shares when issued
to Rakepoll's stockholders pursuant to the Exchange or the prices at which
such Gensia Shares will trade subsequent to the Exchange.
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We have acted as financial advisor to Gensia in connection with the Exchange
and will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Exchange. We will also receive a fee
for rendering this opinion.
In the ordinary course of our business, CS First Boston and its affiliates
may actively trade the equity and other securities of Gensia for their own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Gensia in connection with its consideration of the Exchange and
is not to be quoted or referred to, in whole or in part, in any registration
statement, prospectus or proxy statement, or in any other document used in
connection with the offering or sale of securities, nor shall this letter be
used for any other purpose, without CS First Boston's prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be paid by Gensia in the Exchange is fair to
Gensia from a financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION,
By __________________________________
/s/ Donald Meltzer
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ANNEX C
RESTATED CERTIFICATE OF INCORPORATION
OF
GENSIA SICOR INC.
Gensia, Inc., a corporation organized and existing under the laws of the
State of Delaware, hereby certifies as follows:
FIRST: The name of the Corporation is Gensia, Inc. and shall hereby be
changed to Gensia Sicor Inc.
SECOND: The date of filing of its original Certificate of Incorporation with
the Secretary of State of Delaware was November 17, 1986. The Corporation was
originally incorporated under the name Gensia Pharmaceuticals, Inc.
THIRD: Pursuant to the sections 245 and 245 of the General Corporation Law
of the State of Delaware, this Restated Certificate of Incorporation restates,
integrates and further amends the provisions of the Certificate of
Incorporation of this Corporation.
FOURTH: This Restated Certificate of Incorporation was duly adopted in
accordance with the provisions of the General Corporation Law of the State of
Delaware.
FIFTH: That the text of the Certificate of Incorporation of Gensia, Inc.
shall be hereby restated, integrated and amended to read in full as follows:
ARTICLE I
The name of this Corporation is Gensia Sicor Inc.
ARTICLE II
The registered office of the Corporation within the State of Delaware is
located at 1209 Orange Street in the City of Wilmington, County of New Castle.
The name of its registered agent at that address is The Corporation Trust
Company.
ARTICLE III
The nature of the business and the purposes for which the Corporation is
formed are to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
ARTICLE IV
A. Classes of Stock. The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is One Hundred
Thirty Million (130,000,000) of which One Hundred Twenty-Five Million
(125,000,000) shares of the par value of One Cent ($.01) each shall be Common
Stock (the "Common Stock") and Five Million (5,000,000) shares of the par
value of One Cent ($.01) each shall be Preferred Stock (the "Preferred
Stock").
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is authorized to fix the number of shares of any series
of Preferred Stock and to determine the designation of any
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such shares. The Board of Directors is also authorized to determine or alter
the rights (including but not limited to voting rights), preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock, and within the limits and restrictions stated in
any resolution or resolutions of the Board of Directors originally fixing the
number of shares constituting any series, to increase or decrease (but not
below the number of shares of such series outstanding) the number of shares of
such series subsequent to the issue of shares of that series by filing a
certificate pursuant to the applicable laws of the State of Delaware.
B. Series I Participating Preferred Stock.
1. Designation and Amount. Of the Five Million (5,000,000) shares of
Preferred Stock, One Hundred Twenty-Five Thousand (125,000) shares shall be
designated as "Series I Participating Preferred Stock," $0.01 par value per
share. Such number of shares may be increased or decreased by resolution of
the Board of Directors; provided, that no decrease shall reduce the number of
shares of Series I Participating Preferred Stock to a number less than that of
the shares then outstanding plus the number of shares issuable upon exercise
of outstanding rights, options or warrants or upon conversion of outstanding
securities issued by the Corporation.
2. Dividends and Distributions.
(a) Subject to the prior and superior rights of the holders of any shares of
any series of Preferred Stock ranking prior and superior to the shares of
Series I Participating Preferred Stock with respect to dividends, the holders
of shares of Series I Participating Preferred Stock in preference to the
holders of shares of Common Stock of the Corporation and any other junior
stock, shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December in
each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series I Participating
Preferred Stock in an amount per share (rounded to the nearest cent) equal to
the greater of (a) $100, or (b) subject to the provision for adjustment
hereinafter set forth, 1000 times the aggregate per share amount of all cash
dividends, and 1000 times the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock, since
the immediately preceding Quarterly Dividend Payment Date, or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series I Participating Preferred Stock. In the
event the Corporation shall at any time after the close of business on March
16, 1992 (the "Rights Declaration Date") (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a smaller number of
shares, by reclassification or otherwise, then in each such case the amount to
which holders of shares of Series I Participating Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on the Series I
Participating Preferred Stock as provided in paragraph (A) above immediately
after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during
the period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $100 per share on the Series I
Participating Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series I Participating Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares of Series I Participating
Preferred Stock unless the date of issue of such shares is prior to the record
date for the
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first Quarterly Dividend Payment Date, in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or unless the
date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series I
Participating Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series I Participating Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a record
date for the determination of holders of shares of Series I Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 30 days prior to the
date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series I Participating Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series I Participating Preferred Stock shall entitle the holder
thereof to 1000 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock into a greater number of shares, or (iii) combine the
outstanding Common Stock into a smaller number of shares, by
reclassification or otherwise, then in each such case the number of votes
per share to which holders of shares of Series I Participating Preferred
Stock were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of shares
of Series I Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series I Participating Preferred
Stock shall be in arrears in an amount equal to six quarterly dividends
thereon, the occurrence of such contingency shall mark the beginning of a
period (herein called a "default period") which shall extend until such
time when all accrued and unpaid dividends for all previous quarterly
dividend periods and for the current quarterly dividend period on all
shares of Series I Participating Preferred Stock then outstanding shall
have been declared and paid or set apart for payment. During each default
period, all holders of Preferred Stock (including holders of the Series I
Participating Preferred Stock) with dividends in arrears in an amount equal
to six quarterly dividends thereon, voting as a class, irrespective of
series, shall have the right to elect two Directors.
(ii) During any default period, such voting right of the holders of
Series I Participating Preferred Stock may be exercised initially at a
special meeting called pursuant to subparagraph (iii) of this Section
3(C) or at any annual meeting of stockholders, and thereafter at annual
meetings of stockholders, provided that neither such voting right nor
the right of the holders of any other series of Preferred Stock, if
any, to increase, in certain cases, the authorized number of Directors
shall be exercised unless the holders of ten percent (10%) in number of
shares of Preferred Stock outstanding shall be present in person or by
proxy. The absence of a quorum of the holders of Common Stock shall not
affect the exercise by the holders of Preferred Stock of such voting
right. At any meeting at which the holders of Preferred Stock shall
exercise such voting right initially during an existing default period,
they shall have the right, voting as a class, to elect Directors to
fill such vacancies, if any, in the Board of Directors as may then
exist up to two Directors or, if such right is exercised at an annual
meeting, to elect two Directors. If the number which may be so elected
at any special meeting does not amount to the required number, the
holders of the Preferred Stock shall have the right to make such
increase in the number of Directors as shall be necessary to permit the
election by them of the required number. After the holders of the
Preferred Stock shall have exercised their right to elect Directors in
any default period and during the continuance of such period, the
number of Directors
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shall not be increased or decreased except by vote of the holders of
Preferred Stock as herein provided or pursuant to the rights of any
equity securities ranking senior to or pari passu with the Series I
Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any stockholder or
stockholders owning in the aggregate not less than ten percent (10%) of
the total number of shares of Preferred Stock outstanding, irrespective
of series, may request, the calling of a special meeting of the holders
of Preferred Stock, which meeting shall there upon be called by the
President, a Vice President or the Secretary of the Corporation. Notice
of such meeting and of any annual meeting at which holders of Preferred
Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be
given to each holder of record Preferred Stock by mailing a copy of
such notice to him at his last address as the same appears on the books
of the Corporation. Such meeting shall be called for a time not earlier
than 10 days and not later than 60 days after such order or request or
in default of the calling of such meeting within 60 days after such
order or request, such meeting may be called on similar notice by any
stockholder or stockholders owning in the aggregate not less than ten
percent (10%) of the total number of shares of Preferred Stock
outstanding. Notwithstanding the provisions of this paragraph (C)(iii),
no such special meeting shall be called during the period within 60
days immediately preceding the date fixed for the next annual meeting
of the stockholders.
(iv) In any default period, the holders of Common Stock, and other
classes of stock of the Corporation, if applicable, shall continue to
be entitled to elect the whole number of Directors until the holders of
Preferred Stock shall have exercised their right to elect two Directors
voting as a class, after the exercise of which right (x) the Directors
so elected by the holders of Preferred Stock shall continue in office
until their successors shall have been elected by such holders or until
the expiration of the default period, and (y) any vacancy in the Board
of Directors may (except as provided in paragraph (C)(ii) of this
Section 3) be filled by vote of a majority of the remaining Directors
theretofore elected by the holders of the class of stock which elected
the Director whose office shall have become vacant. References in this
paragraph (C) to Directors elected by the holders of a particular class
of stock shall include Directors elected by such Directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect Directors
shall cease, (y) the term of any Directors elected by the holders of
Preferred Stock as a class shall terminate, and (z) the number of
Directors shall be such number as may be provided for in, or pursuant
to, the Certificate of Incorporation or By-Laws irrespective of any
increase made pursuant to the provisions of paragraph (C)(ii) of this
Section 3 (such number being subject, however, to change thereafter in
any manner provided by law or in the Certificate of Incorporation or
By-Laws). Any vacancies in the Board of Directors effected by the
provisions of clauses (y) and (z) in the preceding sentence may be
filled by a majority of the remaining Directors, even though less than
a quorum.
(D) Except as set forth herein, holders of Series I Participating
Preferred Stock shall have no special voting rights and their consent shall
not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any corporate
action.
4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions payable
on the Series I Participating Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series I Participating
Preferred Stock outstanding shall have been paid in full, the Corporation
shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series I Participating Preferred Stock;
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(ii) declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series I Participating
Preferred Stock except dividends paid ratably on the Series I Participating
Preferred Stock and all such parity stock on which dividends are payable or
in arrears in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of
any stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series I Participating Preferred Stock
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series I Participating
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of Series
I Participating Preferred Stock or any shares of stock ranking on a parity
with the Series I Participating Preferred Stock except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section
4, purchase or otherwise acquire such shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series I Participating Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject
to the conditions and restrictions on issuance set forth herein.
6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or winding up
of the Corporation, no distribution shall be made to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series I Participating Preferred Stock unless, prior
thereto, the holders of shares of Series I Participating Preferred Stock shall
have received per share, the greater of 1000 times $1.00 or 1000 times the
payment made per share of Common Stock, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment (the "Series I Liquidation Preference"). Following the
payment of the full amount of the Series I Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series I
Participating Preferred Stock unless, prior thereto, the holders of shares of
Common Stock shall have received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series I Liquidation
Preference by (ii) 1000 (as appropriately adjusted as set forth in
subparagraph (C) below to reflect such events as stock splits, stock dividends
and recapitalization with respect to the Common Stock) (such number in clause
(ii), the "Adjustment Number"). Following the payment of the full amount of
the Series I Liquidation Preference and the Common Adjustment in respect of
all outstanding shares of Series I Participating Preferred Stock and Common
Stock, respectively, holders of Series I Participating Preferred Stock and
holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to 1 with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.
(B) In the event there are not sufficient assets available to permit payment
in full of the Series I Liquidation Preference and the liquidation preferences
of all other series of Preferred Stock, if any, which rank on a parity with
the Series I Participating Preferred Stock then such remaining assets shall be
distributed ratably to the
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holders of such parity shares in proportion to their respective liquidation
preferences. In the event there are not sufficient assets available to permit
payment in full of the Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, by
reclassification or otherwise, then in each such case the Adjustment Number in
effect immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
7. Consolidation, Merger, etc. In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case the shares of Series I
Participating Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series I Participating Preferred Stock shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event.
8. Redemption. The shares of Series I Participating Preferred Stock shall
not be redeemable.
9. Ranking. The Series I Participating Preferred Stock shall rank junior to
all other series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
10. Amendment. The Certificate of Incorporation and the By-Laws of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series I
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least 66-2/3% of the outstanding shares
of Series I Participating Preferred Stock voting separately as a class.
11. Fractional Shares. Series I Participating Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series I Participating Preferred Stock.
C. $3.75 Convertible Exchangeable Preferred Stock.
1. Designation and Amount. Of the Five Million (5,000,000) shares of
Preferred Stock, One Million Eight Hundred Forty Thousand (1,840,000) shares
shall be designated as "$3.75 Convertible Exchangeable Preferred Stock," $.01
par value per share.
2. Definitions. For purposes of the $3.75 Convertible Exchangeable Preferred
Stock and this Section C, in addition to those terms otherwise defined in this
Restated Certificate of Incorporation, the following terms shall have the
meanings indicated:
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"Board of Directors" shall mean the board of directors of the Corporation
or any committee authorized by such Board of Directors to perform any of
its responsibilities with respect to the $3.75 Convertible Exchangeable
Preferred Stock.
"Business Day" shall mean any day other than a Saturday, Sunday or a day
on which banking institutions in the City of New York are authorized or
obligated by law or executive order to close.
"Closing Price" of a security on any day shall mean on such day the
reported last sales price, regular way, for the security or, in case no
sale takes place on such day, the average of the reported closing bid and
asked prices, regular way, for the security in either case as reported on
the New York Stock Exchange, on the principal national securities exchange
on which the security is listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, on the Nasdaq
National Market or, if the security is not quoted on such National Market
system, the average of the closing bid and asked prices for the security on
such day in or, if bid and asked prices for the security on each such date
shall not have been reported by The Nasdaq Stock Market, the average of the
bid and asked prices of the security for such day as furnished by any New
York Stock Exchange member firm regularly making a market in the security
selected for such purpose by the Board of Directors or, if no such
quotations are available, the fair market value of the security furnished
by any New York Stock Exchange member firm selected from time to time by
the Board of Directors for that purpose.
"Corporation Notice" shall have the meaning set forth in paragraph (b) of
Section C5 of this Article.
"Conversion Price" shall mean the conversion price per share of Common
Stock into which the $3.75 Convertible Exchangeable Preferred Stock is
convertible, as such Conversion Price may be adjusted pursuant to Section
C7 of this Article. The initial Conversion Price will be $27.60 (equivalent
to the rate of approximately 1.8116 shares of Common Stock for each share
of $3.75 Convertible Exchangeable Preferred Stock).
"Current Market Price" per share of Common Stock on any date shall mean
the Closing Price of the Common Stock on the first day which is not a
Saturday, a Sunday or a day on which banking institutions and trust
companies in New York, New York are authorized by law or executive order to
close or a legal holiday.
"Dividend Payment Date" shall have the meaning set forth in paragraph (a)
of Section C3 of this Article.
"Dividend Payment Record Date" shall have the meaning set forth in
paragraph (a) of Section C3 of this Article.
"Debentures" shall mean the Corporation's 7 1/2% Convertible Subordinated
Debentures due 2003.
"Dividend Periods" shall mean quarterly dividend periods commencing on
the first day of March, June, September and December of each year and
ending on and including the day preceding the first day of the next
succeeding Dividend Period (other than the initial Dividend Period which
shall commence on the Issue Date and end on and include May 31, 1993).
"Fundamental Change" shall have the meaning set forth in paragraph (c) of
Section C8 of this Article.
"Issue Date" shall mean the first date on which shares of the $3.75
Convertible Exchangeable Preferred Stock are issued.
"Person" shall mean any individual, association, partnership,
corporation, a government or a political subdivision thereof, a
governmental agency or other entity, and shall include any successor (by
merger or otherwise) of such entity.
"Trading Date" with respect to Common Stock means (i) if the Common Stock
is listed or admitted for trading on the New York Stock Exchange or another
national securities exchange, a day on which the New York Stock Exchange or
such other national securities exchange is open for business or (ii) if the
Common Stock is quoted on the Nasdaq National Market, a day on which trades
may be made on such National Market system or (iii) otherwise, any Business
Day.
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"Transfer Agent" means ChaseMellon Shareholder Services, L.L.C., as
successor in interest to First Interstate Bank of California or such other
agent or agents of the Corporation as may be designated by the Board of
Directors of the Corporation as the transfer agent for the $3.75
Convertible Exchangeable Preferred Stock.
3. Dividends.
(a) Holders of the $3.75 Convertible Exchangeable Preferred Stock are
entitled to receive, when, as and if declared by the Board of Directors, out
of the funds of the Corporation legally available therefor, an annual cash
dividend at the annual rate of $3.75 per share of $3.75 Convertible
Exchangeable Preferred Stock, payable in quarterly installments on March 1,
June 1, September 1 and December 1 (each a "Dividend Payment Date"),
commencing June 1, 1993 (and, in the case of any accrued but unpaid dividends,
at such additional times and for such interim periods, if any, as determined
by the Board of Directors). If June 1, 1993 or any other Dividend Payment Date
shall be on a day other than a Business Day, the Dividend Payment Date shall
be on the next succeeding Business Day. Dividends on the $3.75 Convertible
Exchangeable Preferred Stock will be cumulative from the Issue Date, whether
or not in any Dividend Period or Periods there shall be funds of the
Corporation legally available for the payment of such dividends and whether or
not such dividends are declared, and will be payable to holders of record as
they appear on the stock books of the Corporation on such record dates (each
such date, a "Dividend Payment Record Date"), which shall be not more than 60
days nor less than 10 days preceding the Dividend Payment Dates thereof, as
shall be fixed by the Board of Directors. Dividends on the $3.75 Convertible
Exchangeable Preferred Stock shall accrue (whether or not declared) on a daily
basis from the Issue Date, and accrued dividends for each Dividend Period
shall accumulate to the extent not paid on the Dividend Payment Date first
following the Dividend Period for which they accrue. As used herein, the term
"accrued" with respect to dividends includes both accrued and accumulated
dividends.
(b) The amount of dividends payable for such full Dividend Period for the
$3.75 Convertible Exchangeable Preferred Stock shall be computed by dividing
the annual dividend rate by four (rounded down to the nearest cent). The
amount of dividends payable for the initial Dividend Period on the $3.75
Convertible Exchangeable Preferred Stock, or any other period shorter or
longer than a full Dividend Period on the $3.75 Convertible Exchangeable
Preferred Stock, shall be computed on the basis of a 360-day year consisting
of twelve 30-day months. Holders of shares of $3.75 Convertible Exchangeable
Preferred Stock called for redemption on a redemption date falling between the
close of business on a Dividend Payment Record Date and the opening of
business on the corresponding Dividend Payment Date shall, in lieu of
receiving such dividend on the Dividend Payment Date fixed therefor, receive
such dividend payment together with all other accrued and unpaid dividends on
the date fixed for redemption (unless holder converts such shares in
accordance with Section C7 of this Article). Holders of shares of $3.75
Convertible Exchangeable Preferred Stock shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of cumulative
dividends, as herein provided. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
the $3.75 Convertible Exchangeable Preferred Stock which may be in arrears.
(c) So long as any shares of the $3.75 Convertible Exchangeable Preferred
Stock are outstanding, no dividends, except as described in the next
succeeding sentence, shall be declared or paid or set apart for payment on any
class or series of stock of the Corporation ranking, as to the dividends, on a
parity with the $3.75 Convertible Exchangeable Preferred Stock, for any period
unless full cumulative dividends have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart
for such payment on the $3.75 Convertible Exchangeable Preferred Stock for all
Dividend Periods terminating on or prior to the date of payment, or setting
apart for payment, of such dividends on such parity stock. When dividends are
not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, upon the shares of the $3.75 Convertible Exchangeable Preferred
Stock and any other class or series of stock ranking on a parity as to
dividends with the $3.75 Convertible Exchangeable Preferred Stock, all
dividends declared upon shares of the $3.75 Convertible Exchangeable Preferred
Stock and all dividends declared upon such other stock shall be declared pro
rata so that the amounts of dividends per share declared on the $3.75
Convertible Exchangeable
C-8
<PAGE>
Preferred Stock and such other stock shall in all cases bear to each other the
same ratio that accrued dividends per share on the shares of the $3.75
Convertible Exchangeable Preferred Stock and on such other stock bear to each
other.
(d) So long as any shares of the $3.75 Convertible Exchangeable Preferred
Stock are outstanding, no other stock of the Corporation ranking on a parity
with the $3.75 Convertible Exchangeable Preferred Stock as to dividends or
upon liquidation, dissolution or winding up shall be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund or otherwise for the purchase or redemption of
any shares of any such stock) by the Corporation (except for repurchases from
employees and consultants) unless (i) the full cumulative dividends, if any,
accrued on all outstanding shares of the $3.75 Convertible Exchangeable
Preferred Stock shall have been paid or set apart for payment for all past
Dividend Periods and (ii) sufficient funds shall have been set apart for the
payment of the dividend for the current Dividend Period with respect to the
$3.75 Convertible Exchangeable Preferred Stock.
(e) So long as any shares of the $3.75 Convertible Exchangeable Preferred
Stock are outstanding, no dividends (other than dividends or distributions
paid in shares of, or options, warrants or rights to subscribe for or purchase
shares of, Common Stock or other stock ranking junior to the $3.75 Convertible
Exchangeable Preferred Stock, as to dividends and upon liquidation,
dissolution or winding up) shall be declared or paid or set apart for payment
and no other distribution shall be declared or made or set apart for payment,
in each case upon the Common Stock or any other stock of the Corporation
ranking junior to the $3.75 Convertible Exchangeable Preferred Stock as to
dividends or upon liquidation, dissolution or winding up, nor shall any Common
Stock nor any other such stock of the Corporation ranking junior to the $3.75
Convertible Exchangeable Preferred Stock as to dividends or upon liquidation,
dissolution or winding up be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund
or otherwise for the purchase or redemption of any shares of any such stock)
by the Corporation (except by conversion into or exchange for stock of the
Corporation ranking junior to the $3.75 Convertible Exchangeable Preferred
Stock as to dividends and upon liquidation, dissolution or winding up) unless,
in each case (i) the full cumulative dividends, if any, accrued on all
outstanding shares of the $3.75 Convertible Exchangeable Preferred Stock and
any other stock of the Corporation ranking on a parity with the $3.75
Convertible Exchangeable Preferred Stock as to dividends shall have been paid
or set apart for payment for all past Dividend Periods and all past dividend
periods with respect to such other stock and (ii) sufficient funds shall have
been set apart for the payment of the dividend for the current Dividend Period
with respect to the $3.75 Convertible Exchangeable Preferred Stock and for the
current dividend period with respect to any other stock of the Corporation
ranking on a parity with the $3.75 Convertible Exchangeable Preferred Stock as
to dividends.
4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus)
shall be made to or set apart for the holders of Common Stock or any other
series or class of stock of the Corporation ranking junior to the $3.75
Convertible Exchangeable Preferred Stock upon liquidation, dissolution or
winding up, the holders of the shares of $3.75 Convertible Exchangeable
Preferred Stock shall be entitled to receive $50.00 per share plus an amount
per share equal to all dividends (whether or not earned or declared) accrued
and unpaid thereon to the date of final distribution to such holders; but such
holders shall not be entitled to any further payment. No payment on account of
any liquidation, dissolution or winding up of the Corporation shall be made to
the holders of any class or series of stock ranking on a parity with the $3.75
Convertible Exchangeable Preferred Stock in respect of the distribution of
assets upon dissolution, liquidation or winding up unless there shall likewise
be paid at the same time to the holders of the $3.75 Convertible Exchangeable
Preferred Stock like proportionate amounts determined ratably in proportion to
the full amounts to which the holders of all outstanding shares of $3.75
Convertible Exchangeable Preferred Stock and the holders of all outstanding
shares of such parity stock are respectively entitled with respect to such
distribution. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof,
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<PAGE>
distributable among the holders of the shares of, $3.75 Convertible
Exchangeable Preferred Stock shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any other shares of
stock ranking, as to liquidation, dissolution or winding up, on a parity with
the $3.75 Convertible Exchangeable Preferred Stock, then such assets, or the
proceeds thereof, shall be distributed among the holders of shares of $3.75
Convertible Exchangeable Preferred Stock and any such other stock ratably in
accordance with the respective amounts which would be payable on such shares
of $3.75 Convertible Exchangeable Preferred Stock and any such other stock if
all amounts payable thereon were paid in full. For the purposes of this
Section C4, (i) a consolidation or merger of the Corporation with one or more
corporations or other entities, (ii) a sale, lease, exchange or transfer of
all or any part of the Corporation's assets or (iii) a statutory share
exchange shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary.
(b) Subject to the rights of the holders of shares of any series or class or
classes of stock ranking on a parity with or prior to the $3.75 Convertible
Exchangeable Preferred Stock upon liquidation, dissolution or winding up, upon
any liquidation, dissolution or winding up of the Corporation, after payment
shall have been made in full to the holders of $3.75 Convertible Exchangeable
Preferred Stock, as provided in this Section C4, any other series or class or
classes of stock ranking junior to the $3.75 Convertible Exchangeable
Preferred Stock upon liquidation, dissolution or winding up shall, subject to
the respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and the holder
of $3.75 Convertible Exchangeable Preferred Stock shall not be entitled to
share therein.
(c) Written notice of any liquidation, dissolution or winding up of the
Corporation, stating the payment date or dates when and the place or places
where the amounts distributable in such circumstances shall be payable, shall
be given by first class mail, postage prepaid, not less than thirty (30) days
prior to any payment date stated therein, to the holders of record of the
$3.75 Convertible Exchangeable Preferred Stock at their respective addresses
as the same shall appear on the books of the Transfer Agent.
5. Redemption at the Option of the Corporation.
(a) $3.75 Convertible Exchangeable Preferred Stock may not be redeemed by
the Corporation prior to March 6, 1996, on or after which the Corporation, at
its option, may redeem the shares of $3.75 Convertible Exchangeable Preferred
Stock, in whole or in part, out of funds legally available therefor, at any
time or from time to time, subject to the notice provisions and provisions for
partial redemption described below, during the period beginning on March 1, of
the years shown below (March 6 in the case of 1996), at the following
redemption prices per share plus an amount equal to accrued and unpaid
dividends, if any, to (and including) the date fixed for redemption, whether
or not earned or declared:
<TABLE>
<CAPTION>
YEAR PRICE
---- ------
<S> <C>
1996.............................................................. $52.50
1997.............................................................. $52.08
1998.............................................................. $51.67
1999.............................................................. $51.25
2000.............................................................. $50.83
2001.............................................................. $50.42
2002 and thereafter............................................... $50.00
</TABLE>
Notwithstanding the foregoing, the $3.75 Convertible Exchangeable Preferred
Stock may not be redeemed prior to March 6, 1998 unless the Closing Price of
the Common Stock equals or exceeds 150% of the then effective Conversion Price
per share for any 20 Trading Dates during a period of 30 consecutive Trading
Dates ending within 15 days prior to the mailing of a Corporation Notice of
redemption.
(b) In the event the Corporation shall redeem shares of $3.75 Convertible
Exchangeable Preferred Stock, a Corporation Notice of such redemption shall be
given by first class mail, postage prepaid, mailed not less than 30 nor more
than 60 days prior to the redemption date, to each holder of record of the
shares to be redeemed, at
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<PAGE>
such holder's address as the same appears on the stock records of the
Corporation. Each such notice shall state: (i) the redemption date; (ii) the
number of shares of $3.75 Convertible Exchangeable Preferred Stock to be
redeemed and, if less than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder; (iii) the
redemption price; (iv) the place or places where certificates for such shares
are to be surrendered for payment of the redemption price; (v) that payment
will be made upon presentation and surrender of such $3.75 Convertible
Exchangeable Preferred Stock; (vi) the then current conversion price and the
date on which the right to convert such shares of 3.75 Convertible
Exchangeable Preferred Stock will expire; (vii) that dividends on the shares
to be redeemed shall cease to accrue following such redemption date; (viii)
that such redemption is at the option of the Corporation; and (ix) that
dividends accrued to and including the date fixed for redemption will be paid
as specified in said notice. Notice having been mailed as aforesaid, from and
after the redemption date, unless the Corporation shall be in default in
providing money for the payment of the redemption price (including any accrued
and unpaid dividends to (and including) the date fixed for redemption) (x)
dividends on the shares of the $3.75 Convertible Exchangeable Preferred Stock
so called for redemption shall cease to accrue, (y) said shares shall be
deemed no longer outstanding, and (z) all rights of the holders thereof as
stockholder of the Corporation (except the right to receive from the
Corporation the money payable upon redemption without interest thereon) shall
cease. The Corporation's obligation to provide moneys in accordance with the
preceding sentence shall be deemed fulfilled if, on or before the redemption
date, the Corporation shall deposit with a bank or trust company having an
office or agency in the Borough of Manhattan, City of New York, and having a
capital and surplus of at least $50,000,000, the principal amount of funds
necessary for such redemption, in trust for the account of the holders of the
shares to be redeemed (and so as to be and continue to be available therefor),
with irrevocable instructions and authority to such bank or trust company that
such funds be applied to the redemption of the shares of $3.75 Convertible
Exchangeable Preferred Stock so called for redemption. Any interest accrued on
such funds shall be paid to the Corporation from time to time. Any funds so
deposited and unclaimed at the end of three years from such redemption date
shall be released or repaid to the Corporation, after which, subject to any
applicable laws relating to escheat or unclaimed property, the holder or
holders of such shares of $3.75 Convertible Exchangeable Preferred Stock so
called for redemption shall look only to the Corporation for payment of the
redemption price.
Upon surrender in accordance with said notice of the certificates for any
such shares so redeemed (properly endorsed or assigned for transfer, if the
Board of Directors shall so require and the notice shall so state), such
shares shall be redeemed by the Corporation at the applicable redemption price
aforesaid. If fewer than all the outstanding shares of $3.75 Convertible
Exchangeable Preferred Stock are to be redeemed, shares to be redeemed shall
be selected by the Corporation from outstanding shares of $3.75 Convertible
Exchangeable Preferred Stock not previously called for redemption by lot or
pro rata (as near as may be) or by any other equitable method determined by
the Corporation in its sole discretion. If fewer than all the shares
represented by any certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof.
Notwithstanding the foregoing, if the Corporation Notice of redemption has
been given pursuant to this Section C5 and any holder of shares of $3.75
Convertible Exchangeable Preferred Stock shall, prior to the close of business
on the third Business Day preceding the redemption date, give written notice
to the Corporation pursuant to Section C7(b) of this Article hereof of the
conversion of any or all of the shares to be redeemed held by such holder
(accompanied by a certificate or certificates for such shares, duly endorsed
or assigned to the Corporation), then the conversion of such shares to be
redeemed shall become effective as provided in Section C7 of this Article.
6. Shares to Be Retired. Any shares of $3.75 Convertible Exchangeable
Preferred Stock converted, redeemed or otherwise acquired by the Corporation
shall be retired and cancelled and shall upon cancellation be restored to the
status of authorized but unissued shares of Preferred Stock, subject to
reissuance by the Board of Directors as $3.75 Convertible Exchangeable
Preferred Stock or as shares of Preferred Stock of one or more other series.
C-11
<PAGE>
7. Conversion. Holders of shares of $3.75 Convertible Exchangeable Preferred
Stock shall have the right to convert all or a portion of such shares
(including fractions of such shares) into shares of Common Stock, as follows:
(a) Subject to and upon compliance with the provisions of this Section
C7, a holder of shares of $3.75 Convertible Exchangeable Preferred Stock
shall have the right, at his or her option, at any time, to convert any of
such shares (or fractions thereof) into the number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion to
the nearest 1/100th of a share) obtained by dividing the aggregate
liquidation preference of the shares to be converted by the Conversion
Price and by surrender of such shares, such surrender to be made in the
manner provided in paragraph (b) of this Section C7; provided, however,
that the right to convert shares called for redemption pursuant to Section
C5 of this Article shall terminate at the close of business on the third
Business Day preceding the date fixed for such redemption, unless the
Corporation shall default in making payment of the amount payable upon such
redemption. Subject to the following provisions of this Section C7(a), any
shares of $3.75 Convertible Exchangeable Preferred Stock may be converted,
at the option of its holder, in part into Common Stock under the procedures
set forth above. If a part of a share of $3.75 Convertible Exchangeable
Preferred Stock is converted, then the Corporation will convert such share
into the appropriate number of shares of Common Stock (subject to paragraph
(c) of this Section C7) and issue a fractional shares of $3.75 Convertible
Exchangeable Preferred Stock evidencing the remaining interest of such
holder.
(b) In order to exercise the conversion right, the holder of each share
of $3.75 Convertible Exchangeable Preferred Stock (or fraction thereof) to
be converted shall surrender the certificate representing such share, duly
endorsed or assigned to the Corporation or in blank, at the office or
agency of the Transfer Agent in the Borough of Manhattan, City of New York
or Los Angeles, California, accompanied by written notice to the
Corporation that the holder thereof elects to convert the holder's $3.75
Convertible Exchangeable Preferred Stock or a specified portion thereof.
Unless the shares issuance on conversion are to be issued in the same name
as the name in which such share of $3.75 Convertible Exchangeable Preferred
Stock is registered, each share surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or such holder's duly authorized
attorney and an amount sufficient to pay any transfer or similar tax (or
evidence reasonably satisfactory to the Corporation demonstrating that such
taxes have been paid or are not required to be paid).
Holders of shares of $3.75 Convertible Exchangeable Preferred Stock at
the close of business on a Dividend Payment Record Date will be entitled to
receive the dividend payable on such shares on the corresponding Dividend
Payment Date notwithstanding the conversion thereof or the Corporation's
default on payment of the dividend due on such Dividend Payment Date.
However, shares of $3.75 Convertible Exchangeable Preferred Stock
surrendered for conversion during the period from the close of business on
any Dividend Payment Record Date to the opening of business on the
corresponding Dividend Payment Date (except shares called for redemption on
a redemption date during such period) must be accompanied by payment of an
amount equal to the dividend payable on such shares on such Dividend
Payment Date. A holder of shares of $3.75 Convertible Exchangeable
Preferred Stock on a Dividend Payment Record Date who (or whose transferee)
converts shares of $3.75 Convertible Exchangeable Preferred Stock on a
dividend payment date will receive the dividend payable on such shares of
$3.75 Convertible Exchangeable Preferred Stock by the Corporation on such
date, and the converting holder need not include payment in the amount of
such dividend upon surrender of shares of $3.75 Convertible Exchangeable
Preferred Stock for conversion. Except as provided above, no payment or
adjustment will be made on account of accrued or unpaid dividends upon
conversion of shares of $3.75 Convertible Exchangeable Preferred Stock.
As promptly as practicable after the surrender of certificates for shares
of $3.75 Convertible Exchangeable Preferred Stock as aforesaid, the
Corporation shall issue and shall deliver at such office to such holder, or
on his or her written order, a certificate or certificates for the number
of shares of Common Stock issuable upon the conversion of such shares in
accordance with the provisions of this Section C7, and any fractional
interest in respect of a share of Common Stock arising upon such conversion
shall be settled as provided in paragraph (c) of this Section C7.
C-12
<PAGE>
Each conversion shall be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for shares
of $3.75 Convertible Exchangeable Preferred Stock shall have been
surrendered and such notice received by the Corporation as aforesaid, and
the person or persons in whose name or names any certificate of
certificates for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby at such time on such date and such
conversion shall be at the Conversion Price in effect at such time as such
date, unless the stock transfer books of the Corporation shall be closed on
that date, in which event such person or persons shall be deemed to have
become such holder or holders of record at the close of business on the
next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon
which such shares shall have been surrendered and such notice received by
the Corporation. All shares of Common Stock delivered upon conversion of
the $3.75 Convertible Exchangeable Preferred Stock will, upon delivery, be
duly authorized, validly issued and fully paid and nonassessable.
(c) In connection with the conversion of any shares of $3.75 Convertible
Exchangeable Preferred Stock, fractions of such shares may be converted;
however, no fractional shares or securities representing fractions of
shares of Common Stock shall be issued upon conversion of the $3.75
Convertible Exchangeable Preferred Stock. Instead of any fractional
interest in a share of Common Stock which would otherwise be delivered upon
the conversion of a shares of $3.75 Convertible Exchangeable Preferred
Stock (or fractions thereof), the Corporation shall pay to the holder of
such shares an amount in cash (computed to the nearest cent) equal to the
Current Market Price of Common Stock on the Trading Date immediately
preceding the date of conversion multiplied by the fraction of a share of
Common Stock represented by such fractional interest. If more than one
share (or fraction thereof) shall be surrendered for conversion at one time
by the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number
of shares of $3.75 Convertible Exchangeable Preferred Stock so surrendered.
(d) The Conversion Price shall be adjusted from time to time as follows:
(i) Stock Dividends and Stock Splits. If at any time after the Issue
Date, (A) the Corporation shall fix a record date for the issuance of
any dividend payable in shares of Common Stock or (B) the number of
shares of Common Stock shall have been increased by a subdivision or
split-up of shares of Common Stock, then, on the record date fixed for
the determination of holders of Common Stock entitled to receive such
dividend or immediately after the effective date of such subdivision or
split-up, as the case may be, the number of shares to be delivered upon
surrender of any share of $3.75 Convertible Exchangeable Preferred
Stock for conversion will be appropriately increased so that each
holder of $3.75 Convertible Exchangeable Preferred Stock thereafter
will be entitled to receive the number of shares of Common Stock that
such holder would have owned immediately following such action had such
share been surrendered for conversion immediately prior thereto, and
the Conversion Price will be appropriately adjusted. The time of
occurrence of an event giving rise to an adjustment made pursuant to
this paragraph (d)(i) shall, in the case of subdivision or split-up, be
the effective date thereof and shall, in the case of a stock dividend,
be the record date thereof.
(ii) Combination of Stock. If the number of shares of Common Stock
outstanding at any time after the Issue Date shall have been decreased
by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of
shares to be delivered upon surrender of any shares of $3.75
Convertible Exchangeable Preferred Stock for conversion will be
appropriately decreased so that each holder thereafter will be entitled
to receive the number of shares of Common Stock that such holder would
have owned immediately following such action had such shares been
surrendered for conversion immediately prior thereto, and the
Conversion Price will be appropriately adjusted.
(iii) Reorganization. If any capital reorganization of the
Corporation, or any reclassification of the Common Stock, or any
consolidation of the Corporation with or merger of the Corporation with
or into any other corporation or any sale, lease or other transfer of
all or substantially all of the assets of
C-13
<PAGE>
the Corporation to any other person (including any individual,
partnership, joint venture, corporation, trust or group thereof) shall
be effected in such a way that the Common Stock shall be converted into
the right to receive stock, securities or other property (including
cash or any combination thereof), then, upon surrender of the $3.75
Convertible Exchangeable Preferred Stock for conversion in accordance
with the term of this Section C7, each holder shall have the right to
receive the kind and holder shall have the right to receive the kind
and amount of stock and other securities and property receivable
(including cash or any combination thereof) upon such reorganization,
reclassification, consolidation, merger or sale, lease or other
transfer by a holder of the number of shares of Common Stock that such
holder of the $3.75 Convertible Exchangeable Preferred Stock would have
been entitled to receive upon surrender of the $3.75 Convertible
Exchangeable Preferred Stock for conversion pursuant to this Section C7
had the $3.75 Convertible Exchangeable Preferred Stock been surrendered
for conversion immediately prior to such merger or sale, lease or other
transfer.
(iv) Special Dividends. If (other than in a dissolution or
liquidation) securities of the Corporation (other than shares of Common
Stock or rights, options or warrants referred to in subparagraph (v)
hereof) or evidence of its indebtedness or assets (other than cash
dividends payable (a) out of retained earnings or (b) out of any
earnings or surplus not in excess of 10% of the average Closing Price
of the Common Stock for the thirty (30) trading days prior to the fifth
trading day before the date of declaration multiplied by the number of
shares of Common Stock outstanding during such period), are issued by
way of a dividend on outstanding shares of Common Stock, then the
number of shares to be delivered upon surrender of the $3.75
Convertible Exchangeable Preferred Stock shall be appropriately
increased so that immediately after the date fixed by the Corporation
as the record date in respect of such issuance, each holder will be
entitled to receive the number of shares of Common Stock determined by
multiplying the number of shares such holder would have been entitled
to receive immediately before the record date for the determination of
the stockholders entitled to receive such dividend by a fraction, the
denominator of which shall be the Closing Price of the Common Stock on
such record date less the then fair market value as determined by the
Board of Directors, whose determination if made in good faith shall be
conclusive, of the portion of the securities or evidence of
indebtedness or assets distributed applicable to one share of Common
Stock and the numerator of which shall be such Closing Price; and the
Conversion Price shall be appropriately adjusted. Such adjustment shall
become effective immediately prior to the opening of business on the
day following such record date.
(v) Rights Offering. If the Corporation at any time after the Issue
Date shall issue or sell or fix a record date for the issuance of
rights, options or warrants to all holders of Common Stock entitling
the holders thereof to subscribe for or purchase or otherwise acquire
Common Stock (of securities convertible or exchangeable for Common
Stock), in any such case, at a price per share (or having a conversion
price or exchange value per share) that, together with the value (if
for consideration other than cash, as determined in good faith by the
Board of Directors) of any consideration paid for any such rights,
options or warrants is less than the Closing Price of the Common Stock
on the date of such issuance or sale or on such record date then,
immediately after such record date, the number of shares to be
delivered upon surrender of the $3.75 Convertible Exchangeable
Preferred Stock for conversion shall be appropriately increased so that
each holder thereafter will be entitled to receive the number of shares
of Common Stock determined by multiplying the number of shares such
holder would have been entitled to receive immediately before the date
of such issuance or sale on such record date by a fraction, the
numerator of which will be the number of shares of Common Stock
outstanding on such date plus the number of additional shares of Common
Stock offered for subscription or purchase (or into which the
convertible securities so offered are initially convertible) and the
denominator of which will be the number of shares of Common Stock
outstanding on such date plus the number of shares of Common Stock that
the aggregate offering price of the total number of shares so offered
for subscription or purchase would purchase at such Closing Price, and
the Conversion Price shall be appropriately adjusted. Notwithstanding
the foregoing, rights issued by the Corporation to all holders of its
Common Stock entitling the holders thereof to subscribe for or purchase
securities of the
C-14
<PAGE>
Corporation, which rights (i) are deemed to be transferred with such
shares of Common Stock, (ii) are not exercisable, and (iii) are also
issued in respect of future issuances of Common Stock pursuant to the
Corporation's Rights Agreement, dated as of March 16, 1992, between the
Corporation and First Interstate Bank, Ltd. (the "Rights Plan") or any
future or successor plan substantially similar to the Rights Plan, in
each case in clauses (i) through (iii) until the occurrence of a
specified event or events, shall for purposes of this paragraph (d) of
this Section C7 not be deemed issued until the occurrence of the
earliest such specified event.
(vi) No Adjustments to Exercise Price. No adjustment in the
Conversion Price in accordance with the provisions of paragraphs (i),
(ii), (iii), (iv) or (v) above need be made if such adjustment would
amount to a change in such Conversion Price of less than $.05;
provided, however, that the amount by which any adjustment is not made
by reason of the provisions of this section shall be carried forward
and taken into account at the time of any subsequent adjustment in the
Conversion Price; and provided further, that adjustment shall be
required and made in accordance with the provisions of this Section C7
not later than such time as may be required in order to preserve the
tax free nature of a distribution to the holder of any share of Common
Stock. Anything in this Section C7 to the contrary notwithstanding, the
Corporation shall be entitled to the extent permitted by law to make
such reductions in the Conversion Price, in addition to those required
by this Section C7, as it in its sole discretion shall determine to be
advisable in order to avoid or diminish any income tax to any holder of
Common Stock resulting from any dividend or distribution of capital
stock or rights or warrants to purchase capital stock or from any event
treated as such for income tax purposes of for any other reasons.
(vii) Readjustments, etc. If an adjustment is made under paragraphs
(i), (ii), (iii), (iv) or (v) above, and the event to which the
adjustment relates does not occur, then any adjustment in the
Conversion Price or shares of Common Stock to be delivered upon
surrender of the $3.75 Convertible Exchangeable Preferred Stock for
conversion that were made in accordance with such paragraphs shall be
adjusted back to the Conversion Price and the number of shares of
Common Stock to be delivered upon surrender of the $3.75 Convertible
Exchangeable Preferred Stock for conversion that were in effect
immediately prior to the record date for such event.
(e) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly file in the custody of its Secretary or an
Assistant Secretary at its principal office and with the Transfer Agent an
officers' certificate setting forth the adjusted number of shares of Common
Stock to be delivered upon surrender of the $3.75 Convertible Exchangeable
Preferred Stock for conversion and the Conversion Price after such
adjustment, the method of calculating thereof and setting forth a brief
statement of the facts requiring such adjustment and upon which such
adjustments are based. Promptly after each such adjustment, the Corporation
shall cause a copy of such certificate to be mailed to the holder of each
share of $3.75 Convertible Exchangeable Preferred Stock at his or her last
address as shown on the stock books of the Corporation. Each such officers'
certificate shall be made available at all reasonable times for inspection
by each holder of $3.75 Convertible Exchangeable Preferred Stock.
(f) In any case in which paragraph (d) of this Section C7 provides that
an adjustment shall become effective immediately after a record date for an
event and the date fixed for conversion pursuant to Section C7 occurs after
such record date but before the occurrence of such event, the Corporation
may defer until the actual occurrence of such event (A) issuing to the
holder of any share of $3.75 Convertible Exchangeable Preferred Stock
surrendered for conversion the additional shares of Common Stock issuable
upon such conversion by reason of the adjustment required by such event
over and above the Common Stock issuable upon such conversion before giving
effect to such adjustment and (B) paying to such holder any amount in cash
in lieu of any fraction pursuant to paragraph (c) of this Section C7.
(g) The Corporation covenants that it will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Common Stock or its issued shares of
Common Stock held in its treasury, or both, sufficient shares of Common
Stock to provide for conversion of the $3.75 Convertible Exchangeable
Preferred Stock from time to time as such; $3.75 Convertible Exchangeable
Preferred Stock is presented for conversion.
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Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common
Stock issuable upon conversion of the $3.75 Convertible Exchangeable
Preferred Stock, the Corporation will take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Corporation
may validly and legally issue shares of Common Stock at such adjusted
Conversion Price which shares shall be fully-paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof.
Prior to the delivery of any securities which the Corporation shall be
obligated to deliver upon conversion of the $3.75 Convertible Exchangeable
Preferred Stock, the Corporation will endeavor in good faith and as
expeditiously as possible to comply with all federal and state laws and
regulations thereunder requiring the registration of such securities with,
or any approval of or consent to the delivery thereof by, any governmental
authority.
(h) The Corporation will pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of the
shares of $3.75 Convertible Exchangeable Preferred Stock (or any other
securities issued on account of the $3.75 Convertible Exchangeable
Preferred Stock pursuant hereto) or shares pursuant hereto; provided,
however, that the Corporation shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issue or delivery
of shares of $3.75 Convertible Exchangeable Preferred Stock (or any other
securities issued on account of the $3.75 Convertible Exchangeable
Preferred Stock pursuant hereto) or shares of Common Stock in a name other
than the name in which the shares of $3.75 Convertible Exchangeable
Preferred Stock with respect to which such shares of Common Stock are
issued were registered and the Corporation shall not be required to make
any issue or delivery unless and until the person requesting such issue or
delivery has paid to the Corporation the amount of any such tax or has
established, to the reasonable satisfaction of the Corporation, that such
tax has been paid or is not required to be paid.
(i) If:
(i) the Corporation shall authorize the issuance to all holders of
the Common Stock of rights or warrants to subscribe for or purchase
shares of Common Stock or any other subscription rights or warrants; or
(ii) the Corporation shall authorize the distribution to all holders
of the Common Stock of evidences of its indebtedness or assets (other
than cash dividends payable out of retained earnings, distributions
excluded from the operation of subparagraph (d)(iv) of this Section C7,
stock dividends or securities issued pursuant to any stockholder rights
plan or any similar plan of the Corporation); or
(iii) there shall be any capital reorganization or reclassification
of the Common Stock (other than a subdivision or combination of the
outstanding Common Stock, an increase in the authorized capital stock
of the Corporation not involving the issuance of any shares thereof, or
a change in par value of the Common Stock), or any other consolidation
or merger to which the Corporation is a party (other than a
consolidation or merger with a subsidiary in which the Corporation is
the continuing corporation and that does not result in any
reclassification or change in the Common Stock outstanding) or a sale,
lease or transfer of all or substantially all of the assets of the
Corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation; or
(v) there shall be any other event that would result in an adjustment
pursuant to paragraph (d) of this Section C7 of the Conversion Price or
the number of shares of Common Stock that may be purchased upon the
conversion of the $3.75 Convertible Exchangeable Preferred Stock;
then the Corporation will cause to be filed with the Transfer Agent and to
be mailed to each holder of $3.75 Convertible Exchangeable Preferred Stock
by first class mail addressed to such holder at the address appearing in
the stock records of the Corporation, at least twenty (20) days (or ten
(10) days in any case specified in clauses (i) or (ii) above) before the
applicable record or effective date hereinafter specified, a notice stating
(A) the date as of which the holders of Common Stock of record entitled to
receive any such rights, warrants or distributions are to be determined or
(B) the date on which any such consolidation,
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merger, sale, lease, transfer, dissolution, liquidation or winding-up is
expected to become effective, and the date as of which it is expected that
holders of Common Stock of record will be entitled to exchange their shares
of Common Stock for securities or other property, if any, deliverable upon
such reorganization, reclassification, consolidation, merger, sale, lease,
transfer, dissolution, liquidation or winding-up. Such notice shall also
state whether such transaction will result in any adjustment in the
Conversion Price and, if so, shall state what the adjusted Conversion Price
will be and when it will become effective. The failure to give such notice
or any defect therein shall not affect the legality or validity of any
distribution right, warrant, consolidation, merger, sale, lease, transfer,
dissolution, liquidation or winding-up or the vote upon any such action.
8. Redemption at Option of Holder Upon a Fundamental Change. (a) If a
Fundamental Change (as defined in paragraph (c) of this Section C8) occurs,
each holder of $3.75 Convertible Exchangeable Preferred Stock shall have the
right, at the holder's option, to require the Corporation to repurchase all of
such holder's $3.75 Convertible Exchangeable Preferred Stock, or any portion
thereof that has an aggregate liquidation value that is a multiple of $50.00,
on the date (the "Repurchase Date") selected by the Corporation that is not
less than 10 nor more than 20 days after the Final Surrender Date (as defined
in paragraph (b) of this Section C8), a price per share equal to $50.00, plus
accrued and unpaid dividends to the Repurchase Date. The Corporation may, at
its option, pay all or any portion of the repurchase price upon a Fundamental
Change in shares of common stock of the Corporation or any successor
corporation. For purposes of calculating the number of shares of Common Stock
issuable upon such redemption, the value of any Closing Prices of such common
stock for the five Trading Dates ending on the third Trading Date immediately
preceding the Repurchase Date. Payment may not be made in shares of common
stock unless such shares (i) have been, or will be registered on or prior to
the Final Surrender Date (as defined in paragraph (b) of this Section C8 under
the Securities Act of 1933, as amended, or are freely tradable pursuant to an
exemption thereunder and (ii) are listed on a United States national
securities exchange or quoted on the Nasdaq National Market at the time of
payment.
(b) Within 30 days after the occurrence of a Fundamental Change, the
Corporation must mail to all holders of record of the $3.75 Convertible
Exchangeable Preferred Stock a Corporation Notice containing the information
set out in paragraph (b) of Section C5, of this Article, except that, for
purposes of this Section C8 only, instead of stating that such redemption is
at the option of the Corporation, the Corporation Notice shall describe the
occurrence of such Fundamental Change and of the repurchase right arising as a
result thereof. The Corporation must cause a copy of such notice to be
published in a newspaper of general circulation in the borough of Manhattan,
the City of New York. At least two Business Days prior to the Repurchase Date,
the Corporation must publish a similar notice stating whether and to what
extent the repurchase price will be paid in cash or shares of Common Stock. To
exercise the repurchase right, a holder of $3.75 Convertible Exchangeable
Preferred Stock must surrender, on or before the date which is, subject to any
contrary requirements of applicable law, 60 days after the date of mailing of
the Corporation Notice (the "Final Surrender Date"), the certificates
representing the $3.75 Convertible Exchangeable Preferred Stock with respect
to which the right is being exercised, duly endorsed for transfer to the
Corporation, together with a written notice of election.
(c) The term "Fundamental Change" shall mean any of the following:
(i) a "person" or "Group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) becoming, in one transaction or a series of related transactions,
the "beneficial owner" (as defined in Rule 13d-2 under the Exchange Act) of
Voting Shares (as defined in this paragraph (c)) of the Corporation
entitled to exercise more than 60% of the total voting power of all
outstanding Voting Shares of the Corporation (including any Voting Shares
that are not then outstanding of which such person or Group is deemed the
beneficial owner); or
(ii) any consolidation of the Corporation with, or merger of the
Corporation into, any other person, any merger of another person into the
corporation, or any sale, lease or transfer of all or substantially all of
the assets of the Corporation to another person (other than a merger, (a)
which results in the holders of Common Stock of the Corporation immediately
prior to giving effect to such transaction owning shares of capital stock
of the surviving corporation in such transaction representing in excess of
40% of the total
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voting power of all shares of capital stock of such surviving corporation
entitled to vote generally in the election of directors and (b) in which
the shares of the surviving corporation held by such holders are, or
immediately upon issuance will be, listed on a national securities exchange
or quoted on the Nasdaq National Market and are not subject to any right of
repurchase by the issuer thereof or any third party and are not otherwise
subject to any encumbrance as a result of such transaction, provided, that
the surviving corporation amends its charter or certificate of
incorporation to include the $3.75 Convertible Exchangeable Preferred Stock
and its terms as set forth herein);
provided, however, that a Fundamental Change shall not occur if either (i) for
any five Trading Dates during the 10 Trading Dates immediately preceding
either the public announcement by the Corporation of such transaction or the
consummation of such transaction, the Closing Price of the Common Stock is at
least equal to 105% of the Conversion Price in effect on such trading days or
(ii) at least 90% of the consideration (excluding cash payments for fractional
shares) in such transaction or transactions to the holders of Common Stock
consists of shares of common stock that are, or immediately upon issuance will
be, listed on a national securities exchange or quoted on the Nasdaq National
Market, and as a result of such transaction or transactions, the $3.75
Convertible Exchangeable Preferred Stock becomes convertible into such common
stock.
(d) An election by a holder of $3.75 Convertible Exchangeable Preferred
Stock to have the Corporation redeem shares of $3.75 Convertible Exchangeable
Preferred Stock pursuant to subsection C8(a) shall become irrevocable at the
close of business on the relevant redemption date.
(e) The Corporation agrees that it will not complete any Fundamental Change
described in subsection C8(c) unless proper provision has been made to satisfy
its obligations under this Section C8.
For purposes of this Section C8, "Voting Shares" is defined to mean all
outstanding shares of any class or classes (however designated) of capital
stock entitled to vote generally in the election of members of the Board of
Directors.
9. Ranking. Any class or classes of stock of the Corporation shall be deemed
to rank:
(i) prior to the $3.75 Convertible Exchangeable Preferred Stock, as to
dividends or as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class shall be entitled to the receipt
of dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the holders of
$3.75 Convertible Exchangeable Preferred Stock.
(ii) on a parity with the $3.75 Convertible Exchangeable Preferred Stock,
as to dividends or as to distribution as assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend
payment dates or redemption or liquidation prices per share thereof be
different from those of the $3.75 Convertible Exchangeable Preferred Stock,
if the holders of such class of stock and the $3.75 Convertible
Exchangeable Preferred Stock shall be entitled to the receipt of dividends
or of amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in proportion to their respective amounts of accrued and
unpaid dividends per share or liquidation prices, without preference or
priority of one over the other; and
(iii) junior to the $3.75 Convertible Exchangeable Preferred Stock, as to
dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, if such stock shall be Common Stock or if the holder of
$3.75 Convertible Exchangeable Preferred Stock shall be entitled to receipt
of dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be, in preference or priority to the holders of
shares of such stock.
10. Voting. (a) Except as herein provided or as otherwise from time to time
required by law, holders of $3.75 Convertible Exchangeable Preferred Stock
shall have no voting rights. Whenever, at any times or times, dividends
payable on the shares of $3.75 Convertible Exchangeable Preferred Stock at the
time outstanding shall be cumulatively in arrears for such number of Dividend
Periods (whether or not consecutive) which shall in the
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aggregate contain not less than 540 days, the holders of $3.75 Convertible
Exchangeable Preferred Stock shall have the exclusive right, voting separately
as a class with holders of shares of any one or more other series of Preferred
Stock ranking on a parity with the $3.75 Convertible Exchangeable Preferred
Stock as to dividends or on the distribution of assets upon liquidation,
dissolution or winding up and upon which like voting rights have been
conferred and are exercisable (the $3.75 Convertible Exchangeable Preferred
Stock and any such other Preferred Stock, collectively for purposes of this
Section C10, the "Defaulted Preferred Stock"), to elect two directors of the
Corporation at the Corporation's next annual meeting of stockholders and at
each subsequent annual meeting of stockholders; provided, however, that if
such voting rights shall become vested more than 90 days or less than 20 days
before the date prescribed for the annual meeting of stockholders, thereupon
the holders of the shares of Defaulted Preferred Stock shall be entitled to
exercise their voting rights at a special meeting of the holders of shares of
Defaulted Preferred Stock as set forth in paragraphs (b) and (c) of this
Section C10. At elections for such directors, each holder of $3.75 Convertible
Exchangeable Preferred Stock shall be entitled to one vote for each share held
(the holders of shares of any other series of Defaulted Preferred Stock
ranking on such a parity being entitled to such number of votes, if any, for
each share of stock held as may be granted to them). Upon the vesting of such
right of the holders of Defaulted Preferred Stock, the maximum authorized
number of members of the Board of Directors shall automatically be increased
by two and the two vacancies so created shall be filled by vote of the holders
of outstanding Defaulted Preferred Stock as hereinafter set forth. The right
of holders of Defaulted Preferred Stock, voting separately as a class, to
elect members of the Board of Directors as aforesaid shall continue until such
time as all dividends accumulated on Defaulted Preferred Stock shall have been
paid or declared and funds set aside for payment in full, at which time such
right shall terminate, except as herein or by law expressly provided, subject
to revesting in the event of each and every subsequent default of the
character above mentioned.
(b) Whenever such voting right shall have vested, such right may be
exercised initially either at a special meeting of the holders of shares of
Defaulted Preferred Stock called as hereinafter provided, or at any annual
meeting of stockholders held for the purpose of electing directors, and
thereafter at such meeting or by the written consent of such holders pursuant
to Section 228 of the General Corporation Law of the State of Delaware.
(c) At any time when such voting right shall have vested in the holders of
shares of Defaulted Preferred Stock entitled to vote thereon, and if such
right shall not already have been initially exercised, an officer of the
Corporation shall, upon the written request of 10% of the holders of record of
shares of such Defaulted Preferred Stock than outstanding, addressed to the
Secretary of the Corporation, call a special meeting of holders of shares of
such Defaulted Preferred Stock. Such meeting shall be held at the earliest
practicable date upon the notice required for annual meetings of stockholders
at the place for holding annual meetings of stockholders of the Corporation
or, if none, at a place designated by the Treasurer of the Corporation. If
such meeting shall not be called by the proper officers of the Corporation
within 30 days after the personal service of such written request upon the
Treasurer of the Corporation, or within 30 days after mailing the same within
the United States, by registered mail, addressed to the Secretary of the
Corporation at its principal office (such mailing to be evidenced by the
registry receipt issued by the postal authorities), then the holders of record
of 10% of the shares of Defaulted Preferred Stock then outstanding may
designate in writing any person to call such meeting at the expense of the
Corporation, and such meeting may be called by such person so designated upon
the notice required for annual meetings of stockholders and shall be held at
the same place as is elsewhere provided in this paragraph. Any holder of
shares of Defaulted Preferred Stock than outstanding that would be entitled to
vote at such meeting shall have access to the stock books of the Corporation
for the purpose of causing a meeting of stockholders to be called pursuant to
the provisions of this paragraph. Notwithstanding the provisions of this
paragraph, however, no such special meeting shall be called or held during a
period within 45 days immediately preceding the date fixed for the next annual
meeting of stockholders.
(d) The directors elected pursuant to this Section shall serve until the
next annual meeting or until their respective successors shall be elected and
shall qualify; any director elected by the holders of Defaulted Preferred
Stock may be removed by, and shall not be removed otherwise than by, the vote
of the holders of a majority of the outstanding shares of the Defaulted
Preferred Stock who were entitled to participate in such election of
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directors, voting as a separate class, at a meeting called for such purpose or
by written consent as permitted by law, this Restated Certificate of
Incorporation and the By-laws of the Corporation. If the office of any
director elected by the holders of Defaulted Preferred Stock, voting as a
class, becomes vacant by reason of death, resignation, retirement,
disqualification or removal from office or otherwise, the remaining director
elected by the holders of Defaulted Preferred Stock, voting as a class, may
choose a successor who shall hold office for the unexpired term in respect of
which such vacancy occurred. Upon any termination of the right of the holders
of Defaulted Preferred Stock to vote for directors as herein provided, the
term of office of all directors then in office elected by the holders of
Defaulted Preferred Stock, voting as a class, shall terminate immediately.
Whenever the terms of office of the directors elected by the holders of
Defaulted Preferred Stock, voting as a class, shall so terminate and the
special voting powers vested in the holders of Defaulted Preferred Stock shall
have expired, the number of directors shall be such number as may be provided
for in the By-laws irrespective of any increase made pursuant to the
provisions of this Section C10.
(e) So long as any shares of the $3.75 Convertible Exchangeable Preferred
Stock remain outstanding, the consent of the holders of at least a majority of
the shares of $3.75 Convertible Exchangeable Preferred Stock outstanding at
the time given in person or by proxy either in writing (as permitted by law,
this Restated Certificate of Incorporation and the By-laws of the Corporation)
or at any special or annual meeting, shall be necessary to permit, effect or
validate any one or more of the following:
(i) the authorization, creation or issuance, or any increase in the
authorized or issued amount, of any class or series of stock ranking prior
to the $3.75 Convertible Exchangeable Preferred Stock as to dividends or
the distribution of assets upon liquidation, dissolution or winding up;
(ii) the amendment, alteration or repeal, whether by merger,
consolidation or otherwise, of any of the provisions of this Restated
Certificate of Incorporation of the Corporation which would adversely
affect any right, preference, privilege or voting power of the $3.75
Convertible Exchangeable Preferred Stock or of the holders thereof;
provided, however, that any increase in the amount of authorized Preferred
Stock or the creation and issuance of other series of Preferred Stock, or
any increase in the amount of authorized shares of such series or of any
other series of Preferred Stock, in each case ranking on a parity with or
junior to the $3.75 Convertible Exchangeable Preferred Stock with respect
to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up, shall not be deemed to adversely
affect such rights, preferences or voting powers; or
(iii) the authorization of any reclassification of the $3.75 Convertible
Exchangeable Preferred Stock.
11. Exchange. (a) The $3.75 Convertible Exchangeable Preferred Stock shall
be exchangeable in whole, but not in part, at the option of the Corporation on
any dividend payment date beginning March 1, 1994, for the Debentures. Holders
of outstanding shares of $3.75 Convertible Exchangeable Preferred Stock will
be entitled to receive $50.00 principal amount of Debentures in exchange for
each share of $3.75 Convertible Exchangeable Preferred Stock held by them at
the time of exchange; provided that the Debentures will be issuable in
denominations of $1,000 and integral multiples thereof. If the exchange
results in an amount of Debentures that is not an integral multiple of $1,000,
the amount in excess of the closest integral multiple of $1,000 will be paid
in cash by the Corporation.
(b) The Corporation will mail to each record holder of the $3.75 Convertible
Exchangeable Preferred Stock written notice of its intention to exchange the
$3.75 Convertible Exchangeable Preferred Stock for the Debentures no less than
30 nor more than 60 days prior to the date of the exchange (the "Exchange
Date"). The notice shall specify the effective date of the exchange and the
place where certificates for shares of $3.75 Convertible Exchangeable
Preferred Stock are to be surrendered for Debentures and shall state that
dividends on $3.75 Convertible Exchangeable Preferred Stock will cease to
accrue on the Exchange Date.
Prior to giving notice of intention to exchange, the Corporation shall have
executed and delivered to a bank or trust company selected by the Corporation
to act as Trustee with respect to the Debentures, which Trustee shall meet the
eligibility requirements of Section 310(a) of the Trust Indenture Act of 1939
as then in effect, and
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which Trustee shall have executed and delivered to the Corporation, an
Indenture substantially in the form attached to the Placement Agreement dated
February 19, 1993, between the Corporation and Alex. Brown & Sons
Incorporated, Montgomery Securities and PaineWebber Incorporated with such
changes as may be required by law, stock exchange rule, Nasdaq National Market
rule or customary usage (including, without limitation, such changes as are
requested by the Trustee with respect to its rights and obligations
thereunder, provided that any such changes do not adversely affect the rights
of holders of the Debentures thereunder).
(c) If the Corporation has caused the Debentures to be authenticated on or
prior to the Exchange Date and has complied with the other provisions of this
Section C11, then, notwithstanding that any certificate for shares of $3.75
Convertible Exchangeable Preferred Stock have not been surrendered for
exchange, on the Exchange Date dividends shall cease to accrue on the $3.75
Convertible Exchangeable Preferred Stock and at the close of business on the
Exchange Date the holders of the $3.75 Convertible Exchangeable Preferred
Stock shall cease to be stockholders with respect to the $3.75 Convertible
Exchangeable Preferred Stock and shall have no interest in or other claims
against the Corporation by virtue thereof and shall have no voting or other
rights with respect to the $3.75 Convertible Exchangeable Preferred Stock,
except the right to receive the Debentures issuable upon such exchange and the
right to accumulated and unpaid dividends, without interest thereon, upon
surrender (and endorsement, if required by the Corporation) of their
certificates, and the shares evidenced thereby shall no longer be deemed
outstanding for any purpose.
The Corporation will cause the Debentures to be authenticated on or before
the Exchange Date.
(d) Notwithstanding the foregoing, if notice or exchange has been given
pursuant to this Section C11 and any holder of shares of $3.75 Convertible
Exchangeable Preferred Stock shall, prior to the close of business on the
Exchange Date, give written notice to the Corporation pursuant to Section C7
of this Article of the conversion of any or all of the shares held by the
holder (accompanied by a certificate or certificates for such shares, duly
endorsed or assigned to the Corporation), then the exchange shall not become
effective as to the shares to be converted and the conversion shall become
effective as provided in such Section C7.
(e) The Debentures will be delivered to the persons entitled thereto upon
surrender to the Corporation or its agent appointed for that purpose of the
certificates for the shares of $3.75 Convertible Exchangeable Preferred Stock
being exchanged therefor.
(f) Notwithstanding the other provisions of this Section C11, if on the
Exchange Date the Corporation has not paid full cumulative dividends on the
$3.75 Convertible Exchangeable Preferred Stock (or set aside a sum therefor)
the Corporation may not exchange the $3.75 Convertible Exchangeable Preferred
Stock for the Debentures and any notice previously given pursuant to this
Section C11 shall be of no effect.
(g) Prior to the Exchange Date, the Corporation will comply with any
applicable securities and blue sky laws with respect to the exchange of the
$3.75 Convertible Exchangeable Preferred Stock for the Debentures.
12. Record Holders. The Corporation and the Transfer Agent may deem and
treat the record holder of any shares of $3.75 Convertible Exchangeable
Preferred Stock as the true and lawful owner thereof for all purposes, and
neither the Corporation nor the Transfer Agent shall be affected by any notice
to the contrary.
13. Notice. Except as may otherwise be provided for herein, all notices
referred to herein shall be in writing, and all notices hereunder shall be
deemed to have been given upon receipt, in the case of a notice of conversion
given to the Corporation as contemplated in Section C7(b) of this Article, or,
in all other cases, upon the earlier of receipt of such notice or three
Business Days after the mailing of such notice if sent by registered mail
(unless first-class mail shall be specifically permitted for such notice under
the terms of this Section C of this Article) with postage prepaid, addressed:
if to the Corporation, to its offices at 9360 Towne Centre Drive, San Diego,
California 92121 (Attention: Investor Relations Department) or to an agent of
the Corporation designated as permitted by this Certificate, or, if to any
holder of the $3.75 Convertible Exchangeable Preferred Stock, to such holder
at the address of such holder of the $3.75 Convertible Exchangeable Preferred
Stock as
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listed in the stock record books of the Corporation (which may include the
records of any transfer agent for the $3.75 Convertible Exchangeable Preferred
Stock); or to such other address as the Corporation or holder, as the case may
be, shall have designated by notice similarly given.
D. Common Stock.
1. Relative Rights of Preferred Stock and Common Stock. All preferences,
voting powers, relative, participating, optional or other special rights and
privileges, and qualifications, limitations or restrictions of the Common
Stock are expressly made subject and subordinate to those that may be fixed
with respect to any shares of the Preferred Stock.
2. Voting Rights. Except as otherwise required by law or this Restated
Certificate of Incorporation, each holder of Common Stock shall have one vote
in respect of each share of stock held by such holder of record on the books
of the Corporation for the election of directors and on all matters submitted
to a vote of stockholders of the Corporation.
3. Dividends. Subject to the preferential rights of the Preferred Stock, the
holders of shares of Common Stock shall be entitled to receive, when and if
declared by the Board of Directors, out of the assets of the Corporation which
are by law available therefor, dividends payable either in cash, in property
or in shares of capital stock.
4. Dissolution, Liquidation or Winding Up. In the event of any dissolution,
liquidation or winding up of the affairs of the Corporation, after
distribution in full of the preferential amounts, if any, to be distributed to
the holders of shares of the Preferred Stock, holders of Common Stock shall be
entitled, unless otherwise provided by law or this Restated Certificate of
Incorporation, to receive all of the remaining assets of the Corporation of
whatever kind available for distribution to stockholders ratably in proportion
to the number of shares of Common Stock held by them respectively.
ARTICLE V
No action required or permitted to be taken at any annual or special meeting
of the stockholders may be taken without a meeting and the power of
stockholders to consent in writing, without a meeting, to the taking of any
action is specifically denied. Special meetings of the stockholders of the
Corporation may be called only by the Chairman of the Board or the President
of the Corporation or by a resolution adopted by the affirmative vote of a
majority of the Board of Directors.
ARTICLE VI
Except as otherwise provided for in Article IV, the Board of Directors shall
be divided into three classes, designated Class I, Class II and Class III, as
nearly equal in number as possible, and the term of office of Directors of one
class shall expire at each annual meeting of stockholders, and in all cases as
to each Director until his successor shall be elected and shall qualify or
until his earlier resignation, removal from office, death or incapacity.
Except as otherwise provided for in Article IV, additional directorships
resulting from an increase in number of Directors shall be apportioned among
the classes as equally as possible. The initial term of office of Directors of
Class I shall expire at the annual meeting of stockholders in 1993; that of
Class II shall expire at the annual meeting in 1994; and that of Class III
shall expire at the annual meeting in 1995; and in all cases as to each
Director until his successor shall be elected and shall qualify or until his
earlier resignation, removal from office, death or incapacity. At each annual
meeting of stockholders the number of Directors equal to the number of
Directors of the class whose term expires at the time of such meeting (or, if
less, the number of Directors properly nominated and qualified for election)
shall be elected to hold office until the third succeeding annual meeting of
stockholders after their election. A Director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of shares
then entitled to vote at an election of Directors, unless otherwise specified
by law or this Restated Certificate of Incorporation.
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ARTICLE VII
Election of directors need not be by written ballot unless the By-laws so
provide.
ARTICLE VIII
Whenever a compromise or arrangement is proposed between the Corporation and
its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receivers appointed for the Corporation under the provisions of section
291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation
under the provisions of section 279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or the stockholders or
class of stockholders of the Corporation, as the case may be, to be summoned
in such manner as the said court directs. If a majority, in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization
of this Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE IX
A. No Personal Liability. A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (1) for any
breach of the director's duty of loyalty to the Corporation and its
stockholders; (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law; (3) under section 174 of
the Delaware General Corporation law; or (4) for any transaction from which
the director derived an improper personal benefit.
B. Indemnification. Each person who is or is made a party or is threatened
to be made a party to or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered
by such person in connection therewith and such indemnification shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall incur to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in the second paragraph hereof,
the Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of Directors
of the Corporation. The right to indemnification conferred in this section
shall be a contract right and shall include the right to be paid by the
Corporation any expenses incurred in defending any such proceeding in advance
of its final disposition; provided, however, that, if the Delaware General
Corporation Law requires, the payment of such expenses incurred by a
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director or officer in his or her capacity as a director or officer (and not
in any other capacity in which service was or is rendered by such person while
a director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf
of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this section or otherwise. The Corporation may, by action of
its Board of Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification of
directors and officers.
If a claim under the first paragraph of this section is not paid in full by
the Corporation within thirty (30) days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation
to indemnify the claimant for the amount claimed, but the burden of proving
such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Restated Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law.
ARTICLE X
The Board of Directors is expressly empowered to adopt, amend or repeal By-
Laws of the Corporation, provided, however, that any adoption, amendment or
repeal of By-Laws of the Corporation by the Board of Directors shall require
the approval of at least sixty-six and two-thirds percent (66 2/3%) of the
total number of authorized directors (whether or not there exist any vacancies
in previously authorized directorships at the time any resolution providing
for adoption, amendment or repeal is presented to the Board). The stockholders
shall also have power to adopt, amend or repeal By-Laws of the Corporation,
provided, however, that in addition to any vote of the holders of any class or
series of stock of this Corporation required by law or by this Restated
Certificate of Incorporation the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all of the
then outstanding shares of the stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class,
shall be required for such adoption, amendment or repeal by the stockholders
of any provisions of the By-Laws of the Corporation.
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ARTICLE XI
Notwithstanding any other provision of this Restated Certificate of
Incorporation, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the voting power of all of the then
outstanding shares of the stock of the Corporation entitled to vote generally
in the election of Directors, voting together as a single class, shall be
required to amend in any respect or repeal this Article XI, or Articles V, VI,
IX and X.
IN WITNESS WHEREOF, said Gensia, Inc. has caused its corporate seal to be
hereunto affixed and this certificate to be signed by its President and Chief
Executive Officer, David F. Hale, and its Secretary, Wesley N. Fach, this day
of , 1997.
By __________________________________
David F. Hale, President and Chief
Executive Officer
Attest:
By __________________________________
Wesley N. Fach
Secretary
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ANNEX D
GENSIA, INC.
1997 LONG-TERM INCENTIVE PLAN
1. Introduction and Purpose of the Plan. The Plan was adopted by the Board
on November 12, 1996, subject to approval by the Company's stockholders. The
Plan is effective as of the date approved by the shareholders. The Plan
replaces the Amended and Restated 1990 Stock Plan of Gensia, Inc. (the "1990
Stock Plan").
The purpose of the Plan is to promote the interests of Gensia, Inc., and its
shareholders by encouraging officers and Key Employees to acquire stock or
increase their proprietary interest in the Company. By thus providing the
opportunity to acquire Company stock and receive incentive payments, the
Company seeks to attract and retain such Key Employees upon whose judgment,
initiative, and leadership the success of the Company largely depends.
The Plan shall be governed by, and construed in accordance with, the laws of
the State of California.
2. Definitions. Whenever the following terms are used in this Plan, they
will have the meanings specified below unless the context clearly indicates
the contrary.
(a) "Board of Directors" or "Board" means the Board of Directors of the
Company, as constituted from time to time.
(b) "Change-in-Control" occurs in the following instances (1) a tender or
exchange for all or part of Company Common Stock (except an offer by the
Company itself); (2) Company shareholder approval of a merger in which the
Company does not survive as an independent and publicly owned corporation
(except a merger which leaves Company shareholders with substantially the same
ownership in the new corporation); (3) Company shareholder approval of a
consolidation or sale, exchange or other disposition of all, or substantially
all, of the Company's assets; (4) change in the composition of the Board over
a two consecutive year period so that individuals who were not directors at
the beginning of that period no longer constitute a majority of the Board
(unless the election or nomination of each new director was approved by at
least two-thirds of the directors who had been directors at the beginning of
the period and who were still in office at the time of the election or
nomination); or (5) the acquisition of sufficient Common Shares such that a
person who previously did not own at least 30% of Company Common Shares,
thereafter owns at least 30% (except an acquisition by the Company itself, by
a subsidiary of the Company or a benefit plan maintained by the Company).
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the committee appointed to administer the Plan
pursuant to Section 4.
(e) "Company" means Gensia, Inc., a Delaware corporation.
(f) "Common Shares" or "Common Stock" means the common shares of Gensia,
Inc., and any class of common shares into which such common shares may
hereafter be converted.
(g) "Dividend Equivalent" means the additional amount of Common Stock issued
in connection with an Option, as described in Section 14.
(h) "Eligible Person" means a Key Employee eligible to receive an Incentive
Award.
(i) "Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
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(j) "Fair Market Value" means the market price of Common Shares, determined
by the Committee as follows:
(i) If the Common Shares were traded over-the-counter on the date in
question but were not traded on the Nasdaq system or the Nasdaq National
Market System, then the Fair Market Value shall be equal to the mean
between the last reported representative bid and asked prices quoted for
such date by the principal automated inter-dealer quotation system on which
the Common Shares are quoted or, if the Common Shares are not quoted on any
such system, by the "Pink Sheets" published by the National Quotation
Bureau, Inc.;
(ii) If the Common Shares were traded over-the-counter on the date in
question and were traded on the Nasdaq system or the Nasdaq National Market
System, then the Fair Market Value shall be equal to the last-transaction
price quoted for such date by the Nasdaq system or the Nasdaq National
Market System;
(iii) If the Common Shares were traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; and
(iv) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.
In all cases, the determination of Fair Market Value by the Committee shall
be conclusive and binding on all persons.
(k) "Holder" means a person, estate, trust or entity holding an Incentive
Award.
(l) "Incentive Award" means any Nonqualified Stock Option, Incentive Stock
Option, Common Stock, Restricted Stock, Stock Appreciation Right, Dividend
Equivalent, Stock Payment or Performance Award granted under the Plan.
(m) "Incentive Stock Option" means an Option as defined under Section 422 of
the Code, including an Incentive Stock Option granted pursuant to Section 8 of
the Plan.
(n) "Key Employee" shall mean (i) any individual who is a common-law
employee of the Company or of a Subsidiary, (ii) a member of the Board of
Directors, including (without limitation) an Outside Director, or an affiliate
of a member of the Board of Directors, (iii) a member of the board of
directors of a Subsidiary and (iv) an independent contractor who performs
services for the Company or a Subsidiary. Service as a member of the Board of
Directors, a member of the board of directors of a Subsidiary or as an
independent contractor shall be considered employment for all purposes of the
Plan, except as provided in Sections 5(b) and 6.
(o) "Nonqualified Stock Option" means an Option other than an Incentive
Stock Option granted pursuant to Section 8 of the Plan.
(p) "Option" means either a Nonqualified Stock Option or Incentive Stock
Option.
(q) "Outside Director" shall mean a member of the Board of Directors who is
not a common-law employee of the Company or a Subsidiary.
(r) "Performance Award" means an award whose value may be linked to stock
value, book value, or other specific performance criteria which may be set by
the Board of Directors, but which is paid in cash, stock, or a combination of
both.
(s) "Plan" means the 1997 Long-Term Incentive Plan, which may be amended
from time to time.
(t) "Restricted Stock" means Company stock sold or granted to an Eligible
Person, which is nontransferable and subject to substantial risk of forfeiture
until restrictions lapse.
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(u) "Stock Appreciation Right" or "Right" means a right granted pursuant to
Section 11 of the Plan to receive a number of shares of Common Stock or, in
the discretion of the Committee, an amount of cash or a combination of shares
and cash, based on the increase in the Fair Market Value or book value of the
shares subject to the right.
(v) "Stock Payment" means a payment in shares of the Common Stock to replace
all or any portion of the compensation (other than base salary) that would
otherwise become payable to an employee in cash.
(w) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
(x) "Total and Permanent Disability" means that the Holder is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted, or can be expected to last, for a continuous period
of not less than one year.
3. Shares of Common Stock Subject to the Plan.
(a) Subject to the provisions of Sections 3(c) and 15 of the Plan, the
aggregate number of shares of Common Stock that may be issued or transferred
pursuant to Incentive Awards or covered by Stock Appreciation Rights unrelated
to Options under the Plan shall not exceed 2,000,000, and the number of shares
that may be issued or transferred during any 12-month period to any Eligible
Person pursuant to an Incentive Award or a Stock Appreciation Right unrelated
to an Option shall not exceed 250,000 (or 350,000 in the event of an Option
repricing during that 12-month period). Additionally, the number of shares of
Common Stock available under the Company's 1990 Stock Plan (whether by
forfeiture, termination or nongrant) shall also become available under this
Plan.
(b) The shares to be delivered under the Plan will be made available, at the
discretion of the Board of Directors or the Committee, either from authorized
but unissued shares of Common Stock or from previously issued shares of Common
Stock reacquired by the Company, including shares purchased on the open
market.
(c) If Incentive Awards are forfeited or if Incentive Awards terminate for
any other reason before being exercised, then such Incentive Awards shall
again become available for award under the Plan. If Stock Appreciation Rights
are exercised, then only the number of Common Shares (if any) actually issued
in settlement of such Stock Appreciation Rights shall reduce the number of
Common Shares available under Section 3(a) and the balance shall again become
available for award under the Plan. If Restricted Stock is forfeited, then
such Restricted Stock shall again become available for award under the Plan.
4. Administration of the Plan.
(a) The Plan shall be administered by the Committee. The Committee shall
consist exclusively of directors of the Company, who shall be appointed by the
Board. In addition, the composition of the Committee shall satisfy:
(1) Such requirements, if any, as the Securities and Exchange Commission
may establish for administrators acting under plans intended to qualify for
exemption under Rule 16b-3 (or its successor) under the Exchange Act; and
(2) Such requirements as the Internal Revenue Service may establish for
outside directors acting under plans intended to qualify for exemption
under Section 162(m) of the Code.
The Board shall act on its own behalf with respect to the grant or amendment
of Incentive Awards to Outside Directors and may also appoint separate
committees of the Board, each composed of one or more officers
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of the Company who need not be directors of the Company, to administer the
Plan with respect to Key Employees who are not "covered employees" under
Section 162(m) of the Code and who are not required to report pursuant to
Section 16(a) of the Exchange Act.
(b) The Committee has and may exercise such powers and authority as may be
necessary or appropriate for the Committee to carry out its functions as
described in the Plan. The Committee has authority in its discretion to
determine the Eligible Persons to whom, and the time or times at which,
Incentive Awards may be granted and the number of shares or Rights subject to
each award. Subject to the express provisions of the Plan, the Committee also
has authority to interpret the Plan, and to determine the terms and provisions
of the respective Incentive Award agreements (which need not be identical) and
to make all other determinations necessary or advisable for Plan
administration. The Committee has authority to prescribe, amend, and rescind
rules and regulations relating to the Plan. All interpretations,
determinations, and actions by the Committee will be final, conclusive, and
binding upon all parties.
(c) No member of the Board of Directors or the Committee will be liable for
any action or determination made in good faith by the Committee with respect
to the Plan or any Incentive and Performance Award under it.
5. Eligibility and Date of Grant.
The date of grant of an Incentive Award will be the date the Committee takes
the necessary action to approve the grant; provided, however, that if the
minutes or appropriate resolutions of the Committee provide that an Incentive
Award is to be granted as of a date in the future, the date of grant will be
such future date.
6. Outside Director Participation. Outside Directors shall receive Option
grants under the Plan as described below:
(a) Upon the conclusion of each regular annual meeting of the Company's
shareholders, each incumbent Outside Director who will continue serving as
a member of the Board thereafter may receive a grant of a Nonstatutory
Option for such number of Common Shares (subject to adjustment under
Section 15 and prorated for partial year service) as the Board shall
determine in its sole discretion.
(b) New Outside Directors shall receive a one-time grant of a
Nonstatutory Option for a number of Common Shares as determined in the sole
discretion of the Board; provided, however, that such grant shall not be
made in any calendar year in which the same individual receives an Option
under (a) above. Such Option, if any, shall be granted on the date when
such Outside Director first joins the Board of Directors of the Company or
the board of directors of a Subsidiary.
(c) Total grants under this Section 6 (less forfeitures) shall not exceed
15% of the maximum number of Common Shares available for grant under
Section 3(a) of the Plan (subject to adjustment under Section 15).
7. Nonqualified Stock Options.
The Committee may approve the grant of Nonqualified Stock Options to
Eligible Persons, subject to the following terms and conditions:
(a) The purchase price of Common Stock under each Nonqualified Stock
Option may not be less than eighty-five percent (85%) of the Fair Market
Value of the Common Stock on the date the Nonqualified Stock Option is
granted.
(b) No Nonqualified Stock Option may be exercised after ten (10) years
from the date of grant.
(c) No fractional shares will be issued pursuant to the exercise of a
Nonqualified Stock Option nor will any cash payment be made in lieu of
fractional shares.
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8. Incentive Stock Options. The Committee may approve the grant of Incentive
Stock Options to Eligible Persons, subject to the following terms and
conditions:
(a) The purchase price of each share of Common Stock under an Incentive
Stock Option will be at least equal to the Fair Market Value of a share of
the Common Stock on the date of grant; provided, however, that if an
employee, at the time an Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company (as defined in Section 424 of the
Code), then the Exercise Price of each share of Common Stock subject to
such Incentive Stock Option shall be at least one hundred and ten percent
(110%) of the Fair Market Value of such share of Common Stock, as
determined in the manner stated above.
(b) No Incentive Stock Option may be exercised after ten (10) years from
the date of grant; provided, however, that if any employee, at the time an
Incentive Stock Option is granted to him, owns stock representing more than
ten percent (10%) of the total combined voting power of all classes of
stock of the Company (as defined in Section 424 of the Code), the Incentive
Stock Option granted shall not be exercisable after the expiration of five
(5) years from the date of grant.
(c) No fractional shares will be issued pursuant to the exercise of an
Incentive Stock Option nor will any cash payment be made in lieu of
fractional shares.
9. Option Rules. The purchase price under each Option may be paid in cash,
cash equivalents or notes acceptable to the Committee, by arrangement with a
broker which is acceptable to the Committee where payment of the Option price
is made pursuant to an irrevocable direction to the broker to deliver all or
part of the proceeds from the sale of the Option shares to the Company, by the
surrender of shares of Common Stock owned by the Holder exercising the Option
and having a Fair Market Value on the date of exercise equal to the purchase
price or in any combination of the foregoing. Each Option granted to an
Eligible Person shall be exercisable in such manner and at such times as the
Committee shall determine. The Committee may modify, accelerate the
exercisability of, extend or assume outstanding Options or may accept the
cancellation of outstanding Options (whether granted by the Company or by
another issuer) in return for the grant of new Options for the same or a
different number of shares and at the same or a different purchase price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Holder, alter or impair his or her rights or obligations under
such Option.
10. Restricted Stock. The Committee may approve the grant of Restricted
Stock related or unrelated to Nonqualified Stock Options or Stock Appreciation
Rights to Eligible Persons, subject to the following terms and conditions:
(a) The Committee in its discretion will determine the purchase price.
(b) All shares of Restricted Stock sold or granted pursuant to the Plan
(including any shares of Restricted Stock received by the Holder as a
result of stock dividends, stock splits, or any other forms of
capitalization) will be subject to the following restrictions:
(i) The shares may not be sold, transferred, or otherwise alienated
or hypothecated until the restrictions are removed or expire.
(ii) The Committee may require the Holder to enter into an escrow
agreement providing that the certificates representing Restricted Stock
sold or granted pursuant to the Plan will remain in the physical
custody of an escrow holder until all restrictions are removed or
expire.
(iii) Each certificate representing Restricted Stock sold or granted
pursuant to the Plan will bear a legend making appropriate reference to
the restrictions imposed on the Restricted Stock.
(iv) The Committee may impose restrictions on any shares sold
pursuant to the Plan as it may deem advisable, including, without
limitation, restrictions designed to facilitate exemption from or
compliance with the Securities Exchange Act of 1934, as amended, with
requirements of any stock exchange upon which such shares or shares of
the same class are then listed and with any blue sky or other
securities laws applicable to such shares.
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(c) The restrictions imposed under subparagraph (b) above upon Restricted
Stock will lapse in accordance with a schedule or other conditions as
determined by the Committee, subject to the provisions of Section 17,
subparagraph (d).
(d) Subject to the provisions of subparagraph (b) above and Section 17,
subparagraph (d), the Holder will have all rights of a shareholder with
respect to the Restricted Stock granted or sold, including the right to
vote the shares and receive all dividends and other distributions paid or
made with respect thereto.
(e) Notwithstanding the provisions of subparagraph (b) above and Section
17, subparagraph (d), Restricted Stock granted or sold may be held by the
trustee of a revocable inter vivos trust (or other trust if such transfer
associated therewith does not cause income to be recognized pursuant to
Code (S) 83 and if the trust takes subject to the forfeiture provisions of
the Restricted Stock), approved by the Company, established in whole or in
part by the Holder and/or the Holder's spouse. So long as the Holder is
still an employee, transfer to such trust shall not violate the provisions
of subparagraph (b) above and ownership by such trust shall not invoke any
right or obligation of the Company under Section 17, subparagraph (d).
11. Stock Appreciation Rights. The Committee may approve the grant of Rights
related or unrelated to Options to Eligible Persons, subject to the following
terms and conditions:
(a) A Stock Appreciation Right may be granted
(i) at any time if unrelated to an Option;
(ii) either at the time of grant, or at any time thereafter during
the Option term if related to a Nonqualified Stock Option; or
(iii) only at the time of grant if related to an Incentive Stock
Option.
(b) A Stock Appreciation Right granted in connection with an Option will
entitle the Holder of the related Option, upon exercise of the Stock
Appreciation Right, to surrender such Option, or any portion thereof to the
extent unexercised, with respect to the number of shares as to which such
Stock Appreciation Right is exercised, and to receive payment of an amount
computed pursuant to Section 11(d). Such Option will, to the extent
surrendered, then cease to be exercisable.
(c) Subject to Section 11(g), a Stock Appreciation Right granted in
connection with an Option hereunder will be exercisable at such time or
times as the Committee in its discretion may determine, and only to the
extent that a related Option is exercisable, and will not be transferable
except to the extent that such related Option is exercisable.
(d) Upon the exercise of a Stock Appreciation Right related to an Option,
the Holder will be entitled to receive payment of an amount determined by
multiplying:
(i) The difference obtained by subtracting the purchase price of a
share of Common Stock specified in the related Option from the Fair
Market Value of a share of Common Stock on the date of exercise of such
Stock Appreciation Right, by
(ii) The number of shares as to which such Stock Appreciation Right
has been exercised.
(e) The Committee may grant Stock Appreciation Rights unrelated to
Options to Eligible Persons which will be exercisable at such times as the
Committee shall determine. Section 11(d) shall be used to determine the
amount payable at exercise under such Stock Appreciation Right if Fair
Market Value is used, except that Fair Market Value shall not be used if
the Committee specifies in the grant of the Right that book value or other
measure as deemed appropriate by the Committee is to be used, and the
initial share value specified in the award shall be used in lieu of "price
of a share of Common Stock specified in the related Option," as provided in
Section 11(d).
(f) Payment of the amount determined under Section 11(d) or (e) may be
made solely in whole shares of Common Stock in a number determined at their
Fair Market Value on the date of exercise of the Stock Appreciation Right
or alternatively, at the sole discretion of the Committee, solely in cash
or in a combination of cash and shares as the Committee deems advisable. If
the Committee decides to make full
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payment in shares of Common Stock, and the amount payable results in a
fractional share, payment for the fractional share will be made in cash.
(g) The Committee shall, at the time a Stock Appreciation Right is
granted, impose such conditions on the exercise of the Stock Appreciation
Right as may be required to satisfy the requirements of Rule 16b-3 under
the Securities Exchange Act of 1934 (or any other comparable provisions in
effect at the time or times in question). In addition, a Stock Appreciation
Right granted under the Plan may provide that it will be exercisable only
in the event of a Change-in-Control.
12. Performance Awards. The Committee may approve Performance Awards to
Eligible Persons. Such awards may be based on Common Stock performance over a
period determined in advance by the Committee or any other measures as
determined appropriate by the Committee. Payment will be in cash unless
replaced by a Stock Payment in full or in part as determined by the Committee.
13. Stock Payment. The Committee may approve Stock Payments of Common Stock
to Eligible Persons for all or any portion of the compensation (other than
base salary) that would otherwise become payable to an employee in cash.
14. Dividend Equivalents. A Holder may also be granted at no additional cost
"Dividend Equivalents" based on the dividends declared on the Common Stock on
record dates during the period between the date an Option is granted and the
date such Option is exercised, or such other equivalent period, as determined
by the Committee. Such Dividend Equivalents shall be converted to additional
shares or cash by such formula as may be determined by the Committee.
Dividend Equivalents shall be computed, as of each dividend record date,
both with respect to the number of shares under the Option and with respect to
the number of Dividend Equivalent shares previously earned by the Holder (or
his successor in interest) and not issued during the period prior to the
dividend record date.
15. Adjustment Provisions.
(a) Subject to Section 15(b), if the outstanding shares of Common Stock are
increased, decreased, or exchanged for a different number or kind of shares or
other securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of Common Stock or
other securities, through merger, consolidation, sale of all or substantially
all of the property of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
distribution with respect to such shares of Common Stock, or other securities,
an appropriate and proportionate adjustment shall be made in (i) the maximum
number and kind of shares provided in Section 3 of the Plan, (ii) the number
and kind of shares or other securities subject to the then outstanding
Incentive Awards, and (iii) the price for each share or other unit of any
other securities subject to then outstanding Incentive Awards without change
in the aggregate purchase price or value as to which Incentive Awards remain
exercisable or subject to restrictions.
(b) In addition, upon a Change-in-Control, all Options, Stock Appreciation
Rights, and Performance Awards then outstanding under the Plan will be fully
vested and exercisable and all restrictions on Restricted Stock will
immediately cease. The Committee or any agreement of merger or reorganization
may offer the Holder the right to exchange such vested Incentive Awards for
fully vested and equivalent value awards under a successor plan.
16. General Provisions.
(a) With respect to any shares of Common Stock issued or transferred under
any provision of the Plan, such shares may be issued or transferred subject to
such conditions, in addition to those specifically provided in the Plan, as
the Committee may direct.
D-7
<PAGE>
(b) Nothing in the Plan or in any instrument executed pursuant to the Plan
will confer upon any Holder any right to continue in the employ of the Company
or any of its Subsidiaries or affect the right of the Company to terminate the
employment of any Holder at any time and for any reason.
(c) No shares of Common Stock will be issued or transferred pursuant to an
Incentive Award unless and until all then applicable requirements imposed by
federal and state securities and other laws, rules, and regulations and by any
regulatory agencies having jurisdiction, and by any stock exchanges upon which
the Common Stock may be listed, have been fully met. As a condition precedent
to the issue of shares pursuant to the grant or exercise of an Incentive
Award, the Company may require the Holder to take any reasonable action to
meet such requirements.
(d) No Holder (individually or as a member of a group) and no beneficiary or
other person claiming under or through such Holder will have any right, title,
or interest in or to any shares of Common Stock allocated or reserved under
the Plan or subject to any Incentive Award except as to such shares of Common
Stock, if any, that have been issued or transferred to such Holder.
(e) The Company may make such provisions as it deems appropriate to withhold
any taxes which it determines it is required to withhold in connection with
any Incentive or Performance Award.
(f) No Incentive Award and no right under the Plan, contingent or otherwise,
will be assignable or subject to any encumbrance, pledge (other than a pledge
to secure a loan from the Company), or charge of any nature except that, under
such rules and regulations as the Company may establish pursuant to the terms
of the Plan, a beneficiary may be designated with respect to an Incentive
Award in the event of death of a Holder of such Incentive Award. If such
beneficiary is the executor or administrator of the estate of the Holder of
such Incentive Award, any rights with respect to such Incentive Award may be
transferred to the person or persons or entity (including a trust) entitled
thereto under the will of the Holder of such Incentive Award, or, in the case
of intestacy, under the laws relating to intestacy. Except as determined by
the Committee, no Incentive Award shall be transferable by any Eligible Person
other than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order. In considering transferability of an
Incentive Award, the Committee may also consider the registration limitation
of SEC Form S-8 and on that basis may in its discretion determine whether to
prohibit transferability, permit alternative registration of the Incentive
Award, treat the Incentive Award as SEC Rule 144 "restricted stock," or take
such other measures as the Committee deems appropriate.
(g) The Committee may permit a Holder to satisfy all or part of his or her
withholding or income tax obligations by having the Company withhold all or a
portion of any Common Stock that otherwise would be issued to him or her or by
surrendering all or a portion of any Common Stock that he or she previously
acquired. Such Common Stock shall be valued at its Fair Market Value on the
date when taxes otherwise would be withheld in cash. Any payment of taxes by
assigning Common Stock to the Company may be subject to restrictions,
including any restrictions required by rules of the Securities and Exchange
Commission.
(h) All Incentive Awards shall become 100% vested in the event of death or
total and permanent disability.
17. Amendment and Termination.
(a) The Board of Directors may, in its discretion, amend, suspend, or
terminate the Plan at any time. An amendment of the Plan shall be subject to
the approval of the Company's shareholders to the extent it affects the
application of the accelerated vesting provisions herein, Section 15, or to
the extent required by applicable laws, regulations and or rules.
(b) The Committee may, with the consent of a Holder, make such modifications
in the terms and conditions of the Incentive Award as it deems advisable or
cancel the Incentive Award (with or without consideration) with the consent of
the Holder.
D-8
<PAGE>
(c) No amendment, suspension, or termination of the Plan will, without the
consent of the Holder, alter, terminate, impair, or adversely affect any right
or obligation under any Incentive Award previously granted under the Plan.
(d) In the event a Holder of Restricted Stock ceases to be an employee, all
such Holder's Restricted Stock which remains subject to substantial risk of
forfeiture at the time his or her employment terminates will be repurchased by
the Company at the original price at which such Restricted Stock had been
purchased unless the Committee determines otherwise.
(e) In the event a Holder of a Performance Award ceases to be an employee,
all such Holder's Performance Awards will terminate except in the case of
retirement, death, or Total and Permanent Disability. The Committee, in its
discretion, may authorize full or partial payment of Performance Awards in all
cases involving retirement, death, or permanent and total disability.
(f) The Committee may in its sole discretion determine, with respect to an
Incentive Award, that any Holder who is on unpaid leave of absence for any
reason will be considered as still in the employ of the Company, provided that
rights to such Incentive Award during an unpaid leave of absence will be
limited to the extent to which such right was earned or vested at the
commencement of such leave of absence.
18. Effective Date of Plan and Duration of Plan. This Plan will become
effective upon approval by the shareholders of the Company within twelve (12)
months following the date of its adoption by the Board of Directors. Unless
previously terminated by the Board of Directors, the Plan will terminate ten
(10) years after its approval by the shareholders of the Company.
D-9
<PAGE>
GENSIA, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR
THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY 26, 1997
The undersigned hereby appoints David F. Hale and Daniel D. Burgess, and
each of them with full power to act alone, the true and lawful attorneys in fact
and proxies of the undersigned to vote all shares of Common Stock of Gensia,
Inc., a Delaware corporation ("Gensia"), held by the undersigned, with full
power of substitution, with the same force and effect as the undersigned would
be entitled to vote if personally present, at the Special Meeting of
Stockholders of Gensia to be held at the offices of Gensia, 9360 Towne Centre
Drive, San Diego, California, on February 26, 1997, at 1:00 p.m. (local time),
and at any and all adjournments or postponements thereof, as follows:
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
<PAGE>
Please mark
your vote
as this [X]
1. Approval and adoption of the Stock Exchange Agreement, dated as of November
12, 1996 (the "Stock Exchange Agreement"), as amended on December 16, 1996,
between Gensia and Rakepoll Finance N.V., and the transactions contemplated
thereby, including the Stock Exchange and the Shareholder's Agreement (as
defined in the Proxy Statement).
FOR [_] AGAINST [_] ABSTAIN [_]
_____________________________
2. Approval and adoption of the proposal to amend and restate the Gensia
Restated Certificate of Incorporation to (a) change the name of Gensia to
"Gensia Sicor Inc.," (b) increase the number of authorized shares of Gensia
Common Stock from 75,000,000 to 125,000,000 and (c) increase the number of
authorized shares of Gensia Preferred Stock designated as Series I
Participating Preferred Stock, $.01 par value, from 100,000 to 125,000.
FOR [_] AGAINST [_] ABSTAIN [_]
3. Approval and adoption of the proposal to adopt a new stock plan, the Gensia
1997 Long-Term Incentive Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
THE BOARD OF DIRECTORS OF GENSIA UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
GENSIA COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE STOCK EXCHANGE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE STOCK
EXCHANGE AND THE SHAREHOLDER'S AGREEMENT. THE BOARD OF DIRECTORS OF GENSIA ALSO
UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF GENSIA COMMON STOCK VOTE FOR APPROVAL
OF THE PROPOSALS TO AMEND AND RESTATE GENSIA'S RESTATED CERTIFICATE OF
INCORPORATION TO ADOPT THE GENSIA 1997 LONG-TERM INCENTIVE PLAN.
OTHER MATTERS: Discretionary authority is hereby granted with respect to such
other business as may properly come before the meeting or any adjournment or
postponement thereof.
This proxy, when properly executed, will be voted in the manner directed herein.
If this proxy is submitted, but no directions are made, this proxy will be
voted "FOR" the approval and adoption of the proposals described in Items 1, 2
and 3 above.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and the Proxy Statement, each dated January 15, 1997, furnished
herewith.
Signature(s) _________________________________________________ Date ___________
IMPORTANT: Please sign your name exactly as it appears hereon. When signing as
attorney, agent, executor, administrator, trustee, guardian or corporate
officer, please give your full title as such. Each joint owner should sign the
proxy. If executed by a partnership, this proxy should be signed by an
authorized partner.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
. FOLD AND DETACH HERE .
