<PAGE>
DRAFT 3/11/99
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
VIMRX Pharmaceuticals Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
<PAGE>
(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) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(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:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
2
<PAGE>
DRAFT 3/11/99
[VIMRX Letterhead]
April __, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
VIMRX Pharmaceuticals Inc., which will be held at The Equitable Companies, Inc.,
787 Seventh Avenue, 49th Floor, New York, New York on May 25, 1999. The Annual
Meeting will begin promptly at 9:30 a.m., Eastern Daylight Time.
The accompanying Proxy Statement, which you are urged to read carefully,
provides important information regarding matters that will be considered and
voted upon at the Annual Meeting. In addition to electing directors of the
Company and ratifying the appointment of the independent auditors, stockholders
will be asked to consider and vote upon:
(1) approving the Company's acquisition of the minority interest of Baxter
Healthcare Corporation in Nexell Therapeutics Inc., other than Baxter's
right to certain milestone payments, thereby making Nexell a wholly-owned
subsidiary of VIMRX.
(2) approving amendments to the Company's Certificate of Incorporation to
. change the Company's name to "Nexell Therapeutics Inc.";
. change the terms of the Company's Series A Cumulative
Convertible Preferred Stock, all of which is held by Baxter, by
altering the conversion terms and modifying other terms in order
to comply with the closing conditions of the Company's
acquisition of Baxter's interest in Nexell; and
. increase the authorized capital stock from 120,150,000 shares to
161,150,000 shares, of which 1,000,000 shares will be a newly
authorized class of "blank check" preferred stock.
(3) approving an increase in the number of shares of Common Stock issuable
under the Company's 1997 Incentive and Non-Incentive Stock Option Plan from
2,000,000 shares to 3,000,000 shares.
You are requested to complete, date and sign the enclosed proxy card and
promptly return it in the enclosed envelope, whether or not you plan to attend
the Annual Meeting. If you do attend the Annual Meeting, you may vote in person
even if you have submitted a proxy card. Due to space limitations, attendance
at the Annual Meeting will be limited to stockholders of record, their proxies,
beneficial owners of Common Stock who have presented to the Company satisfactory
evidence of such ownership, and brokers.
On behalf of the Board of Directors, I look forward to seeing you on May
25th.
Sincerely,
Donald G. Drapkin, Chairman
<PAGE>
VIMRX PHARMACEUTICALS INC.
2751 Centerville Road
Suite 210, Little Falls II
Wilmington, Delaware 19908
(302) 998-1734
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 25, 1999
To the Stockholders of
VIMRX Pharmaceuticals Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of VIMRX
Pharmaceuticals Inc. will be held at The Equitable Companies, Inc., 787 Seventh
Avenue, 49th Floor, New York, New York on Tuesday, May 25, 1999 at 9:30 a.m.,
Eastern Daylight Time, to consider and act upon the following proposals:
1. To elect a Board of four directors.
2. To approve the Company's acquisition of the minority interest of Baxter
Healthcare Corporation in Nexell Therapeutics Inc., other than Baxter's
right to certain milestone payments, thereby making Nexell a wholly-
owned subsidiary of VIMRX.
3. To approve amendments to the Company's Certificate of Incorporation to
. change the Company's name to "Nexell Therapeutics Inc.";
. change the terms of the Company's Series A Cumulative
Convertible Preferred Stock, all of which is held by Baxter, by
altering the conversion terms and modifying other terms in order
to comply with the closing conditions of the Company's
acquisition of Baxter's interest in Nexell; and
. increase the authorized capital stock from 120,150,000 shares to
161,150,000 shares, of which 1,000,000 shares will be a newly
authorized class of "blank check" preferred stock.
4. To increase the number of shares of Common Stock issuable under the
Company's 1997 Incentive and Non-Incentive Stock Option Plan from
2,000,000 shares to 3,000,000 shares.
5. To ratify the appointment of KPMG LLP as independent auditors of the
Company for the year ending December 31, 1999.
6. To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
A Proxy Statement describing the matters to be considered at the Annual
Meeting is attached to this notice. Only stockholders of record at the close of
business on [APRIL 2, 1999], the Record Date for the Annual Meeting, are
entitled to notice of and to vote at the Annual Meeting.
<PAGE>
The Company's Annual Report to Stockholders for the year ended December 31,
1998 containing audited financial statements, which is not a part of this Proxy
Statement, is enclosed.
Due to space limitations, attendance at the Annual Meeting will be limited
to stockholders of record, their proxies, beneficial owners who have presented
evidence of such ownership satisfactory to the Company, and brokers.
By Order of the Board of Directors,
Lowell S. Lifschultz,
Secretary
Wilmington, Delaware
April __, 1999
STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE ANNUAL MEETING ARE REQUESTED
TO DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-
PREPAID ENVELOPE.
2
<PAGE>
VIMRX PHARMACEUTICALS INC.
2751 Centerville Road
Suite 210, Little Falls II
Wilmington, Delaware 19908
(302) 998-1734
PROXY STATEMENT
Annual Meeting of Stockholders
TO BE HELD ON MAY 25, 1999
INTRODUCTION
General
This Proxy Statement is being furnished to stockholders of VIMRX
Pharmaceuticals Inc., a Delaware corporation, in connection with the
solicitation of proxies by the Company's Board of Directors for use at the
Annual Meeting of Stockholders to be held at The Equitable Companies, Inc., 787
Seventh Avenue, 49th Floor, New York, New York on Tuesday, May 25, 1999 at 9:30
a.m., Eastern Daylight Time, and any and all adjournments or postponements
thereof. The cost of the solicitation will be borne by the Company, which has
retained D.F. King and Co., Inc. at a fee of $________, plus expenses, to assist
in the solicitation.
This Proxy Statement and the accompanying proxy card are being first mailed
to stockholders on or about April __, 1999.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the Annual Meeting, the stockholders will be asked to consider and vote
upon the following proposals:
1. To elect a Board of four directors.
2. To approve the acquisition by the Company of the minority interest of
Baxter Healthcare Corporation in Nexell Therapeutics Inc., other than
Baxter's right to certain milestone payments, thereby making Nexell a
wholly-owned subsidiary of VIMRX.
3. To approve amendments to the Certificate of Incorporation of the Company
to
. change the Company's name to "Nexell Therapeutics Inc.";
. change the terms of the Company's Series A Cumulative Convertible
Preferred Stock, all of which is held by Baxter, by altering the
conversion terms and modifying other terms in order to comply with
the closing conditions of the Company's acquisition of Baxter's
interest in Nexell; and
<PAGE>
. increase the authorized capital stock from 120,150,000 shares to
161,150,000 shares, of which 1,000,000 shares will be a newly
authorized class of "blank check" preferred stock.
4. To approve an increase in the number of shares of Common Stock issuable
under the Company's 1997 Incentive and Non-Incentive Stock Option Plan
from 2,000,000 shares to 3,000,000 shares.
5. To ratify the appointment of KPMG LLP as independent auditors of the
Company for the year ending December 31, 1999.
6. To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
Voting at the Annual Meeting
Stockholders of record at the close of business on [APRIL 2,] 1999 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting, each
such holder being entitled to one vote per share on each matter to be considered
at the Annual Meeting. On the Record Date, there were _________ shares of
Common Stock issued and outstanding. The Series A Preferred Stock is entitled
to vote as a separate class at the Annual Meeting on Proposal 3, the approval of
the amendments to the Certificate of Incorporation.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the
Annual Meeting (________ shares of the __________ shares outstanding) is
necessary to constitute a quorum at the Annual Meeting.
The election of each of the four nominees identified in this Proxy
Statement will require the affirmative vote of a plurality of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote.
Approval of the amendments to the Certificate of Incorporation will require
the affirmative vote of the holders of a majority of the issued and outstanding
shares of Common Stock (________ shares of the __________ shares outstanding)
and of the holders of a majority of the issued and outstanding shares of Series
A Preferred Stock, voting separately as classes. Baxter, the holder of all of
the issued and outstanding shares of the Series A Preferred Stock, has advised
the Company that it intends to vote FOR the amendments.
Approval of the acquisition of Baxter's interest in Nexell, the increase in
the number of shares of Common Stock issuable under the 1997 Plan and the
ratification of the appointment of KPMG LLP as independent auditors of the
Company for the year ending December 31, 1999 will each require the affirmative
vote of the holders of a majority of the shares of Common Stock present in
person or represented by proxy at the Annual Meeting and entitled to vote.
If the enclosed proxy card is properly executed and returned to the Company
prior to voting at the Annual Meeting, the shares represented thereby will be
voted in accordance with the instructions marked thereon, subject to the
following conditions:
2
<PAGE>
Election of Directors
Shares represented by a proxy marked "WITHHOLD AUTHORITY" to vote for (i)
all four nominees or (ii) any individual nominee(s) for election as directors
and not otherwise marked "FOR" the other nominees will not be counted in
determining whether a plurality vote has been received for the election of
directors. In the absence of instructions, shares represented by a proxy will
be voted FOR all of the four nominees. In instances where brokers are
prohibited from exercising discretionary authority for beneficial owners who
have not returned proxies ("broker non-votes"), those shares will be disregarded
and therefore will have no effect on the outcome of the vote.
Other Proposals
Shares represented by a proxy marked "ABSTAIN" on any other proposal will
not be counted in determining whether the requisite vote has been received for
such proposal. In the absence of instructions, shares represented by a proxy
will be voted FOR all of the proposals set forth in the Notice of Annual Meeting
and at the discretion of the proxies on any other matters that may properly come
before the Annual Meeting. In instances where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not returned
proxies ("broker non-votes"), those shares will not be included in the vote
totals, and therefore will have no effect on the outcome of the votes on the
proposals, except with respect to the vote on approval of the amendments to the
Certificate of Incorporation where broker non-votes (and abstentions) will have
the effect of a vote against the amendments since the affirmative vote of a
majority of the issued and outstanding shares is required for approval of this
proposal.
At any time prior to its exercise, a proxy may be revoked by the
stockholder granting it by delivering written notice of revocation or a duly
executed proxy bearing a later date to the Secretary of the Company at the
address of the Company set forth on the first page of this Proxy Statement or by
attending the Annual Meeting and voting in person.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
General.......................................................... 1
Ownership of Certain Beneficial Owners,
Directors and Management......................................... 6
Proposal 1 -- Election of Directors............................. 8
Biographical Information.................................. 8
Required Vote.............................................. 10
Executive Compensation........................................... 10
Compensation Committee Report.............................. 10
Compensation Summary....................................... 11
Employment Arrangements.................................... 14
Section 16 Proxy Statement Disclosure...................... 15
Proposal 2 -- Approval of the Acquisition of
Baxter's Minority Interest in Nexell............................. 18
Summary of the Transaction................................. 18
Business of Nexell......................................... 19
Reasons for the Acquisition................................ 20
Background of the Acquisition.............................. 21
Opinion of the Company's Financial Advisor................. 22
Accounting Treatment....................................... 25
Terms of the Acquisition................................... 25
Representations and Warranties of the Parties.............. 27
Conditions to Consummation of the Acquisition.............. 28
Covenants of the Parties................................... 29
Termination................................................ 30
Closing of the Acquisition................................. 31
Interests of Certain Persons in the Acquisition............ 31
Assumption of Nexell Stock Options......................... 31
Pro Forma Condensed Combined Financial Information......... 32
Required Vote.............................................. 32
Proposal 3 -- Approval of Amendments
to the Certificate of Incorporation.............................. 32
Changing the Company's Name to "Nexell Therapeutics Inc.".. 32
Changing the Terms of the Series A Preferred Stock......... 33
Increasing the Authorized Capital Stock and Authorizing
"Blank Check" Preferred Stock............................ 33
Required Vote.............................................. 34
4
<PAGE>
Proposal 4 --Approval of Amendment to 1997 Incentive
and Non-Incentive Stock Option Plan.............................. 35
General.................................................... 35
Federal Income Tax Consequences............................ 36
Required Vote.............................................. 37
Proposal 5 -- Ratification of Appointment of
Independent Auditors............................................. 37
Required Vote.............................................. 38
Other Business................................................... 38
Stockholder Proposals............................................ 39
Annex A - Acquisition Agreement
Annex B - US Bancorp Piper Jaffray Opinion
Annex C - Unaudited Pro Forma Condensed Combined Financial Information
Annex D - Amendment to Certificate of Incorporation
5
<PAGE>
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND MANAGEMENT
The following table sets forth, as of the Record Date, information with
respect to the beneficial ownership of the Common Stock by (i) each person known
by the Company to own beneficially five percent or more of the outstanding
Common Stock, together with their respective addresses, (ii) each director and
nominee for election as a director, (iii) each executive officer named in the
Summary Compensation Table under "Executive Compensation - Compensation Summary"
on page 10 of this Proxy Statement and (iv) all executive officers and directors
as a group:
</TABLE>
<TABLE>
<CAPTION>
NAME Shares Beneficially Owned Percent of Outstanding
- ------------------------------- ----------------------------------------------- -------------------------------
<S> <C> <C>
Richard L. Dunning 834,404 (1)(2) 1.2%
Francis M. O'Connell 120,753 (1)(3) *
Alfonso J. Tobia, Ph.D. 154,828 (1)(4) *
David A. Jackson, Ph.D. 251,460 (1)(4) *
L. William McIntosh 247,590 (1)(5) *
Donald G. Drapkin 887,500 (6)(7) 1.3%
Laurence D. Fink 550,000 (6)(8) *
Linda G. Robinson 250,000 (6)(9) *
Eric A. Rose, M.D. 959,900 (6)(10) 1.4%
Lindsay A. Rosenwald, M.D. 5,152,655 (6)(11) 7.3%
Victor W. Schmitt 0 0
Michael Weiner, M.D. 62,410 (6) *
Paramount Capital Asset 4,204,999 (12) 6.0%
Management, Inc. 787 Seventh
Avenue, NY 10019
Baxter Healthcare Corporation, 11,000,000 15.7%
One Baxter Parkway,
Deerfield, Illinois 60015
All directors and executive 9,471,500 (13) 12.9%
officers as a group (12 persons)
</TABLE>
____________________
* Less than one percent.
(1) Includes shares held by the Company's 401(k) retirement plan for the
benefit of the officer.
6
<PAGE>
(2) Includes currently exercisable options to purchase 827,650 shares owned
by Mr. Dunning, 2,095 shares owned by a daughter of Mr. Dunning, and 500
shares owned by each of Mr. Dunning's spouse, son and another daughter,
respectively. Mr. Dunning disclaims beneficial ownership of the shares
held by his spouse, son and daughters.
(3) Includes currently exercisable options to purchase 106,250 shares.
(4) Consists of currently exercisable options.
(5) Consists of currently exercisable options, assuming consummation of the
acquisition of Baxter's minority interest in Nexell. See "Executive
Compensation, Compensation Summary, Option Repricing".
(6) Includes 100,000 vested restricted shares held by Mr. Drapkin and 50,000
vested restricted shares held by each of Mr. Fink, Ms. Robinson, Dr.
Rose, Dr. Rosenwald and Dr. Weiner.
(7) Includes currently exercisable options to purchase 687,500 shares.
(8) Includes warrants to purchase 133,333 shares owned directly by Mr. Fink
and 66,666 shares and warrants to purchase 33,333 shares owned by a
family trust for the benefit of Mr. Fink's children. Mr. Fink disclaims
beneficial ownership of the shares and warrants held by the family
trust.
(9) Includes warrants to purchase 66,666 shares.
(10) Includes currently exercisable options to purchase 587,500 shares.
(11) Includes 4,204,999 shares beneficially owned by Paramount Capital Asset
Management, Inc. ("PCAM", see note (12) below), of which Dr. Rosenwald
is President and the sole shareholder. Dr. Rosenwald disclaims
beneficial ownership of such shares except to the extent of his
pecuniary interest, if any.
(12) Information is from a Form 4 dated November 6, 1998 filed by Dr.
Rosenwald reporting the open market purchase of 155,000 shares of Common
Stock by The Aries Master Fund, a Cayman Islands exempted company, (the
"Fund") and the general partner of Aries Domestic Fund, L.P. (the
"Partnership"), and confirming (i) the ownership of 2,614,700 shares and
warrants to purchase 225,000 shares by the Fund and of 1,206,966 shares
and warrants to purchase 158,333 shares by the Partnership, and (ii) the
status of PCAM as the general partner of the Partnership and the
investment manager of the Fund, with shared power to vote and dispose of
the securities owned by the partnership and the Fund. PCAM and Dr.
Rosenwald disclaim beneficial ownership of the securities owned by the
Fund and the Partnership, except to the extent of their respective
pecuniary interest, if any.
(13) See notes (1) - (12).
7
<PAGE>
PROPOSAL 1 -- ELECTION OF DIRECTORS
At the Annual Meeting, a four person Board of Directors is to be elected,
to hold office until the next Annual Meeting of Stockholders and until their
successors are duly elected and qualified. Unless otherwise specifically
directed by stockholders executing proxies, it is intended that all proxies in
the accompanying form received in time for the Annual Meeting will be voted FOR
the election of the four nominees named below, all of whom are currently
directors of the Company.
In view of the contemplated move of the Company's executive offices to
California, four of the current directors, Lawrence D. Fink, Linda G. Robinson,
Dr. Lindsay A. Rosenwald and Dr. Michael Weiner are not standing for reelection;
the Company is establishing criteria for a recruitment program for additional
directors.
In the event any nominee should become unavailable for election for any
presently unforeseen reason, it is intended that the proxies will be voted FOR
such substitute nominee as may be designated by the present Board of Directors.
BIOGRAPHICAL INFORMATION
Each nominee's name, age, office with the Company, if any, the year first
elected as a director, if currently a director, and certain biographical
information are set forth below:
<TABLE>
<CAPTION>
Name Age POSITION
- ---------------------------------------- --------------- -----------------------------------
<S> <C> <C>
Donald G. Drapkin 51 Chairman
Richard L. Dunning 53 President, Chief Executive
Officer and Director
Eric A. Rose, M.D. 48 Director
Victor W. Schmitt 50 Director
</TABLE>
Donald G. Drapkin was elected Chairman of the Board of Directors in March
1996 and has served as a director of the Company since November 17, 1995. Mr.
Drapkin has been a director and Vice Chairman of MacAndrews & Forbes Holdings
Inc. and various of its affiliates since 1997 and was a partner in the law firm
of Skadden, Arps, Slate, Meagher & Flom in New York City for more than five
years prior thereto. Mr. Drapkin also serves as a director of the following
corporations which file reports pursuant to the Securities Exchange Act of 1934:
Algos Pharmaceutical Corporation, Anthracite Capital, Inc., BlackRock Asset
Investors, Cardio Technologies, Inc., The Molson Companies Limited, Playboy
Enterprises, Inc., Revlon, Inc., Revlon Consumer Products Corporation and Weider
Nutrition International, Inc.
Richard L. Dunning has been President and Chief Executive Officer of the
Company since April 1996. Prior to joining the Company, Mr. Dunning served as
Executive Vice President and Chief Financial Officer of the DuPont Merck
Pharmaceutical Company (now
8
<PAGE>
DuPont Life Sciences) from 1991. Mr. Dunning also serves as a director of the
following corporations which file reports pursuant to the Exchange Act: Innovir
Laboratories, Inc. (a subsidiary of the Company), Epoch Pharmaceuticals, Inc.
and Endorex Corp.
Eric A. Rose, M.D. was elected a director of the Company in November 1995.
Dr. Rose is Surgeon-In-Chief at Columbia Presbyterian Medical Center in New
York, a position he has held since August 1994. Dr. Rose is a past president of
the International Society for Heart and Lung Transplantation.
Victor W. Schmitt was elected a director of the Company in December 1997
pursuant to an agreement between the Company and Baxter Healthcare Corporation
(see "Certain Transactions"). Mr. Schmitt has been President, Venture
Management, Baxter Healthcare Corporation since 1994. Prior to this position, he
held the operating position of President, Baxter Biotech Europe. Mr. Schmitt
joined Baxter after a 16-year career with the American Red Cross Blood Services,
where he held positions in marketing and operations. He also serves as a
director of a number of development-stage biotech companies.
Meetings and Committees
During 1998, there were four meetings of the Board of Directors which were
attended by all directors, except for Dr. Jerome Groopman (resigned as a
director) and Mr. Laurence Fink, who were absent from two meetings, and Dr. Eric
A. Rose and Dr. Lindsay A. Rosenwald, who were absent from one meeting.
Additionally, the Board took action by unanimous written consent without a
meeting on two occasions in 1998.
The Compensation Committee, which also acts as the Stock Option Committee,
currently consists of Mr. Donald G. Drapkin, Mr. Richard L. Dunning, Dr. Eric A.
Rose and Dr. Lindsay A. Rosenwald. The Compensation Committee met one time and
took action by unanimous written consent without a meeting on one occasion
during 1998. The Compensation Committee sets and recommends to the Board yearly
executive compensation and conditions of employment and administers the
Company's stock option plans.
The Audit Committee, which consists of Mr. Richard L. Dunning, Mr. Laurence
D. Fink, Ms. Linda G. Robinson and Dr. Michael Weiner, met twice during 1998.
The Audit Committee reviews the audit and financial procedures of the Company
and recommends any changes with respect thereto to the Board of Directors.
The Company does not have a standing nominating committee.
Dr. Groopman resigned as a director in August 1998 and Messrs. Fink,
Rosenwald, Weiner and Ms. Robinson are not standing for reelection as directors,
thereby requiring that all committees be reconstituted. As indicated above, the
Company is establishing criteria for a recruitment program for additional
directors.
9
<PAGE>
REQUIRED VOTE
The election of each of the four nominees identified in this Proxy
Statement will require the affirmative vote of a plurality of the shares of
Common Stock present or represented by proxy at the Annual Meeting and entitled
to vote. In instances where brokers are prohibited from exercising
discretionary authority for beneficial owners who have not returned proxies
("broker non-votes"), those shares (and abstentions) will be disregarded and
therefore will have no effect on the outcome of the vote.
The Board of Directors recommends that stockholders vote FOR each of the
four nominees.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
The Compensation Committee is responsible for setting the Company's policy
with respect to the compensation of the Company's senior executive officers,
including the Chief Executive Officer, and administering the Company's stock
option plans. The Company's policy is to establish a compensation program that
will attract, retain and motivate qualified members of senior management in a
manner that is competitive with other companies in the biotechnology industry.
The key elements in this policy are salary, stock options, and availability of a
cash bonus. As the Company is only now emerging from the development stage,
revenues and profits remain largely inapplicable as factors in determining
compensation of the Chief Executive Officer and other executives of the Company.
Rather, the Compensation Committee looks to qualitative factors, including the
officers' efforts to build the organization, to expand the Company's potential
product line (through acquiring new technologies or otherwise), to expand the
range of applications therefor, and to intensify the Company's research and
development efforts for its potential products. In determining the cash bonus
granted in early 1998 to Richard L. Dunning, the Company's Chief Executive
Officer, the Compensation Committee considered a number of significant positive
developments during 1997 including, among other factors, the acquisition of a
controlling interest in Nexell. No cash bonuses were awarded by the Compensation
Committee in 1999 related to performance in 1998.
THE COMPENSATION COMMITTEE
Donald G. Drapkin
Richard L. Dunning
Eric A. Rose, M.D.
Lindsay A. Rosenwald, M.D.
The above report shall not be deemed incorporated by reference into any
filing under the Securities Act or under the Exchange Act, by any general
statement incorporating by reference this Proxy Statement, except to the extent
the Company specifically incorporates this information by reference, and shall
not otherwise be deemed filed under such Acts.
10
<PAGE>
COMPENSATION SUMMARY
Summary Compensation Table
The following table sets forth a summary of the compensation for each of
the three years ended December 31, 1998 earned by the Company's principal
executive officer and by each executive officer whose compensation exceeded
$100,000 during 1998:
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------------------- ------------------
Name and
Principal Position Year Salary Bonus (1) Options (2) Other Compensation
- ---------------------- ----------- ----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Richard L. Dunning 1998 $250,000 -- 200,000 $ 8,950 (3)(4)
President and Chief 1997 $200,000 $120,000 -- $ 9,090 (3)(4)
Executive Officer 1996 $134,000 $135,000 800,000 $ 4,500
David A. Jackson, 1998 $200,000 -- 135,000 $ 5,000
Ph.D 1997 $175,000 $100,000 -- $ 3,938
Vice President, 1996 $ 48,000 $110,000 500,000 --
Research &
Development, Chief
Scientific Officer
L. William McIntosh 1998 $216,000 -- 525,000 $10,614 (3)(5)
President and Chief 1997 $ 99,000 $115,000 400,000 (6) --
Executive Officer,
Nexell Therapeutics,
Inc.
Francis M. O'Connell 1998 $146,000 -- 25,000 $ 4,363 (3)
Vice President, 1997 $139,000 $ 35,000 -- $ 3,128 (3)
Finance and 1996 $124,000 $ 45,000 -- --
Controller
Alfonso J. Tobia, 1998 $156,000 -- -- $ 4,665 (3)
Ph.D. , Executive 1997 $150,000 $ 35,000 -- $ 3,375 (3)
Vice President 1996 $147,000 $ 55,000 -- --
</TABLE>
________________
(1) Bonus amounts are shown for the year in which earned and, except for
signing bonuses ($40,000 to each of Mr. Dunning and Dr. Jackson in 1996
and to Mr. McIntosh for 1997) were paid in the following year.
(2) Number of shares of Common Stock purchasable. See Option Grant Table below
for exercise prices and expiration dates.
11
<PAGE>
(3) Includes Company's matching contribution to the named executive's account
in the Company's 401(k) retirement plan.
(4) Amounts shown for 1998 and 1997, respectively, include reimbursement of
personal medical and health care insurance in the amount of $6,000.
(5) Amount shown includes reimbursement of relocation expenses.
(6) Options to purchase 190,000 of such shares were cancelled in connection
with the executive's appointment as President and Chief Executive Officer
of Nexell. See "Executive Compensation, Compensation Summary, Option
Repricing."
Option Grant Table
The following table sets forth certain information concerning options
granted in 1998 to the individuals named in the Summary Compensation Table:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SHARES % OF TOTAL EXERCISE PRICE APPRECIATION
UNDERLYING OPTIONS PRICE FOR OPTION TERM
OPTIONS GRANTED TO PER EXPIRATION ---------------
NAME GRANTED EMPLOYEES SHARE DATE @5% @10%
- ------------- ------- --------- ----- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Richard L.
Dunning 200,000 5.3% $ 1.63 1/15/08 $205,019 $519,560
David A.
Jackson, 135,000 3.6% $ 1.63 1/15/08 $138,388 $350,703
Ph.D.
L. William 90,000 2.4% $ 1.63 1/15/08 $ 92,259 $230,802
McIntosh 375,000 (1) 9.9% $ 1.67 1/1/08 $393,845 $998,081
60,000 (1) 1.6% $0.001 1/1/08 $163,155 $259,832
Francis M.
O'Connell 25,000 0.7% $ 1.63 1/15/08 $ 25,627 $ 64,945
</TABLE>
___________________
(1) Granted in connection with the executive's appointment as President and
Chief Executive Officer of Nexell; concurrently, options to purchase 190,000
shares granted in 1997 were cancelled. See "Executive Compensation,
Compensation Summary, Option Repricing."
12
<PAGE>
Option Exercises and Value Table
The following table sets forth certain information concerning options
exercised during 1998, and the number of unexercised options as at December 31,
1998 held by the individuals named in the Summary Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY
SHARES DECEMBER 31, 1998 OPTIONS AT
ACQUIRED ON VALUE EXERCISABLE(E) / DECEMBER 31,
NAME EXERCISE REALIZED (1) UNEXERCISABLE (U) 1998 (1)
- ---- -------- -------- ----------------- --------
<S> <C> <C> <C> <C>
Richard L. Dunning -- -- 492,677 (U) --
-- -- 507,323 (E) --
David A. Jackson -- -- 422,925 (U) --
-- -- 212,075 (E) --
L. William McIntosh -- -- 622,500 (U)
-- -- 52,500 (E) $65,580
-- -- 60,000 (U)
Francis M. -- -- 50,000 (U) $16,500
O'Connell -- -- 75,000 (E) $49,500
Alfonso J. Tobia, -- -- 150,000 (E) $60,563
Ph.D.
</TABLE>
_______________
(1) Based upon the $1.094 closing sale price of the Common Stock on The Nasdaq
Stock Market on December 31, 1998.
Option Repricing
In connection with his employment as Senior Vice President, Business
Development and Finance, and Chief Financial Officer in 1997, Mr. McIntosh was
granted non-incentive options to purchase 238,000 shares of Common Stock at
$1.906 per share, the per share market value on May 1, 1997, the date he
accepted the Company's offer of employment, and incentive options to purchase
162,000 shares at $2.469 per share, the per share market value on May 19, 1997,
the date he commenced employment. In January 1998 Mr. McIntosh was granted
additional non-incentive options to purchase 90,000 shares at $1.625 per share,
the per share market value on the date of grant. As a result of such grants, Mr.
McIntosh held options to purchase an aggregate of 490,000 shares of Common Stock
at a weighted average exercise price of $ 2.04 per share.
In May 1998, upon Mr. McIntosh's appointment as President and Chief
Executive Officer of Nexell (see "Employment Arrangements," below), his option
package was restructured. Mr. McIntosh was awarded non-incentive options to
purchase (i) 125,000 shares of Nexell's common stock at $5.00 per share (which
will automatically convert into non-incentive
13
<PAGE>
options to purchase 375,000 shares of the Company's Common Stock at $1.67 per
share upon consummation of the Company's acquisition of Baxter's minority
interest in Nexell), and (ii) 60,000 shares of the Company's Common Stock at
$.001 per share. Concurrently, Mr. McIntosh was required to cancel outstanding
options to purchase an aggregate of 190,000 shares of the Company's Common
Stock. As a result of the restructuring and after giving effect to the automatic
conversion of his options to purchase Nexell's common stock (assuming
consummation of the Company's acquisition of Baxter's minority interest in
Nexell), Mr. McIntosh would hold options to purchase an aggregate of 735,000
shares of the Company's Common Stock at an average exercise price of $1.59 per
share. At the time of the restructuring, the price of the Company's Common Stock
was $1.34 per share.
The following table sets forth certain information concerning the repricing
of Mr. McIntosh's options:
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
NUMBER OF OPTION
SHARES MARKET EXERCISE TERM
UNDERLYING PRICE AT PRICE AT NEW REMAINING
DATE OPTIONS TIME OF TIME OF EXERCISE AT DATE OF
NAME REPRICED REPRICED REPRICING REPRICING PRICE REPRICING
- ---------- -------- -------- --------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
L. 5/28/98 60,000 $1.344 $2.469 $ .001 9 years
William 5/28/98 102,000 $1.344 $2.469 $1.667 9 years
McIntosh 5/28/98 28,000 $1.344 $1.906 $1.667 9 years
</TABLE>
EMPLOYMENT ARRANGEMENTS
Mr. Dunning serves as President and Chief Executive Officer of the Company
under a restated employment agreement which provides for a base annual salary of
$200,000 and an annual cash bonus based on performance criteria. Mr. Dunning is
entitled to four weeks' vacation and to participate in the Company's employee
benefit programs. Mr. Dunning's employment may be terminated for cause, or
without cause upon 60 days' notice. In the event Mr. Dunning's employment is
terminated by the Company without cause, or he terminates his employment
following certain actions by the Company (such as a material reduction in Mr.
Dunning's duties or a relocation of the Company's principal executive offices),
Mr. Dunning would be entitled to a severance payment equal to six months of his
base salary, payable in monthly installments. The agreement contains non-
competition and confidentiality provisions, and provides that the Company may
obtain "key man" life insurance on the life of Mr. Dunning for the Company's
benefit.
Dr. Jackson serves as Vice President - Research and Development and Chief
Scientific Officer of the Company under an employment agreement which provides
for a base annual salary of $175,000 and an annual cash bonus based on
performance criteria. Dr. Jackson is entitled to four weeks' vacation and to
participate in the Company's employee benefit programs. Dr. Jackson's
employment may be terminated for cause, or without cause upon 60 days' notice.
In the event Dr. Jackson's employment is terminated by the Company without
cause, or in the event Dr. Jackson terminates his employment following certain
actions by the Company (such as
14
<PAGE>
a material reduction in his duties or a relocation of the Company's principal
executive offices), Dr. Jackson would be entitled to a severance payment equal
to twelve months of his base salary, payable in monthly installments. The
agreement contains non-competition and confidentiality provisions, and provides
that the Company may obtain "key man" life insurance on the life of Dr. Jackson
for the Company's benefit.
Dr. Tobia serves as Senior Vice President of the Company under an
employment agreement which provides for a base annual salary of $150,000 and
eligibility for a discretionary bonus up to $25,000. Dr. Tobia is eligible to
participate in the Company's benefit programs,
On March 1, 1998 Mr. L. William McIntosh, then Senior Vice President,
Business Development and Finance and Chief Financial Officer of the Company, was
named the President and CEO of the Company's majority-owned subsidiary, Nexell.
In light of his new position, Mr. McIntosh, the Company and Nexell renegotiated
Mr. McIntosh's employment arrangement effective as of March 1, 1998. The
renegotiated agreement provides for a base annual salary of $225,000, an annual
cash bonus based on performance criteria, targeted to be at least 25% of Mr.
McIntosh's base compensation, a $25,000 signing bonus and reimbursement of
relocation expenses. Mr. McIntosh is entitled to four weeks' vacation and to
participate in Nexell's employee benefit programs. Mr. McIntosh's renegotiated
employment contract may be terminated by Nexell for cause, or without cause upon
60 days' notice. In the event Mr. McIntosh's employment is terminated by Nexell
without cause, or in the event Mr. McIntosh terminates his employment following
certain actions by Nexell (such as a material reduction in his duties), Mr.
McIntosh would be entitled to a severance payment equal to twelve months of his
base salary, payable in monthly installments. The agreement contains non-
competition and confidentiality provisions, and provides that Nexell may obtain
"key man" life insurance on the life of Mr. McIntosh for Nexell's benefit. See
"Summary Compensation - Option Repricing," above.
SECTION 16 PROXY STATEMENT DISCLOSURE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's executive officers, directors and holders of more than 10% of the
Common Stock (collectively, "Reporting Persons") file reports of their holdings
and transactions in the Common Stock with the Securities and Exchange
Commission. Based on a review of Section 16 forms filed by the Reporting
Persons during the last fiscal year, the Company believes that the Reporting
Persons timely complied with all applicable Section 16 filing requirements,
except that Dr. Lindsay A. Rosenwald was delinquent in reporting the exercise,
on August 3, 1998, of certain options to purchase Common Stock, and Paramount
Capital Asset Management, Inc., a holder of in excess of five percent of the
Common Stock of which Dr. Rosenwald is President and sole shareholder, was
delinquent in reporting the open market purchase of 155,000 shares of Common
Stock on October 21, 1998.
15
<PAGE>
CERTAIN TRANSACTIONS
In March 1997 the Company entered into a research agreement relating to the
discovery, mapping, sequencing and validation of disease-related genes with
Columbia University. The agreement provided for VIMRX Genomics, Inc. ("VGI")
d/b/a Ventiv BioGroup, a majority-owned subsidiary of the Company, to provide
$30 million in funding to the Columbia Genome Center over a 5-year period and
for VGI to receive an exclusive license to develop, manufacture, use, sell or
market products resulting from any invention, research information and
biological materials developed by the Center and funded under the agreement.
VGI sought technology collaborations with pharmaceutical and/or diagnostic
companies and solicited equity investments in VGI from potential technology
partners and other investors, but was unable to consummate any such transactions
on reasonable terms. As a result, VGI attempted to restructure its relationship
with Columbia but was unable to agree on the terms of a restructuring. On
November 11, 1998 the Company and Columbia entered into a Termination Agreement
pursuant to which all further obligations of the Company and VGI to Columbia
under the March 1997 research agreement and under the Blood Factor IXai Research
Agreement dated March 28, 1997 between Columbia and the Company were terminated,
and all claims related thereto released, in consideration of the payment of
$900,000 by the Company to Columbia. The Termination Agreement also provided for
termination of the licenses granted to VGI and the Company pursuant to the
research agreement and the Factor IX agreement and the return to Columbia of all
intellectual property delivered to, or developed by, the Company or VGI pursuant
to those licenses. Eric A. Rose, M.D., a director of the Company, is a Surgeon-
In-Chief at Columbia Presbyterian Medical Center in New York, an affiliate of
Columbia, and has served as Chairman of the Department of Surgery at the College
of Physicians and Surgeons of Columbia since 1994 and as a Director of the
Division of Cardiothoracic Surgery of the Department since 1990. Michael
Weiner, M.D., a director of the Company, is the Hettinger Professor of Clinical
Pediatrics at Columbia's College of Physicians and Surgeons, Director of
Pediatric Oncology, and is an attending physician at Columbia Presbyterian
Medical Center.
On December 24, 1998, the Company purchased an aggregate of 2,500,000
shares of Innovir Laboratories, Inc. Common Stock from the Aries Funds for one
cent per share, or a total purchase price of $25,000. Lindsay A. Rosenwald,
M.D., a director of the Company, serves as President and is the sole shareholder
of the investment manager of the Aries Trust, and serves as President and is the
sole shareholder of the general partner of the Aries Limited Partnership.
In March 1999 the Company terminated its 1996 Non-Employee Director Stock
Award Plan under which, in June 1996, it had issued restricted shares of Common
Stock to all non-employee directors, other than Mr. Victor W. Schmitt. The
restricted shares vested cumulatively at the rate of 25% per year and were
subject to a non-lapsing right of first refusal to the Company to repurchase the
shares at market value, minus $4.25, in the event the director desired to
transfer the shares. In April 1999 the Company changed the terms of the
restricted shares by vesting the 50,000 unvested restricted shares held by Mr.
Drapkin and the 25,000 unvested restricted shares held by each of Messrs. Fink,
Rose, Rosenwald and Weiner and Ms. Robinson and eliminating the Company's right
of first refusal.
16
<PAGE>
STOCK PRICE PERFORMANCE COMPARISON
The Stock Price Performance Graph below compares cumulative total return of
the Company's Common Stock with the cumulative total return of (i) the Index for
the NASDAQ Stock Market (U.S. Companies) (the "NASDAQ Index") and (ii) an
industry peer group index consisting of the NASDAQ Pharmaceutical Index (the
"Peer Index"). The Graph assumes $100 was invested on January 1, 1994, in (i)
the Company's Common Stock, (ii) the stocks comprising the NASDAQ Index and
(iii) the stocks comprising the Peer Index, and the reinvestment of dividends.
[Virmx Graph appears here]
The graph above shall not be deemed incorporated by reference into any
filing under the Securities Act or under the Exchange Act, by any general
statement incorporating by reference this Proxy Statement, except to the extent
the Company specifically incorporates this information by reference, and shall
not otherwise be deemed filed under such Acts.
17
<PAGE>
PROPOSAL 2 -- APPROVAL OF THE ACQUISITION OF
BAXTER'S MINORITY INTEREST IN NEXELL
SUMMARY OF THE TRANSACTION
The Company currently owns 80.5% of Nexell Therapeutics Inc., its principal
business unit, which it acquired through acquisition of certain assets from
Baxter in December 1997 in exchange for (1) 11,000,000 shares of Common Stock,
(2) 66,304 shares of Series A Convertible Preferred Stock with a liquidation
value of $1,000 per share, (3) 19.5 % of Nexell's outstanding common stock, (4)
a warrant to purchase an additional 6% of Nexell's common stock for $6,000,000,
and (5) the right to receive payments from Nexell upon the occurrence of certain
milestone events, which could aggregate $21,000,000 if all the milestones were
achieved. In addition, for $30,000,000 paid to Nexell, Baxter received
$30,000,000 principal amount of Nexell's 6 1/2% convertible subordinated
debentures convertible into Nexell's common stock upon a public offering of
common stock by Nexell.
The acquisition of Baxter's interests in Nexell, other than its right to
milestone payments, is to be effected through an exchange of Baxter's interests
in Nexell for an equivalent value of interests directly in the Company (the
"Acquisition"). The Company and Baxter have agreed to exchange Baxter's
interests in Nexell (common stock, warrant and convertible subordinated
debentures, but excluding its right to milestone payments ) for:
. 3,000,000 shares of Common Stock,
. an adjustment of the conversion price of the 70,282 outstanding shares
of Series A Preferred Stock owned by Baxter from $5.50 per share to
$2.75 per share, (the 3,978 share increase from the 66,304 shares
originally issued are a result of the dividends payable in kind),
. a warrant to purchase 5,200,000 shares of Common Stock at a price of
$1.15 per share, and
. approximately $33,000,000 principal amount of 6 1/2% Convertible
Subordinated Debentures (replacing the $30,000,000 principal amount of
Nexell's 6 1/2% convertible subordinated debentures plus accrued
interest through the closing date of the Acquisition) convertible,
commencing November 30, 2002, into Common Stock at a conversion price
equal to 95% of the average of the closing prices of the Common Stock on
the Nasdaq Stock Market for the 30 consecutive trading days preceding
the date of conversion.
Following consummation of the Acquisition, Nexell will be a wholly-owned
subsidiary of the Company and Baxter will own outright slightly less than 20% of
the Company's Common Stock. Baxter's ownership will increase to approximately
42% of the Common Stock (fully diluted ) upon the automatic conversion of the
Series A Preferred Stock into Common Stock on December 17, 2004, assuming
Baxter's exercise of its warrant, plus a further indeterminate percentage in the
event Baxter converts any portion of the 6 1/2% Convertible Subordinated
Debentures.
18
<PAGE>
The Company approached Baxter in February 1998 to explore the possibility
of acquiring Baxter's interests in Nexell, other than Baxter's right to
milestone payments, in exchange for increasing Baxter's ownership position in
the Company. The parties continued negotiations through the middle of December,
1998, when the principal terms were agreed upon. The parties executed a letter
of intent memorializing the transaction on January 12, 1999, and then signed the
definitive Acquisition Agreement dated as of February 18, 1999. A copy of the
Acquisition Agreement is attached to this Proxy Statement as Annex A.
BUSINESS OF NEXELL
Nexell is engaged in the development, manufacture, marketing and
distribution of specialized instruments, biologicals, reagents, sterile plastics
sets and related products used in ex vivo cell research and therapies. Nexell's
cell processing instruments are used in combination with biological reagents and
other instruments to provide integrated systems for manipulation of cells
extracted from patients. Nexell provides cell-processing instruments used in the
clinical treatment of disease, principally various forms of cancer.
Nexell currently markets Isolex(R) Cell Selection systems that consist of
automated, sterile path instruments along with companion reagents/biologicals
and sterile plastic disposable sets. These systems are used for the positive
clinical separation of specific cell populations from blood and bone marrow
(positive cell selection). In positive cell selection, a targeted cell
population is captured and retained for reinfusion or for further biological
manipulation. Nexell offers three versions of the Isolex(R) Cell Selection
instrument: the smaller scale Isolex(R) 50 Cell Separator for research use; the
clinical scale semi-automated Isolex(R) 300 Cell Separator; and the fully
automated Isolex(R) 300i Cell Separator. All three versions are currently
marketed for therapeutic and/or research purposes in Europe. As Nexell has not
yet received regulatory approval of these instruments for therapeutic purposes
in the United States and Japan, sales in such countries are limited to research
laboratories and institutions on a cost recovery basis. Nexell has, however,
received a letter from the FDA advising that the Isolex(R) 300 and 300i devices
are "approvable" for therapeutic use in the United States; the Company
anticipates final approval in the near future.
In addition to the positive selection Isolex(R) Cell Separator, Nexell
markets the MaxSep(R) System. The semi-automated MaxSep(R) System is a negative
selection system in which undesired cells are removed from a diverse population
of cells. The MaxSep(R) System is currently marketed for therapeutic purposes
in Europe.
Nexell also markets various ancillary products that are utilized in the
cell processing cycle. These products include the following: Cryocyte(TM)
containers used in the freezing of blood components; Lifecell(R) tissue culture
flasks which provide a closed system environment for culturing cells; CFU stem
cell kits used to measure stem cell colony formation in samples of bone marrow,
peripheral blood, cord blood, or selected CD3 cells; the Solution Transfer Pump,
an automated, programmable pump for filling bags and splitting cell cultures;
and Harvester(TM), a cell collection device used primarily to reduce large cell
volumes.
19
<PAGE>
REASONS FOR THE ACQUISITION
In reaching its decision to effect the Acquisition, the Company's Board of
Directors consulted with the Company's legal and financial advisors as well as
with the Company's management and considered a number of factors, including the
following (the order of presentation does not necessarily reflect their relative
significance):
. The Acquisition will simplify the ownership structure of the Company and
its businesses. The Board of Directors believes the market value of the
Common Stock is driven almost entirely by the perceived value of
Nexell's business, and only to a limited extent by VIMrxyn(R)
(hypericin) and the VM301 wound healing agent, the Company's two
remaining drug development projects. As long as Nexell is perceived as
only partially owned by the Company, the Board believes the price of the
Common Stock is likely to be lower than it would be if the Company owned
all of Nexell.
. Easier identification of Nexell in the marketplace, including the stock
market. Many constituents of today's economy feel more comfortable
dealing with a publicly-traded company. By assuming sole ownership of
Nexell and changing the Company's name to Nexell, the Board believes
Nexell will achieve increased visibility and credibility in the
marketplace for its products.
. All future upside in Nexell's business will be captured for the
Company's stockholders, with no additional future dilution in the
ownership of Nexell.
. As a major stockholder of the Company, Baxter's extensive relationships
with major pharmaceutical and biotechnology companies may provide the
Company with greater access to the key decision makers of these
companies, resulting in additional commercial opportunities for the
Company. Further, Baxter's sponsorship of the Company may facilitate
financing from outside sources at a time when smaller biotechnology
companies, such as the Company, are not viewed favorably by the Wall
Street community.
. The terms and conditions of the Acquisition, which the Board and
management view as fair to, and in the best interests of, the Company
and its stockholders.
In addition, on March 18, 1998 U.S. Bancorp Piper Jaffray Inc., the
Company's financial advisor, presented to the Board of Directors its written
opinion to the effect that, as of such date and based upon and subject to the
assumptions, factors and limitations set forth therein, the consideration
proposed to be paid by the Company to Baxter in the Acquisition pursuant to the
Acquisition Agreement was fair, from a financial point of view, to the Company.
The Board of Directors also considered a number of potential risks and
disadvantages relating to the Acquisition, including the following material
risks or material adverse effects on the Company's stockholders (the order of
presentation does not necessarily reflect their relative significance):
. The risk that the Acquisition might not be consummated, and the possible
associated implications to investor relations and employee morale.
. The time, management resources and expenses required to be incurred by
the Company in connection with the Acquisition.
20
<PAGE>
. The possibility that Nexell's business will not prove successful and
that the Company's two remaining drug development projects, VIMRxyn(R)
and VM301, prove successful.
The Board believes the potential risks and disadvantages are outweighed by
the potential benefits anticipated to be realized from the Acquisition.
The foregoing discussion of the material factors considered by the Board is
not intended to be exhaustive. In view of the wide variety of factors considered
in connection with its evaluation of the Acquisition, the Board did not find it
practicable to, and did not, quantify or assign any relative or specific weights
to the foregoing matters, and individual directors may have deemed different
matters more significant than others.
BACKGROUND OF THE ACQUISITION
The Company approached Baxter in February 1998 to explore the possibility
of acquiring Baxter's interests in Nexell, other than Baxter's right to certain
milestone payments, in exchange for increasing Baxter's ownership position in
the Company. The parties continued negotiations through mid-December 1998, when
the financial terms were agreed upon. The parties executed a letter of intent
memorializing the transaction on January 12, 1999, and signed the definitive
Acquisition Agreement dated as of February 18, 1999.
The Company originally proposed to value Baxter's equity interest in Nexell
at approximately $10,000,000, based upon certain assumed values for the
Company's other businesses, which at that time included VIMRX Genomics, a joint
venture with Columbia University, which was terminated in the fall of 1998, and
Innovir Laboratories, which ceased operations at the end of 1998, as well as the
Company's ongoing VIMRxyn(R) and VM301 drug development programs. Baxter was
unwilling to accept this valuation and, in July 1998, the Company proposed to
value Baxter's Nexell interest at $20,000,000, approximately 20% of the value
paid by the Company for the assets of Baxter's Immunotherapy Division that
became Nexell in December 1997. In October 1998 Baxter proposed that the parties
assume that the Company's 80.5% ownership interest in Nexell constituted 75% of
the Company's total value, which would result in a valuation of $19,800,000 for
Baxter's 19.5% interest in Nexell based upon the Company's then market
capitalization. The Company believes this assumption, while not subject to
absolute proof, was equitable to the Company given the concurrent termination of
VIMRX Genomics' collaboration with Columbia University and the decision to
suspend operations at the Company's Innovir Laboratories subsidiary. Efforts to
license or sell Innovir's assets are continuing. As a result, the Company's
only remaining drug development programs are VIMRxyn(R) and the VM301 wound
healing compound, neither of which is likely to be marketed for several more
years, if at all. The combination of the 3,000,000 shares of Common Stock to be
issued to Baxter and the adjustment of the conversion price of the Series A
Preferred Stock held by Baxter were considered to be equal in value to the
assumed valuation of Baxter's 19.5% interest in Nexell at that time. The warrant
to be issued to Baxter by the Company was considered to be equal in value to the
warrant to acquire an additional 6% of Nexell's common stock for $6,000,000 held
by Baxter, and the approximately $33,000,000 principal amount of 6 1/2%
Convertible Subordinated Debentures to be issued to Baxter was considered to be
equal to
21
<PAGE>
the $30,000,000 principal amount of 6 1/2% convertible subordinated debentures
of Nexell, plus the accrued interest thereon to the date of closing of the
Acquisition, held by Baxter
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
The Company retained US Bancorp Piper Jaffray on January 20, 1999 to render
an opinion to its Board of Directors regarding the fairness to the Company, from
a financial point of view, of the consideration to be paid by the Company to
Baxter pursuant to the Acquisition Agreement.
On March 18, 1999 US Bancorp Piper Jaffray delivered to the Board of
Directors its written opinion (the "US Bancorp Piper Jaffray Opinion") to the
effect that, as of the date thereof and based upon and subject to the
assumptions, factors and limitations set forth therein, the consideration
proposed to be paid by the Company to Baxter in the Acquisition pursuant to the
Acquisition Agreement is fair, from a financial point of view, to the Company. A
copy of the US Bancorp Piper Jaffray Opinion is attached to this Proxy Statement
as Annex B and is incorporated herein by reference. Stockholders are urged to
read the US Bancorp Piper Jaffray Opinion in its entirety for a complete
description of the assumptions made, matters considered and limits of the review
undertaken.
US Bancorp Piper Jaffray was not requested to and did not make any
recommendation to the Board of Directors as to the specific form or amount of
the consideration to be paid by the Company in the Acquisition, which was
determined through negotiations between the Company and Baxter. US Bancorp Piper
Jaffray was not requested to opine as to, and the US Bancorp Piper Jaffray
Opinion does not address, the basic business decision to proceed with or effect
the Acquisition. The US Bancorp Piper Jaffray Opinion which was delivered to the
Board of Directors does not constitute a recommendation to any stockholder as to
how such stockholder should vote with respect to the Acquisition.
In arriving at the US Bancorp Piper Jaffray Opinion, US Bancorp Piper
Jaffray undertook such review, analyses and inquiries as they deemed necessary
and appropriate under the circumstances. Among other things, US Bancorp Piper
Jaffray reviewed: (i) the Acquisition Agreement; (ii) certain public information
related to the Company; (iii) certain publicly available financial and
securities data of the Company and selected public companies deemed comparable
to Nexell; (iv) to the extent publicly available, certain information concerning
selected acquisitions deemed comparable to the Acquisition; (v) certain publicly
available information relative to Nexell; and (vi) certain internal historical
and forecast financial information of Nexell and the Company on a combined and
stand-alone basis prepared for financial planning purposes and furnished by the
managements of Nexell and the Company. US Bancorp Piper Jaffray engaged in
discussions with members of the management of Nexell and the Company concerning
the financial condition, current operating results and business outlook for
Nexell and the Company on a combined and stand-alone basis. In addition, US
Bancorp Piper Jaffray visited the corporate headquarters of the Company and
Nexell and reviewed such other financial studies, business plans and analyses
provided by the management of Nexell and of the Company and considered such
other information as US Bancorp Piper Jaffray deemed appropriate for purposes of
the US Bancorp Piper Jaffray Opinion.
In delivering the US Bancorp Piper Jaffray Opinion to the Board of
Directors on March __, 1999, US Bancorp Piper Jaffray prepared and delivered to
the Board of Directors certain written materials containing various analyses and
other information material to the US Bancorp Piper Jaffray Opinion. The
following is a summary of these materials.
22
<PAGE>
Comparable Public Company Analysis
US Bancorp Piper Jaffray compared certain financial information and
valuation ratios relating to the Company to corresponding data and ratios from a
group of selected publicly traded companies deemed comparable to Nexell (Aastrom
Biosciences, Inc.; Advanced Tissue Sciences, Inc.; Cell Genesys, Inc.; Genzyme
Tissue Repair Corporation; Cerus Corporation; Organogenesis, Inc.; and
Transkaryotic Therapies, Inc.). This group was selected from those publicly
traded biotechnology companies that are involved in developing therapeutics
using cell therapy for large patient populations to treat ailments of the human
immune system or as solid tissue therapies. For purposes of its analysis, US
Bancorp Piper Jaffray utilized an implied company value (market capitalization
plus debt less cash) for Nexell of $____ million and for the Company of $____
million. This analysis produced comparable public company values ranging from
$____ million to $____ million, with a mean and median of $____ million and
$____ million, respectively. This analysis also produced multiples of selected
stock price as a percentage of 52-week high for the comparable public companies
ranging from ____% to ____%, with a mean and median of ____% and ____%
respectively. Due to the fact that Nexell, the Company and their publicly traded
comparable companies are in a development stage of their business cycle, US
Bancorp Piper Jaffray did not believe that the analysis of commonly used
valuation multiples such as company value to revenue, company value to operating
income, market value to tangible common equity and price per shares to earnings
per share was appropriate.
Discounted Cash Flow Analysis
US Bancorp Piper Jaffray estimated the net present value of the implied
future cash flows of Nexell on a stand-alone basis for 1999 through 2004 based
upon internal forecast financial information of Nexell prepared for financial
planning purposes provided by the managements of Nexell and the Company. US
Bancorp Piper Jaffray applied a range of terminal value multiples of forecasted
2004 earnings before interest and taxes of ___x, ___x and ___x and a range of
discount rates from ____% to ____%. This analysis yielded a range of estimated
present values for Nexell's equity of approximately $____ million to $____
million, compared to $____ million implied in the Acquisition.
Selected Acquisition Analysis
Using publicly available information, US Bancorp Piper Jaffray reviewed
certain pending and completed mergers and acquisitions from 1994 to present in
the biotechnology industry with acquisition values between $50 million and $250
million. Based on its review of the comparable acquisitions, US Bancorp Piper
Jaffray derived the range, mean and median of premiums paid or to be paid in the
comparable acquisitions to the public market valuation one day, one week and one
month before the announcement of the Acquisition. This produced a range premiums
for the comparable companies to the one day stock price of (____%) to ____%,
with a mean and median of ____% and ____%, respectively; a range of premiums to
the one week stock price of (____%) to ____%, with a mean and median of ____%
and ____%, respectively; and a range of premiums to the one month stock price of
(____%) to ____%, with a mean and median of ____% to ____%, respectively. These
premiums were compared to the ____% premium paid in the Acquisition to the
implied valuation of Nexell in connection with the acquisition by the Company of
an 80.5% interest in Nexell on December 18, 1997.
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No company, acquisition or business used in the Selected Acquisition
Analysis as a comparison is identical to Nexell or the Acquisition.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical; rather it involves complex considerations and judgments concerning
differences in acquisition timing, financial, operation and development stage
characteristics and other factors that could affect the Acquisition, public
trading and other values of the comparable companies, the comparable
acquisitions or the business segment, company or acquisitions to which they are
being compared.
Implied Company Value
US Bancorp Piper Jaffray also analyzed the implied company value of Nexell
by calculating the fully diluted market capitalization of the Company, dividing
that product by the Company's fully diluted ownership percentage of Nexell and
adding Nexell's net debt. The resulting implied company value for Nexell
attributed no value to the Company's assets other than Nexell. Therefore, the
net present value of the projected cash flows from the Company's two drug
development programs (based on information supplied by the Company's management)
were subtracted from the implied company value of Nexell calculated as set forth
above to arrive at a range of implied valuations of Nexell. This analysis
produced a range of implied company values for Nexell from $____ million to
$____ million.
In reaching its conclusion as to the fairness to the Company, from a
financial point of view, of the consideration to be paid by the Company to
Baxter in the Acquisition pursuant to the Acquisition Agreement and in its
presentation to the Board of Directors, US Bancorp Piper Jaffray did not rely on
any single analysis or factor described above, assign relative weights to the
analyses or factors considered by it, or make any conclusions as to how the
results of a given analysis, taken alone, supported its opinion. The preparation
of a fairness opinion is a complex process and not necessarily susceptible to
partial analyses or summary description. US Bancorp Piper Jaffray believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all factors
and analyses, would create a misleading view of the process underlying its
opinion. The analyses of US Bancorp Piper Jaffray are not necessarily indicative
of actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. Analyses relating to the value of
companies do not purport to be appraisals or valuations or necessarily reflect
the price at which companies may actually be sold. No company or acquisition
used in any comparable analyses as a comparison is identical to Nexell, the
Company or the Acquisition. Accordingly, an analysis of the results is not
mathematical; rather, it involves complex considerations and judgments
concerning, among other things, differences in financial, operating and
development stage characteristics of the comparable companies and other factors
that could affect the public trading values of the comparable companies to which
Nexell and the Company were compared.
For purposes of the US Bancorp Piper Jaffray Opinion, US Bancorp Piper
Jaffray relied upon and assumed the accuracy, completeness and fairness of the
financial statements and other information that was publicly available or was
provided to US Bancorp Piper Jaffray by Nexell and the Company, or otherwise
made available to US Bancorp Piper Jaffray, and have not assumed responsibility
or liability for the independent verification of such information. US Bancorp
Piper Jaffray relied upon the assurances of the management of Nexell and the
Company that the information provided to it by Nexell and the Company has been
prepared on a reasonable basis, and, with respect to financial planning data and
other business outlook information, reflects the best currently available
estimates, and that they are not aware of any information or facts that would
make the information provided to US Bancorp Piper
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Jaffray incomplete or misleading. Financial planning data was prepared by Nexell
and the Company based on numerous variables and assumptions that are inherently
uncertain, including, without limitation, factors related to general economic
and competitive conditions, and actual results could vary significantly from
those set forth in such financial planning data. US Bancorp Piper Jaffray has
assumed no liability for such financial planning data.
In arriving at its opinion, US Bancorp Piper Jaffray did not perform any
appraisals or valuations of any specific assets or liabilities of Nexell or the
Company, and was not furnished with any such appraisals or valuations. US
Bancorp Piper Jaffray expressed no opinion regarding the liquidation value of
any entity. No limitations were imposed by the Company on the scope of US
Bancorp Piper Jaffray's investigation or the procedures to be followed in
rendering its opinion. US Bancorp Piper Jaffray expressed no opinion as to the
price at which shares of the Company Common Stock have traded or may trade at
any future time. The US Bancorp Piper Jaffray Opinion is based upon information
available to US Bancorp Piper Jaffray and the facts and circumstances as they
existed and were subject to evaluation on the date of the US Bancorp Piper
Jaffray Opinion. Events occurring after such date could materially affect the
assumptions used in preparing the US Bancorp Piper Jaffray Opinion.
US Bancorp Piper Jaffray is an investment banking firm engaged, among
other things, in the valuation of businesses and their securities in connection
with mergers and acquisitions, underwriting and secondary distributions of
securities, private placements and valuations for estate, corporate and other
purposes. The Board of Directors selected US Bancorp Piper Jaffray because of
its expertise, reputation and familiarity with the biotechnology industry. In
the ordinary course of its business, US Bancorp Piper Jaffray and its affiliates
may actively trade securities of the Company and Baxter for their own account
and for the accounts of their customers, and, accordingly, may at any time hold
a long or short position in such securities.
In connection with the engagement of US Bancorp Piper Jaffray and the
rendering of its opinion to the Company, the Company paid US Bancorp Piper
Jaffray a retention fee of $50,000 upon execution of the engagement letter dated
January 20, 1999, and agreed to pay US Bancorp Piper Jaffray fees of $75,000
upon first presenting a fairness opinion to the Board of Directors and $75,000
upon the delivery of the US Bancorp Piper Jaffray Opinion. In addition, the
Company has agreed to reimburse US Bancorp Piper Jaffray for its reasonable out-
of-pocket expenses, including the fees and disbursements of counsel. These fees
were not contingent upon the consummation of the Acquisition. The Company has
agreed to indemnify US Bancorp Piper Jaffray against certain liabilities
incurred (including liabilities under the federal securities laws) in connection
with the engagement of US Bancorp Piper Jaffray by the Company.
ACCOUNTING TREATMENT
The Acquisition will be accounted for as a purchase of assets by the
Company.
Unaudited Pro Forma Condensed Combined Financial Information of the Company
giving effect to the Acquisition is attached as Annex C to this Proxy Statement.
TERMS OF THE ACQUISITION
The Company and Baxter have agreed to exchange Baxter's interests in Nexell
(common stock, warrant and convertible subordinated debentures, but excluding
its right to certain
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milestone payments) for (i) 3,000,000 shares of Common Stock, (ii) the
adjustment of the conversion price of the 70,282 shares of Series A Preferred
Stock, liquidation value $1,000 per share, owned by Baxter from $5.50 per share
to $2.75 per share, (iii) a seven year warrant to purchase 5,200,000 shares of
Common Stock at a price of $1.15 per share (the "Warrant"), and (iii)
approximately $33,000,000 principal amount of 6 1/2% Convertible Subordinated
Debentures. Under certain circumstances, believed by the Company as unlikely to
occur, the number of shares of Common Stock to be issued to Baxter may be
decreased and additional shares of Series A Preferred Stock may be issued in
lieu thereof.
The Series A Preferred Stock
On December 17, 1997, the Company issued 66,304 shares of Series A
Preferred Stock with a liquidation value of $1,000 per share to Baxter as part
of the payment by the Company for the assets of Baxter's Immunotherapy Division,
which business is now conducted through Nexell. The Series A Preferred Stock
bears a 6% annual dividend which is payable in the form of additional shares of
Series A Preferred Stock. Baxter currently holds 70,282 shares of Series A
Preferred Stock as a result of such dividend payments.
The only feature of the Series A Preferred Stock to be changed pursuant to
the Acquisition Agreement is the price at which the Series A Preferred Stock is
convertible into shares of Common Stock. When originally issued in 1997, the
conversion price of the Series A Preferred Stock was to be set at the highest
average closing bid price of the Common Stock for any sixty consecutive day
period between December 17, 1997 and June 17, 1999, but in no event less than
$5.50 per share or greater than $7.50 per share. Based on the performance of the
Common Stock since December 17, 1997, it is unlikely that the conversion price
would be fixed at a price other than $5.50 per share. Rather than issue
additional shares of Common Stock to Baxter to arrive at the agreed upon value
for Baxter's 19.5% common stock interest in Nexell, the Company and Baxter
agreed to reduce the conversion price of the Series A Preferred Stock to $2.75
per share and to eliminate certain anti-dilution provisions.
The Series A Preferred Stock will automatically convert into Common Stock
on December 17, 2004. Accordingly, if Baxter does not convert any shares prior
to such date, on December 17, 2004, it would own 99,697 shares of Series A
Preferred Stock as a result of the additional shares of Series A Preferred Stock
issued in payment of the 6% annual dividend payable; such 99,697 shares would
automatically convert into 36,253,345 shares of Common Stock on such date.
The Warrant
The Warrant entitles Baxter to purchase up to 5,200,000 shares of Common
Stock at any time for a period of seven years from the closing date of the
Acquisition at a purchase price of $1.15 per share. The Warrant is intended to
represent the equivalent value of Baxter's warrant to purchase 6% of Nexell's
common stock that Baxter is exchanging for the Warrant.
The 6 1/2% Convertible Subordinated Debentures
The 6 1/2% Convertible Subordinated Debentures bear interest at 6 1/2%
per annum and are due November 30, 2004. Interest accrues until November 30,
2002 and, together with one-third
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of the outstanding principal, is payable annually starting November 30, 2002.
There are two Debentures, one in the principal amount of approximately
$22,000,000 and the other in the principal amount of approximately $11,000,000,
which are identical, except that the $22,000,000 Debenture is convertible into
Common Stock commencing November 30, 2002 at the discretion of Baxter, while the
$11,000,000 Debenture is convertible only with the permission of the Company.
Subject to this distinction, the Debentures are convertible into shares of
Common Stock at any time on or after November 30, 2002 at a conversion price
equal to 95% of the average of the closing prices for the Common Stock on the
Nasdaq Stock Market for the 30 consecutive trading days prior to the conversion
date. The balance of the $22,000,000 Debenture then outstanding (estimated at
approximately $7,500,000 if all scheduled principal payments have been made)
will automatically convert into Common Stock on November 30, 2004.
The issuance of the 6 1/2% Convertible Subordinated Debentures by the
Company to Baxter in exchange for Nexell's 6 1/2% convertible subordinated
debentures will not have any net effect on the Company's balance sheet or
reported net worth as such Nexell debentures have been consolidated in the
Company's financial statements.
Registration Rights
Baxter has certain rights to require Nexell to register for resale by
Baxter the Nexell common stock issuable upon exercise of Baxter's warrant to
acquire 6% of Nexell and upon conversion of the $30,000,000 principal amount of
Nexell's 6 1/2% convertible subordinated debentures held by Baxter, and to
require the Company to register for resale by Baxter the shares of Common Stock
issuable upon conversion of the Series A Preferred Stock. Under the Acquisition
Agreement, the Company has agreed to extend such registration rights to the
shares issuable upon exercise of the Warrant and upon conversion of the 6 1/2%
Convertible Subordinated Debentures. Such registration rights entitle Baxter to
require the Company to register for resale in an underwritten offering the
Common Stock owned by Baxter, whether owned presently, issued upon conversion of
the Series A Preferred Stock, issued upon exercise of the Warrant, or issued
upon conversion of the 6 1/2% Convertible Subordinated Debentures. Baxter also
has certain rights to require the Company to register for resale such Common
Stock in the event the Company decides to register shares of its Common Stock
(other than pursuant to a registration on Form S-4 or S-8 or any successor
forms) for the Company's account for cash in a firm underwritten offering,
subject to limitation by the underwriter's representative.
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Baxter has warranted to the Company that it is the sole and exclusive
beneficial and legal owner of all of the Nexell securities being exchanged with
the Company and that it has good title to, and the absolute right to sell and
transfer, such securities to the Company, free and clear of all encumbrances
created by Baxter.
The Company has warranted to Baxter that, as of the closing date of the
Acquisition (the "Closing Date"), it will be in good standing in the State of
Delaware and in any other state where it is required to be qualified to do
business; that, subject to stockholder approval, it is duly authorized to
execute the Acquisition Agreement and to perform its various obligations
thereunder, including the issuance of the 3,000,000 shares of Common Stock, the
Warrant, the
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<PAGE>
adjustment of the conversion price of the Series A Preferred Stock and the
issuance of the 6 1/2% Convertible Subordinated Debentures. The Company has also
warranted to Baxter that since the date of the last quarterly report filed with
the SEC, the Company has not become aware of any fact which (i) would make the
statements of the Company contained in the Acquisition Agreement or in the SEC
reports filed with the SEC materially misleading; (ii) has had, or would
reasonably be expected to have, a material adverse effect on the Company; or
(iii) would reasonably be expected to materially and adversely affect the
ability of the Company to perform its obligations under the Acquisition
Agreement.
CONDITIONS TO CONSUMMATION OF THE ACQUISITION
The obligations of the Company to consummate the Acquisition are subject to
the following conditions:
. All representations and warranties of Baxter contained in the
Acquisition Agreement shall, in all material respects, be true and
correct on and as of the Closing Date with the same force and effect as
though such representations and warranties had been made on and as of
the Closing Date.
. Baxter shall, in all material respects, have performed and complied with
all of the covenants and agreements required by or pursuant to the
Acquisition Agreement to be performed or complied with by it on or prior
to the Closing Date.
. The Board of Directors of the Company shall have received a fairness
opinion by US Bancorp Piper Jaffray, in form and substance satisfactory
to the Board, as to the fairness of the Acquisition to the Company.
The obligations of Baxter to consummate the Acquisition are subject to the
following conditions:
. All representations and warranties of the Company and Nexell contained
in the Acquisition Agreement shall, in all material respects, be true
and correct on and as of the Closing Date with the same force and effect
as though such representations and warranties had been made on and as of
the Closing Date.
. The Company and Nexell shall, in all material respects, have performed
and complied with all of the covenants and agreements required by or
pursuant to the Acquisition Agreement to be performed or complied with
by them on or prior to the Closing Date.
. There has not been, and no facts or circumstances exist as of the
Closing Date that would be reasonably likely to cause, any material
adverse change in either the Company's or Nexell's financial condition,
operating results or business prospects.
. The Company shall have assumed all outstanding options under Nexell's
1998 Non-Incentive Stock Option Plan.
. Nexell shall have filed with the Secretary of State of the State of
Delaware a Certificate of Amendment to its Certificate of Incorporation
changing its name to "Nexell of California, Inc."
. The Company shall have filed with the Secretary of State of the State of
Delaware a Certificate of Amendment to its Certificate of Incorporation
changing its name to "Nexell Therapeutics Inc." and changing the
conversion price of its Series A
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Preferred Stock to $2.75 per share. This condition requires that
Proposal 3 - Approval of Amendments to the Certificate of Incorporation,
be approved by the Company's stockholders.
The respective obligations of the Company and Baxter to consummate the
Acquisition are subject to the following conditions:
. The Acquisition Agreement and the transactions and actions contemplated
therein shall have been approved and adopted by the requisite vote of
the Company's stockholders in accordance with applicable Delaware law
and the rules and regulations of Nasdaq.
. All other consents, approvals or orders of any governmental authority,
the granting of which is required for the lawful consummation of the
Acquisition shall have been obtained, and all other waiting and
notification periods specified under applicable law, the termination or
expiration of which is necessary for such consummation, shall have been
terminated or shall have expired.
. No laws shall have been adopted or promulgated, and no temporary
restraining order, preliminary or permanent injunction or other order
issued by a court or other governmental entity shall be in effect,
having the effect of making the Acquisition illegal or otherwise
prohibiting consummation of the Acquisition, and no actions, suits,
claims, proceedings or investigations shall be instituted by any
governmental entity which seeks to prevent consummation of the
Acquisition or seeks material damages in connection with the
transactions contemplated thereby which continues to be outstanding.
COVENANTS OF THE PARTIES
Baxter has agreed that, prior to the Closing Date, it shall not sell,
transfer or otherwise dispose of any of the Nexell securities to be exchanged
with the Company; nor mortgage, pledge or otherwise subject any of such Nexell
securities to any encumbrance, except for encumbrances arising by operation of
law and not due to any action or inaction on the part of Baxter; nor to take any
action inconsistent with the consummation of the Acquisition Agreement and the
transactions contemplated thereunder.
The Company has agreed that, prior to the Closing Date, it shall preserve
and maintain its corporate existence and good standing in the jurisdiction of
its incorporation; continue to operate, in all material respects, in the
ordinary course of business; not take any action inconsistent with the
consummation of the Acquisition Agreement and the transactions contemplated
thereunder; use its best efforts to maintain and preserve satisfactory
relationships with suppliers, contractors, customers, creditors and others with
which it has a business relationship; duly and promptly call, give notice of,
convene and hold a meeting of the Company's stockholders for the purpose of
considering and taking action upon the Acquisition Agreement and all
transactions and actions contemplated therein requiring approval by the
Company's stockholders; assume all outstanding options under Nexell's 1998 Non-
Incentive Stock Option Plan; cause Nexell to file with the Secretary of State
for the State of Delaware a Certificate of Amendment to its Certificate of
Incorporation to change its name to "Nexell of California, Inc."; and subject to
the approval of
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the Company's stockholders, file with the Secretary of State of the State of
Delaware a Certificate of Amendment to its Certificate of Incorporation to
change its name to "Nexell Therapeutics Inc." and to change the conversion price
of the Series A Preferred Stock to $2.75 per share.
If the Acquisition is consummated, the Company has agreed with Baxter that
it will not, and will not allow Nexell, either directly or indirectly, without
the prior written consent of Baxter so long as Baxter owns three percent (3%) or
more of the issued and outstanding capital stock of the Company, to (i) sell,
transfer or otherwise dispose of all or substantially all of the operating
assets of Nexell, (ii) issue, sell, transfer or otherwise dispose of any
securities of Nexell, or (iii) permit a merger or consolidation involving Nexell
where immediately following such merger or consolidation Nexell shall not be the
surviving entity, the Company shall cease to own 100% of any securities of
Nexell, and the Company shall cease to possess 100% of the voting interest in
Nexell.
If the Acquisition is consummated, the Company has also agreed with Baxter
that, in the event any of the 6 1/2% Convertible Subordinated Debentures would
be convertible into a number of shares of Common Stock in excess of the
authorized number of shares of Common Stock as then stated in its Certificate of
Incorporation, the Company shall use its best efforts, without demand by Baxter,
to obtain approval of the Company's stockholders to any amendments to its
Certificate of Incorporation required to increase its authorized shares of
Common Stock to such amount as shall be required to issue authorized shares of
Common Stock upon any such conversion. Proposal No. 3 - Authorization of
Amendments to the Certificate of Incorporation, including an increase in the
number of authorized shares of Common Stock to 160,000,000 is partially a result
of the Company's effort to comply with this covenant.
If the Acquisition is consummated, the Company has further agreed with
Baxter that it will not, either directly or indirectly, without the prior
written consent of Baxter, purchase, redeem or otherwise acquire any outstanding
shares of Common Stock where, immediately following such purchase, redemption or
acquisition, Baxter would own 20% or more of the issued and outstanding Common
Stock, unless immediately prior to such purchase, redemption or other
acquisition, Baxter already owned 20% or more of the issued and outstanding
Common Stock.
TERMINATION
The Acquisition Agreement may be terminated at any time prior to the
Closing Date.
. by mutual consent of Baxter, the Company and Nexell;
. by the Company, if (i) there has been a material misrepresentation or
breach on the part of Baxter with respect to any representation or
warranty of Baxter set forth in the Acquisition Agreement, or (ii) there
has been any material failure on the part of Baxter to comply with any
of its obligations or to perform any of its covenants under the
Acquisition Agreement, which failure, if capable of remedy, has not been
remedied within 15 days of receipt by Baxter of notice thereof, or (iii)
any of the conditions to be met by Baxter shall not have been fulfilled
by June 30, 1999 (other
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than by virtue of a breach of the Acquisition Agreement by the Company
or Nexell) and the fulfillment thereof shall not have been waived by the
Company; or
. by Baxter, if (i) there has been a material misrepresentation or breach
on the part of the Company or Nexell with respect to any of their
respective representations or warranties set forth in the Acquisition
Agreement, or (ii) there has been any material failure on the part of
the Company or Nexell to comply with any of their respective obligations
or to perform any of their respective covenants under the Acquisition
Agreement, which failure, if capable of remedy, has not been remedied
within 15 days of receipt by the Company or Nexell, as appropriate, of
notice thereof, or (iii) any of the conditions to be met by the Company
or Nexell shall not have been fulfilled by June 30, 1999 (other than by
virtue of a breach of the Acquisition Agreement by Baxter) and the
fulfillment thereof shall not have been waived by Baxter.
In the event of a termination of the Acquisition Agreement as provided
therein, the Acquisition Agreement shall forthwith terminate and there shall be
no liability on the part of Baxter, the Company or Nexell, except for liability
arising from a breach thereof.
CLOSING OF THE ACQUISITION
The Acquisition is expected to close within thirty days of the receipt of
stockholder approval of the Acquisition and the Amendments to the Certificate of
Incorporation at the Annual Meeting.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
In considering the recommendation of the Board of Directors with respect to
the Acquisition, the Company's stockholders should be aware that Baxter is
already the single largest stockholder of the Company and that Baxter has one
representative on the Company's Board of Directors, Victor Schmitt. Mr.
Schmitt, who abstained from voting on approval of the Acquisition in his
capacity as a director of the Company, is President-Venture Management of
Baxter. The Board of Directors recognized these interests and took these
interests into account in approving the Acquisition and the transactions
contemplated thereby.
ASSUMPTION OF NEXELL STOCK OPTIONS
At the closing of the Acquisition, each unexpired and unexercised option to
purchase Nexell's common stock issued pursuant to Nexell's 1998 Non-Incentive
Stock Option Plan for Directors, Employees and Consultants will automatically be
converted into an option to purchase Common Stock at the rate of three shares of
Common Stock at a price of $1.67 per share for each Nexell share purchasable
(all Nexell options provided for a purchase price of $5.00 per Nexell share).
The Nexell Option Plan, which was approved by the Company's stockholders at the
Annual Meeting of Stockholders held on June 23, 1998, anticipated that Nexell
might become a wholly-owned subsidiary of the Company and provided for such
automatic conversion.
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PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Combined Financial Information of the Company
giving effect to the Acquisition is attached as Annex C to this Proxy Statement.
REQUIRED VOTE
Approval of the Acquisition will require the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock present in
person or represented by proxy at the Annual Meeting and entitled to vote. In
instances where brokers are prohibited from exercising discretionary authority
for beneficial owners who have not returned proxies ("broker non-votes"), those
shares (and abstentions) will not be included in the vote totals, and therefore
will have no effect on the approval of the Acquisition. Unless marked to the
contrary, proxies received will be voted FOR approval of the Acquisition.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE ACQUISITION AND
THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST INTERESTS OF,
THE COMPANY AND ITS STOCKHOLDERS, AND RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
APPROVAL OF THE ACQUISITION.
PROPOSAL 3 -- APPROVAL OF AMENDMENTS TO THE
CERTIFICATE OF INCORPORATION
The Board of Directors has adopted, subject to approval by the
stockholders, amendments to the Company's Certificate of Incorporation, in
substantially the form attached as Annex D to this Proxy Statement, which would
. change the name of the Company to "Nexell Therapeutics Inc."
. change the terms of the Series A Cumulative Convertible Preferred Stock,
all of which is held by Baxter, by altering the conversion terms and
modifying other terms in order to comply with the closing conditions of
the Acquisition.
. increase the authorized capital stock from 120,150,000 shares to
161,150,000 shares, of which 1,000,000 shares will be a newly authorized
class of "blank check" preferred stock.
CHANGING THE COMPANY'S NAME TO "NEXELL THERAPEUTICS INC."
The Board has made the strategic business decision to change the Company's
name to Nexell Therapeutics Inc., the current name of its majority-owned
subsidiary and principal business unit. Over the past three years, the
Company's core business has changed from hypericin to cell therapy and the Board
believes the name "Nexell Therapeutics" more clearly reflects the major focus of
its business and that the change of name is appropriate and in the Company's
best interest.
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CHANGING THE TERMS OF THE SERIES A PREFERRED STOCK.
A principal condition to the closing of the Acquisition is a change to the
terms of the Series A Preferred Stock through an amendment to the Certificate of
Incorporation to
. fix the conversion price of the Series A Preferred Stock at $2.75 per
share. The Certificate of Incorporation currently provides that the
conversion price will be set in July 1999 based on the market price of
the Common Stock at that time, subject to a maximum conversion price of
$7.50 per share and a minimum conversion price of $5.50 per share.
. eliminate the anti-dilution provision reducing the conversion price of
the Series A Preferred Stock in the event the Company were to issue
Common Stock, or securities convertible into Common Stock, prior to June
17, 1999 at a price below the conversion price then in effect.
. effect certain non-substantive grammatical changes, such as substituting
actual dates for phrases describing such dates.
For a further description of the terms of the Series A Preferred Stock, see
"Proposal 2 - Approval of the Acquisition of Baxter's Minority Interest in
Nexell - Terms of the Acquisition -The Series A Preferred Stock".
INCREASING THE AUTHORIZED CAPITAL STOCK AND AUTHORIZING "BLANK CHECK" PREFERRED
STOCK
The Certificate of Incorporation presently authorizes the issuance of up to
120,000,000 shares of Common Stock, $.001 par value, and 150,000 shares of
Series A Preferred Stock.
Following consummation of the Acquisition, the Company will have
approximately 73,000,000 shares of Common Stock issued and outstanding and will
have undertaken to reserve an aggregate of approximately 65,000,000 shares for
issuance
. upon conversion of the Series A Preferred Stock (approximately
36,253,345 shares, assuming no conversions prior to December 17, 2004,
the date the Series A Preferred Stock automatically converts into Common
Stock),
. upon exercise of stock options (9,836,000 shares, assuming approval of
the 1,000,000 share increase in the number of shares under the 1997
Incentive and Non-Incentive Stock Option Plan),
. upon exercise of the Warrant (5,200,000 shares),
. upon exercise of other warrants (2,568,333 shares), and
. upon conversion of the 6 1/2% Convertible Subordinated Debentures (an
indefinite amount as the Debentures are convertible at a conversion
price equal to 95% of the average of the closing prices on the Nasdaq
Stock Market for the 30 consecutive trading days prior to the conversion
date), approximately 11,500,000 shares of
33
<PAGE>
Common Stock, assuming a market price of $3.00 on November 30, 2002, the
date the Debentures are initially convertible.
Accordingly, the Company will require a minimum of approximately
138,000,000 shares of Common Stock to be authorized in order to meet its
obligations, an amount in excess of the 120,000,000 shares presently authorized.
In addition to increasing the authorized Common Stock from 120,000,000
shares to 160,000,000 shares, the Amendments authorize the creation of 1,000,000
shares of preferred stock. The newly authorized class of preferred stock will
provide the Board with the authority, without further action by the
stockholders, to issue up to 1,000,000 shares of preferred stock and to
establish and designate the classes, series, voting powers, designations,
preferences and relative, participating, optional or other rights, and such
qualifications, limitations and restrictions with respect of such shares as the
Board, in its sole discretion, may determine.
The rights, preferences, privileges, and restrictions or qualifications of
different series of preferred stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions, and other matters. The issuance of
additional preferred stock could decrease the amount of earnings and assets
available for distribution to holders of Common Stock or could adversely affect
the rights and powers, including voting rights, of holders of Common Stock.
The existence of the preferred stock and the power of the Board to set the
terms and issue a series of preferred stock at any time, without stockholder
approval, could also have certain anti-takeover effects by making the Company a
less attractive target for a "hostile" takeover bid.
Although the Board has no present plans to issue any additional shares of
Common Stock or preferred stock, it believes it is desirable to have additional
shares of Common Stock and the preferred stock authorized and available for
financing transactions, acquisitions and other corporate purposes. Having such
authorized shares available for issuance in the future would provide the Company
with flexibility in financings, acquisitions and other transactions by allowing
the shares to be issued without the expense and delay of a special stockholders'
meeting.
REQUIRED VOTE
Approval of the Amendments to the Certificate of Incorporation requires the
affirmative vote by the holders of a majority of the outstanding shares of
Common Stock (___________ shares of the __________ shares outstanding) and by
the holders of a majority of the outstanding shares of the Series A Preferred
Stock. Baxter, the holder of all of the outstanding shares of the Series A
Preferred Stock, has advised the Company that it intends to vote FOR the
Amendments. In instances where brokers are prohibited from exercising
discretionary authority for beneficial owners who have not returned proxies
("broker non-votes"), those shares (and abstentions) will have the effect of a
vote against the Amendments since the affirmative vote of a majority of the
issued and outstanding shares is required for approval of this proposal. Unless
marked to the contrary, proxies received will be voted FOR approval of the
Amendments.
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<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE AMENDMENTS TO THE CERTIFICATE OF INCORPORATION.
PROPOSAL 4 --APPROVAL OF AMENDMENT TO 1997 INCENTIVE
AND NON-INCENTIVE STOCK OPTION PLAN
GENERAL
Under the Company's 1997 Incentive and Non-Incentive Stock Option Plan,
as amended, approved by stockholders in 1997, an aggregate of 2,000,000 shares
are reserved for issuance upon exercise of options thereunder. Under the 1997
Plan, incentive stock options, as defined in section 422 of the Internal Revenue
Code (the "Code"), may be granted to employees and non-incentive stock options
may be granted to employees, directors and other persons as the Stock Option
Committee appointed by the Board of Directors determines will contribute to the
Company's success, at exercise prices equal to at least 100% (with respect to
incentive stock options) and at least 50% (with respect to non-incentive stock
options) of the fair market value of the Common Stock on the date of grant. In
addition to selecting the optionees, the Committee determines the number of
shares of Common Stock subject to each option, the term of each non-incentive
stock option, the time or times when the non-incentive stock option becomes
exercisable, and otherwise administers the 1997 Plan. Options are granted for a
term determined by the Committee, not to exceed ten years, and are exercisable
on terms and conditions determined by the Committee. Generally, options granted
under the 1997 Plan may not be exercised more than three months following
termination of employment or engagement, except terminations by reason of death
or disability, in which case such options may be exercised for one year
following such event. However, the Committee may in its discretion extend the
time required to exercise non-incentive options for up to ten years after the
date of grant.
The purpose of the 1997 Plan is to further the growth and development of
the Company by encouraging selected employees, directors and other persons who
contribute and are expected to contribute materially to the Company's success to
obtain a proprietary interest in the Company through the ownership of its Common
Stock, thereby providing such persons with an added incentive to promote the
best interests of the Company and affording the Company a means of attracting
persons of outstanding ability to its service. Approximately 12 employees of
the Company, 100 employees of Nexell and an indeterminate number of consultants
and others are eligible to participate in the 1997 Plan.
As of the Record Date, options to purchase an aggregate of 725,600 shares
of Common Stock had been granted and were outstanding under the 1997 Plan,
1,274,400 shares were available for future grants thereunder and 321,250 shares
were available under other plans. Management proposes to amend the 1997 Plan to
make an additional 1,000,000 shares available for issuance thereunder in order
to accommodate the Company's anticipated continuing growth.
35
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following is based upon federal tax laws and regulations as presently
in effect and does not purport to be a complete description of the federal
income tax aspects of the 1997 Plan. Also, the specific state tax consequences
to each participant under the Plan may vary, depending upon the laws of the
various states and the individual circumstances of each participant.
Accordingly, participants should consult with their own tax advisors.
Incentive Stock Options
No taxable income is recognized by the optionee upon the grant of an
incentive stock option. Further, no taxable income will be recognized by the
optionee upon exercise of an incentive stock option and no expense deduction
will be available to the Company, provided the optionee holds the shares
acquired upon such exercise for at least two years from the date of grant of the
option and for at least one year from the date of exercise. Any gain on the
subsequent sale of the shares will be considered long-term capital gain provided
the two-year and one-year holding periods are met. The gain recognized upon the
sale of the shares is equal to the excess of the amount realized upon the sale
(usually the selling price of the shares) over the exercise price. Therefore,
the net federal income tax effect on an optionee fulfilling the foregoing
holding requirements is to defer, until the shares are sold, taxation of any
increase in the value of the shares from the exercise price and to treat such
gain, at the time of sale, as capital gain rather than ordinary income.
However, in general, if the optionee sells the shares within two years from the
date of the option grant or within one year from the date of exercise (referred
to as a "disqualifying disposition,") the optionee will recognize taxable income
at ordinary tax rates in an amount equal to the lesser of (i) the value of the
shares on the date of exercise, less the exercise price; or (ii) the amount
realized on the date of sale, less the exercise price, and the Company will
receive a corresponding business expense deduction. The balance of any gain
recognized on a disqualifying disposition will be long-term or short-term
capital gain depending upon the holding period of the optioned shares. The
special two-year and one-year holding periods for incentive options do not apply
to option shares which are disposed of by the optionee's estate or a person who
acquired such shares by reason of the death of the optionee.
An employee may be subject to an alternative minimum tax upon exercise of
an incentive stock option since the excess of the fair market value of the
shares purchased at the date of exercise over the exercise price must be
included in alternative minimum taxable income, unless the shares are disposed
of in the same year that the option was exercised.
Non-Incentive Stock Options
As in the case of incentive stock options, the grant of a non-incentive
stock option will not result in any taxable income to the optionee. However,
the tax treatment upon exercise of non-incentive stock options is different.
Generally, the optionee will recognize ordinary income when the option is
exercised in the amount by which the fair market value of the shares acquired
upon exercise of the option on the date of exercise exceeds the exercise price
and the Company will be entitled to a corresponding business expense deduction.
The income recognized by the optionee is compensation income subject to income
tax withholding by the Company.
36
<PAGE>
The fair market value of the shares on the date of exercise will constitute
the tax basis of the shares for computing gain or loss on any subsequent sale.
Any gain or loss recognized by the optionee upon the subsequent disposition of
the shares will be treated as capital gain or loss and will qualify as long-term
capital gain or loss if the shares have been held for the requisite holding
period (more than twelve months at the date of this Proxy Statement).
Section 162(m) of the Code
Under Section 162(m) of the Code, certain compensation payments in excess
of $1 million are subject to a limitation on deductibility for the Company. The
limitation on deductibility applies with respect to that portion of a
compensation payment for a taxable year in excess of $1 million to either the
Company's Chief Executive Officer or any one of its four other most highly
compensated executive officers. Certain performance-based compensation is not
subject to the limitation on deductibility. Options can qualify for this
performance-based exception, but only if they are granted at fair market value,
the total number of shares that can be granted to an executive for a specified
period is stated, and shareholder and Board approval of the plan is obtained.
The 1997 Plan is designed to comply with such performance-based criteria, except
that non-qualified stock options granted with an exercise price less than the
fair market value of the Common Stock on the date of grant will not meet such
performance-based criteria and, accordingly, the compensation attributable to
such options will be subject to the deductibility limitations contained in
Section 162(m) of the Code.
At the date of this Proxy Statement, long-term capital gain is taxed to
individuals at a maximum preferential rate of 20% (10% for individuals in the
15% bracket), while items of ordinary income are currently taxed to individuals
at a maximum rate of 39.6%.
REQUIRED VOTE
Approval of the amendment to the 1997 Plan requires the affirmative vote
by the holders of a majority of the outstanding shares of Common Stock present
in person or represented by proxy at the Annual Meeting and entitled to vote. In
instances where brokers are prohibited from exercising discretionary authority
for beneficial owners who have not returned proxies ("broker non-votes"), those
shares (and abstentions) will not be included in the vote totals, and therefore
will have no effect on approval of the amendment to the1997 Plan. Unless marked
to the contrary, proxies received will be voted FOR approval of the amendment to
the 1997 Plan.
The Board of Directors recommends that stockholders vote FOR approval of
the amendment to the 1997 Plan.
PROPOSAL 5 -- RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
Subject to ratification by the stockholders, the Board of Directors has re-
appointed KPMG LLP as independent auditors for the year ending December 31,
1999. KPMG audited the Company's financial statements in fiscal 1998 and 1997.
37
<PAGE>
Prior to fiscal year 1997, the independent auditors of the Company had been
Richard A. Eisner & Company, LLP, who were replaced upon recommendation of the
Audit Committee on May 15, 1997. At no time did any report on the financial
statements of the Company by Richard A. Eisner & Company, LLP contain an adverse
opinion or a disclaimer of opinion, or a qualification or modification as to
uncertainty, audit scope or accounting principles. The decision to change
accountants was occasioned by developments in 1996 and early 1997, and not by
any disagreement or advice given on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure. In
particular, in light of the acquisition by the Company of a controlling interest
in Innovir Laboratories, Inc., the Audit Committee concluded in 1997 that it
would be most efficient and in the best interests of both Innovir and the
Company for the same auditors to audit both companies. The Company solicited
proposals from four auditing firms, including Richard A. Eisner & Company, LLP.
KPMG LLP was chosen as a result of this process, and was engaged by the Company
as its principal auditors on May 15, 1997.
It is anticipated that a representative of KPMG LLP will be present at the
Annual Meeting to respond to appropriate questions and to make a statement, if
he or she so desires.
REQUIRED VOTE
Ratification of the appointment of KPMG LLP as independent auditors will
require the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock present in person or represented by proxy at the Annual
Meeting and entitled to vote. In instances where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not returned
proxies ("broker non-votes"), those shares (and abstentions) will not be
included in the vote totals, and therefore will have no effect on the proposal.
Unless marked to the contrary, proxies received will be voted FOR ratification
of the appointment of KPMG LLP as independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS FOR THE YEAR
ENDING DECEMBER 31, 1999.
OTHER BUSINESS
Management does not know of any matter to be brought before the Annual
Meeting other than as described above. In the event any other matter properly
comes before the Annual Meeting, the persons named in the accompanying form of
proxy have discretionary authority to vote on such matters.
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<PAGE>
STOCKHOLDER PROPOSALS
Any stockholder proposal to be considered for inclusion in the Company's
proxy soliciting material for the next Annual Meeting of Stockholders must be
received by the Company at its principal office by January 30, 2000.
Dated: April __, 1999
39
<PAGE>
PROXY
VIMRX PHARMACEUTICALS INC.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Donald G. Drapkin and Richard L. Dunning,
and each of them, proxies, each with the power of substitution, to vote the
shares of the undersigned at the Annual Meeting of Stockholders of VIMRX
Pharmaceuticals Inc. on May 25, 1999, and any adjournments and postponements
thereof, upon all matters as may properly come before the Annual Meeting.
Without otherwise limiting the foregoing general authorization, the proxies are
instructed to vote as indicated herein. Please complete, date and sign on the
reverse side and mail in the enclosed envelope.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR MATTERS (1), (2), (3), (4),
(5) AND (6) LISTED BELOW, TO COME BEFORE THE ANNUAL MEETING:
(1) Election of four (4) directors: Nominees: Donald G. Drapkin
-------- Richard L. Dunning
Eric A. Rose, M.D.
Victor W. Schmitt
[ ] FOR [ ] WITHHELD
For, except withheld from the following nominees:
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
(2) To approve the acquisition of the minority interest of Baxter
Healthcare Corporation in Nexell Therapeutics Inc.,
[ ] FOR [ ] WITHHELD [ ] ABSTAIN
(3) To approve amendments to the Certificate of Incorporation of the
Company which would:
. change the Company's name to "Nexell Therapeutics Inc.";
. change the terms of the Company's Series A Cumulative Convertible
Preferred Stock, all of which is held by Baxter, by altering the
conversion terms and modifying other terms in order to comply with
the closing conditions of the Company's acquisition of Baxter's
interest in Nexell; and
<PAGE>
. increase the authorized capital stock from 120,150,000 shares to
161,150,000 shares, of which 1,000,000 shares will be a newly
authorized class of "blank check" preferred stock.
[ ] FOR [ ] WITHHELD [ ] ABSTAIN
(4) To approve an amendment to the Company's 1997 Incentive and Non-
Incentive Stock Option Plan to increase the number of shares of Common
Stock issuable under the Plan from 2,000,000 shares to 3,000,000 shares.
[ ] FOR [ ] WITHHELD [ ] ABSTAIN
(5) To ratify the appointment of KPMG LLP as independent auditors of the
Company for the year ending December 31, 1999.
[ ] FOR [ ] WITHHELD [ ] ABSTAIN
(6) Upon any and all other business that may come before the Annual
Meeting.
Check here if you plan to attend the Annual Meeting of Stockholders.[ ]
This Proxy, which is solicited on behalf of the Board of Directors,
will be voted FOR the matters described in paragraphs (1), (2), (3), (4), (5)
and (6) unless the stockholder specifies otherwise, in which case it will be
voted as specified.
SIGNATURE(S):
_________________________________________________________ DATE: ____________
Note: Executors, Administrations, Trustees, Etc. should give full title.
2
<PAGE>
ANNEX A
ACQUISITION AGREEMENT
---------------------
ACQUISITION AGREEMENT ("Agreement"), made this 18th day of February,
1999, by and among BAXTER HEALTHCARE CORPORATION, a Delaware corporation
with offices at 1627 Lake Cook Road, Deerfield, Illinois 60015 ("Baxter"),
VIMRx PHARMACEUTICALS INC., a Delaware corporation with offices at 2751
Centerville Road, Suite 210, Wilmington, Delaware 19808 ("VIMRx") and
NEXELL THERAPEUTICS INC. (f/k/a BIT ACQUISITION CORP.), a Delaware
corporation with offices at 9 Parker, Irvine, California 92518 ("Nexell").
WHEREAS, pursuant to an Asset Purchase Agreement, dated as of October
10, 1997, by and among Baxter, VIMRx and Nexell (the "Asset Purchase
Agreement"), Baxter, VIMRx and Nexell agreed to enter certain transactions
whereby, among other things, certain assets from the Immunotherapy Division
of Baxter's Biotech Business Group were acquired by Nexell, a then wholly-
owned subsidiary of VIMRx, in exchange for Baxter's acquisition of certain
securities of VIMRx and Nexell (the "Original Transactions"); and
WHEREAS, the Original Transactions were consummated as of December 17,
1997; and
WHEREAS, Baxter now desires to have VIMRx acquire, and VIMRx now desires
to acquire, Baxter's entire interest in Nexell, in exchange for Baxter's
acquisition of additional VIMRx Common Stock (as hereinafter defined) and
certain other securities of VIMRx; and
WHEREAS, upon VIMRx's acquisition of Baxter's interest in Nexell in
accordance with the terms and conditions hereof, Nexell would become a
wholly-owned subsidiary of VIMRx; and
WHEREAS, the parties hereto wish to set forth their agreement with
respect to the purchase and the sale of such securities; and
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, the parties hereto agree as follows:
1. Definitions and Interpretation
------------------------------
1.1 Definitions. Capitalized terms used herein shall have the following
-----------
meanings:
"Acquired VIMRx Securities" shall mean the VIMRx Common Stock, VIMRx
Preferred Stock (if any), VIMRx Warrant and VIMRx Convertible Debentures
to be acquired by Baxter pursuant to Section 2.2 hereof.
<PAGE>
"Affiliate" shall mean, with respect to any party hereto, any entity (i)
which directly, or indirectly through one or more intermediaries, Controls,
is Controlled by, or is under common Control with, the party hereto or (ii)
fifty percent (50%) or more of the voting capital stock (or in the case of
an entity which is not a corporation, fifty percent (50%) or more of the
equity interest) of which is beneficially owned or held by a party hereto
or any of such party's Subsidiaries.
"Agreement" shall have the meaning assigned thereto in the Preamble to
this Agreement.
"Asset Purchase Agreement" shall have the meaning assigned thereto in
the Preamble to this Agreement.
"Authority" shall mean any federal, state, municipal, foreign or other
government or governmental department, commission, board, bureau, agency or
instrumentality.
"Baxter" shall have the meaning assigned thereto in the Preamble to this
Agreement.
"Baxter Shares" shall have the meaning assigned thereto in Section
2.2(B) hereof.
"Closing Date" shall have the meaning assigned thereto in Section 2.5
hereof.
"Closing" shall have the meaning assigned thereto in Section 2.5 hereof.
"Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of an
entity (other than a natural person), whether through the ownership of
voting capital stock, by contract or otherwise.
"Conversion VIMRx Securities" shall mean any VIMRx Common Stock issuable
upon conversion or exercise of the Acquired VIMRx Securities other than the
VIMRx Common Stock to be acquired by Baxter pursuant to Section 2.2(A)
hereof.
"Encumbrance" shall mean collectively all liens, charges, security
interests, encumbrances or claims of every kind or nature whatsoever,
whether legal or equitable.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Nasdaq" shall mean the Nasdaq Stock Market.
"Nexell" shall have the meaning assigned thereto in the Preamble to this
Agreement.
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<PAGE>
"Nexell Common Stock" shall mean the common stock of Nexell, $.001 par
value per share.
"Nexell Convertible Debentures" shall collectively mean (i) the Series 1
6.5% Convertible Subordinated Debenture due November 30, 2004 in the
principal amount of $10,000,000.00 and (ii) the Series 3 6.5% Convertible
Subordinated Debenture due November 30, 2004 in the principal amount of
$20,000,000.00, issued by Nexell to Baxter pursuant to the Asset Purchase
Agreement.
"Nexell Securities" shall mean the Nexell Common Stock, the Nexell
Warrant and the Nexell Convertible Debentures acquired by Baxter pursuant
to the Asset Purchase Agreement.
"Nexell Warrant" shall mean the Common Stock Purchase Warrant for 6.383
shares of Nexell Common Stock at a per share price of $939,996.86, issued
by Nexell to Baxter pursuant to the Asset Purchase Agreement.
"Original Transactions" shall have the meaning assigned thereto in the
Preamble to this Agreement.
"Original Transaction Agreements" shall mean the following documents
executed by Baxter, VIMRx and Nexell, as the case may be, in connection
with the Original Transactions pursuant to the Asset Purchase Agreement
(except for the Registration Rights Agreement and the Stockholders'
Agreement, each such document shall have the meaning ascribed thereto in
the Asset Purchase Agreement):
(i) the Distribution Agreement,
(ii) the Non-Competition and Confidentiality Agreement,
(iii) the Assignment of Parker Lease,
(iv) the Registration Rights Agreement,
(v) the First BD Sublicense,
(vi) the Second BD Sublicense,
(vii) the Dorken Sublicense,
(viii) the Chiron Sublicense,
(ix) the Stockholders' Agreement,
(x) the Services Agreement,
(xi) the Antibody Manufacturing and Storage Agreement,
(xii) the Royalty Assignment and Agreement,
(xiii) the Hardware and Disposables Manufacturing Agreement,
(xiv) the Hardware and Disposables Supply Agreement,
(xv) the Voting Agreement, and
(xvi) and each other agreement, document, certificate and instrument
executed in connection with the Original Transactions.
"Person" shall mean any individual, corporation, partnership, limited
partnership, limited liability partnership, joint venture, limited
liability company,
3
<PAGE>
association, joint-stock company, trust, unincorporated organization,
Authority or other entity.
"Proxy Statement" shall mean a proxy statement on Schedule 14A prepared
by VIMRx in connection with a meeting of VIMRx stockholders and which,
among other items of business, requests VIMRx stockholder consideration and
approval of this Agreement and all transactions and actions contemplated
herein requiring VIMRx stockholder approval (including (i) VIMRx's purchase
from Baxter of the Nexell Securities and VIMRx's sale to Baxter of the
Acquired VIMRx Securities, (ii) the change in the conversion price of the
VIMRx Preferred Stock to $2.75 per share and (iii) the change of VIMRx's
name to "Nexell Therapeutics Inc."). The Proxy Statement may address other
matters not relating to this Agreement as VIMRx may determine.
"Registration Rights Agreement" shall mean that certain Registration
Rights Agreement, dated as of December 17, 1997, by and between VIMRx and
Baxter.
"SEC" shall mean the United States Securities and Exchange Commission.
"SEC Reports" shall mean all forms, reports and documents required to be
filed with the SEC by VIMRx pursuant to the Securities Act or the Exchange
Act since January 1, 1997.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Stockholders' Agreement" shall mean that certain Stockholders'
Agreement, dated as of December 17, 1997, between Baxter, VIMRx and Nexell.
"Transaction Documents" shall mean all documents, agreements,
certificates and instruments other than this Agreement to be executed
and/or delivered by Baxter, VIMRx and Nexell, as the case may be, in
connection with the transactions contemplated hereunder.
"Transactional Taxes" shall mean all transfer, conveyance or other such
taxes, duties, excises or governmental charges imposed by any taxing
jurisdiction.
"VIMRx" shall have the meaning assigned thereto in the Preamble to this
Agreement.
"VIMRx Convertible Debentures" shall mean collectively the 6.5%
convertible subordinated debentures to be issued by VIMRx to Baxter,
substantially in the forms annexed hereto as Exhibits A and B, in an
----------------
aggregate principal amount equal to (i) $30,000,000.00 plus (ii) all
----
accrued but unpaid interest (if any) on the Nexell Convertible Debentures
as of the Closing Date, which debentures shall be convertible into
additional shares of VIMRx Common Stock commencing November 30, 2002, at a
conversion price equal to ninety-five percent (95%) of the average closing
sale
4
<PAGE>
prices of VIMRx Common Stock on the thirty (30) trading days preceding, but
not including, the date of such conversion, as reported by Nasdaq.
"VIMRx Common Stock" shall mean the common stock of VIMRx, $.001 par
value per share.
"VIMRx Preferred Stock" shall mean Series A Convertible Preferred Stock
of VIMRx, par value $.001 per share.
"VIMRx Warrant" shall mean a common stock purchase warrant,
substantially in the form annexed hereto as Exhibit C, for the purchase by
---------
Baxter of up to and including 5,200,000 additional shares of VIMRx Common
Stock at a per share price of $1.15.
1.2 Interpretation.
--------------
(A) Whenever in this Agreement the phrase "in the ordinary course
of business" is used, it shall be construed as meaning "in the ordinary
course of business and substantially consistent with prior practice."
(B) Whenever in this Agreement the term "including" is used, it
shall be construed as meaning "including but not limited to."
(C) Whenever in this Agreement the term "all" is used, it shall be
construed as meaning "any and all."
(D) Whenever in this Agreement the term "every" is used, it shall
be construed as meaning "every and all."
(E) Whenever in this Agreement the term "agreement" is used, it
shall be deemed to refer to commitments, leases, licenses, contracts and
other agreements.
2. Purchase and Sale of the Securities; Closing
--------------------------------------------
2.1 Purchase and Sale. In reliance on the representations and warranties
-----------------
contained herein and subject to all of the terms and conditions hereof,
Baxter hereby agrees to sell, assign, transfer and deliver (or cause to be
sold, assigned, transferred and delivered) to VIMRx and VIMRx agrees to
purchase from Baxter, on the Closing Date, all of Baxter's right, title and
interest in and to the Nexell Securities.
2.2 Purchase Consideration. In reliance on the representations and
----------------------
warranties contained herein and subject to all of the terms and conditions
hereof, and in consideration of the sale, assignment, transfer and delivery
of the Nexell Securities, VIMRx hereby agrees to issue to Baxter the
following consideration:
(A) three million (3,000,000) shares of VIMRx Common Stock;
5
<PAGE>
(B) in the event that the total amount of shares of VIMRx Common
Stock held by Baxter immediately prior to the Closing (the total amount of
such shares shall be collectively hereinafter referred to as the "Baxter
Shares") plus the three million shares of VIMRx Common Stock to be issued
to Baxter pursuant to Section 2.2(A) hereof will be equivalent to twenty
percent (20%) or more of the aggregate number of shares of VIMRx Common
Stock issued and outstanding immediately following the Closing, then:
(i) the number of shares of VIMRx Common Stock to be issued
to Baxter pursuant to Section 2.2(A) above will be reduced so that the
total amount of shares of VIMRx Common Stock issued to Baxter pursuant to
Section 2.2(A) above, combined with the Baxter Shares, will be equivalent
to less than twenty percent (20%) (but equal to the highest percentage
possible under twenty percent (20%)) of the aggregate number of shares of
VIMRx Common Stock issued and outstanding by VIMRx immediately following
the Closing; and
(ii) VIMRx shall issue to Baxter such number of shares of
VIMRx Preferred Stock so that the number of shares of VIMRx Common Stock
issuable upon conversion thereof shall be equal to the number of shares of
VIMRx Common Stock required to be reduced at the Closing pursuant to this
Section 2.2(B);
(C) the VIMRx Warrant; and
(D) the VIMRx Convertible Debentures.
2.3 Nexell Securities. At the Closing provided for in Section 2.5
-----------------
hereof, Baxter shall deliver to VIMRx, as provided for in Section 2.1
hereof, the certificates representing the Nexell Common Stock together with
the Nexell Warrant and the Nexell Convertible Debentures, all duly endorsed
to VIMRx or with transfer powers attached thereto, against delivery of the
items designated to be delivered by VIMRx and/or Nexell at Closing pursuant
to Section 8.2 hereof.
2.4 Acquired VIMRx Securities. At the Closing provided for in Section
-------------------------
2.5 hereof, VIMRx shall deliver to Baxter certificates representing VIMRx
Common Stock and VIMRx Preferred Stock (if any) as provided for in Section
2.2 hereof, together with the VIMRx Warrant and the VIMRx Convertible
Debentures, against delivery of the items designated to be delivered by
Baxter at Closing pursuant to Section 8.1 hereof.
2.5 Closing. The closing of the purchase and sale of the securities as
-------
set forth in this Section 2 (the "Closing") shall be held at the offices of
counsel to Baxter, Seyfarth, Shaw, Fairweather & Geraldson, 55 East Monroe
Street, Chicago, Illinois, within thirty (30) days after the last of the
conditions set forth in Section 7 hereof has been satisfied or waived in
accordance with the terms of this Agreement, or on such other date, and at
such other time and place, as Baxter and VIMRx shall mutually agree in
writing (the day of occurrence of the Closing being referred to hereinafter
as the "Closing Date").
6
<PAGE>
3. Representations and Warranties of Baxter
----------------------------------------
Baxter represents and warrants to VIMRx and Nexell, as of the Closing
Date, as follows:
3.1 Good Standing. Baxter is a corporation organized, validly existing
-------------
and in good standing under the laws of the State of Delaware, with all
necessary corporate power and authority to own, lease and operate its
properties and to carry on its business as the same is now being conducted.
3.2 Authority. Baxter possesses full right, corporate power and legal
---------
authority to execute and deliver this Agreement and the Transaction
Documents to which Baxter is a party and to perform each of the agreements
and make each of the representations and warranties on its part to be
performed and made hereunder and thereunder. The execution and delivery of
this Agreement and the Transaction Documents to which Baxter is a party and
the consummation by it of the transactions contemplated hereby and thereby
have been duly and validly authorized by all necessary corporate action on
the part of Baxter. This Agreement has been duly and validly executed by
Baxter and constitutes, and the Transaction Documents (upon and subject to
their execution and delivery by all parties thereto) shall constitute, the
legal, valid and binding obligation of Baxter enforceable against it in
accordance with their respective terms subject to the qualification that
the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws, now or
hereafter in effect, affecting creditors' rights and except that the
availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding for the
enforcement thereof may be brought.
3.3 Consents and Approvals. No other action or consent, whether
----------------------
corporate or otherwise, including action or consent by any Authority, is
necessary in connection with the execution, delivery, validity or
enforceability of this Agreement or the Transaction Documents with respect
to Baxter or the consummation by it of the transactions contemplated hereby
and thereby.
3.4 Ownership of Nexell Securities. Baxter is the sole and exclusive
------------------------------
beneficial and legal owner of all of the Nexell Securities, and Baxter has
good title to, and the absolute right to sell and transfer, all Nexell
Securities to VIMRx, free and clear of all Encumbrances.
3.5 Investment. Baxter is acquiring the Acquired VIMRx Securities and
----------
will acquire any Conversion VIMRx Securities for investment for Baxter's
own account and not with the view to, or for resale in connection with, the
distribution thereof. Subject to Baxter's rights under the Registration
Rights Agreement, Baxter understands that the Acquired VIMRx Securities
(and any Conversion VIMRx Securities) have not been and will not be
registered under the Securities Act by reason of a specific exemption from
the registration provisions of the Securities Act which depends upon, among
other things, the bona fide nature of the investment
---------
7
<PAGE>
intent as expressed herein. Baxter further represents that it does not have
any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to any third person with respect to
any of the Acquired VIMRx Securities (or any Conversion VIMRx Securities).
Subject to Baxter's rights under the Registration Rights Agreement, Baxter
understands and acknowledges that the offering and issuance of the Acquired
VIMRx Securities pursuant to this Agreement, and any issuance of Conversion
VIMRx Securities, will not be registered under the Securities Act on the
ground that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from the registration requirements of the
Securities Act based on, among other things, the bona fide nature of the
---------
investment intent as expressed herein.
3.6 Rule 144. Subject to the terms of the Registration Rights Agreement,
--------
Baxter acknowledges that the Acquired VIMRx Securities (and any Conversion
VIMRx Securities) must be held indefinitely unless subsequently registered
under the Securities Act or an exemption from such registration is
available. Baxter is aware of the provisions of Rule 144 promulgated under
the Securities Act which permit limited resale of certain securities
purchased in a private placement subject to the satisfaction of certain
conditions. In connection therewith, Baxter acknowledges that VIMRx will
make a notation on their stock books regarding the restrictions on
transfers set forth in this Section 3.6. Baxter acknowledges that all
shares representing Acquired VIMRx Securities (and any Conversion VIMRx
Securities) will bear appropriate restrictive legends reflecting the
transfer restrictions reflected in this Section 3.6.
3.7 No Public Market. Baxter understands that no public market now
----------------
exists or is expected to ever exist for the VIMRx Preferred Stock, the
VIMRx Warrant or the VIMRx Convertible Debentures.
3.8 Access to Data. For purposes of satisfying the applicable
--------------
requirements for the exemptions from registration relating to the issuance
of the Acquired VIMRx Securities, Baxter acknowledges that it has received
and reviewed such information about VIMRx as it deems necessary and has had
an opportunity to discuss VIMRx's business, management and financial
affairs with its management and to review its facilities.
4. Representations and Warranties of VIMRx
---------------------------------------
VIMRx represents and warrants to Baxter and Nexell, as of the Closing
Date, as follows:
4.1 Good Standing. VIMRx is a corporation organized, validly existing
-------------
and in good standing under the laws of the State of Delaware, with all
necessary corporate power and authority to own, lease and operate its
properties and to carry on its business as the same is now being conducted.
True, accurate and complete copies of the Certificate of Incorporation and
By-Laws of VIMRx have been provided to Baxter.
8
<PAGE>
4.2 Authority. VIMRx possesses full right, corporate power and legal
---------
authority to execute and deliver this Agreement and the Transaction
Documents to which VIMRx is a party and to perform each of the agreements
and make each of the representations and warranties on its part to be
performed and made hereunder and thereunder. The execution and delivery of
this Agreement and the Transaction Documents to which VIMRx is a party and
the consummation by it of the transactions contemplated hereby and thereby
have been duly and validly authorized by all necessary corporate action on
the part of VIMRx. This Agreement has been duly and validly executed by
VIMRx and constitutes, and the Transaction Documents (upon and subject to
their execution and delivery by all parties thereto) shall constitute, the
legal, valid and binding obligation of VIMRx enforceable against it in
accordance with their respective terms subject to the qualification that
the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws, now or
hereafter in effect, affecting creditors' rights and except that the
availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding for the
enforcement thereof may be brought.
4.3 Consents and Approvals. No other action or consent, whether
----------------------
corporate or otherwise, including action or consent by any Authority, is
necessary in connection with the execution, delivery, validity or
enforceability of this Agreement or the Transaction Documents with respect
to VIMRx or the consummation by it of the transactions contemplated hereby
and thereby.
4.4 Valid Issuance of VIMRx Warrant and VIMRx Common Stock. The VIMRx
------------------------------------------------------
Warrant, when issued and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
authorized and issued, fully paid and nonassessable, and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and the Registration Rights Agreement, and under applicable state
and federal securities laws. The shares of VIMRx Common Stock that are
being acquired by Baxter hereunder, when issued and delivered in accordance
with the terms of this Agreement for the consideration expressed herein,
will be duly and validly authorized and issued, fully paid and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Registration Rights
Agreement, and under applicable state and federal securities laws. The
VIMRx Common Stock issuable upon exercise of the VIMRx Warrant has been
duly authorized and validly reserved for issuance and, upon issuance upon
such exercise in accordance with the terms of the VIMRx Warrant, will be
duly and validly authorized and issued, fully paid, and nonassessable, and
will be free of restrictions on transfer other than restrictions on
transfer under this Agreement and the Registration Rights Agreement, and
under applicable state and federal securities laws.
4.5 Valid Issuance of VIMRx Preferred Stock. The shares of VIMRx
---------------------------------------
Preferred Stock that may be acquired by Baxter hereunder, when issued and
delivered in accordance with the terms of this Agreement for the
consideration
9
<PAGE>
expressed herein, will be duly and validly authorized and issued, fully
paid and nonassessable. The VIMRx Common Stock issuable upon conversion of
the VIMRx Preferred Stock has been duly authorized and validly reserved for
issuance and, upon issuance upon such conversion in accordance with the
terms of the Certificate of Incorporation of VIMRx, will be duly and
validly authorized and issued, fully paid, and nonassessable, and will be
free of restrictions on transfer other than restrictions on transfer under
this Agreement and the Registration Rights Agreement, and under applicable
state and federal securities laws.
4.6 Valid Issuance of VIMRx Convertible Debentures. The VIMRx
----------------------------------------------
Convertible Debentures, when issued and delivered in accordance with the
terms of this Agreement for the consideration expressed herein, shall be
legal, valid and binding obligations of VIMRx enforceable against it in
accordance with their respective terms, subject to the qualification that
the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws, now or
hereafter in effect, affecting creditors' rights and except that the
availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding for the
enforcement thereof may be brought. The VIMRx Common Stock issuable upon
conversion of the VIMRx Convertible Debentures has been duly authorized and
validly reserved for issuance and, upon issuance upon such conversion in
accordance with the terms of each such VIMRx Convertible Debenture, will be
duly and validly authorized and issued, fully paid, and nonassessable, and
will be free of restrictions on transfer other than restrictions on
transfer under this Agreement and the Registration Rights Agreement, and
under applicable state and federal securities laws. Notwithstanding the
foregoing, as there is no "floor" or minimum conversion price of the VIMRx
Convertible Debentures, it is mathematically possible that the VIMRx
Convertible Debentures could convert into a number of shares of VIMRx
Common Stock that is in excess of VIMRx's authorized capitalization
thereof.
4.7 SEC Reports. VIMRx has delivered or made available to Baxter true
-----------
and complete copies of the SEC Reports. As of their respective dates, the
SEC Reports complied in all material respects with the requirements of the
Exchange Act or the Securities Act, as applicable, and the rules and
regulations of the SEC promulgated thereunder, and the SEC Reports 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. Since the date of the last of the SEC Reports filed
with the SEC, VIMRx has not become aware of any fact which has not been
disclosed herein which (i) would make the statements contained herein or in
the SEC Reports filed with the SEC materially misleading; (ii) has had, or
would reasonably be expected to have, a Material Adverse Effect (as that
capitalized term is defined in the Asset Purchase Agreement) on VIMRx; or
(iii) would reasonably be expected to materially and adversely affect the
ability of VIMRx to perform its obligations under this Agreement.
10
<PAGE>
5. Representations and Warranties of Nexell
----------------------------------------
Nexell represents and warrants to Baxter and VIMRx, as of the Closing
Date, as follows:
5.1 Good Standing. Nexell is a corporation organized, validly existing
-------------
and in good standing under the laws of the State of Delaware, with all
necessary corporate power and authority to own, lease and operate its
properties and to carry on its business as the same is now being conducted.
5.2 Authority. Nexell possesses full right, corporate power and legal
---------
authority to execute and deliver this Agreement and the Transaction
Documents to which Nexell is a party and to perform each of the agreements
and make each of the representations and warranties on its part to be
performed and made hereunder and thereunder. The execution and delivery of
this Agreement and the Transaction Documents to which Nexell is a party and
the consummation by it of the transactions contemplated hereby and thereby
have been duly and validly authorized by all necessary corporate action on
the part of Nexell. This Agreement has been duly and validly executed by
Nexell and constitutes, and the Transaction Documents (upon and subject to
their execution and delivery by all parties thereto) shall constitute, the
legal, valid and binding obligation of Nexell enforceable against it in
accordance with their respective terms subject to the qualification that
the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws, now or
hereafter in effect, affecting creditors' rights and except that the
availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding for the
enforcement thereof may be brought.
5.3 Consents and Approvals. No other action or consent, whether
----------------------
corporate or otherwise, including action or consent by any Authority, is
necessary in connection with the execution, delivery, validity or
enforceability of this Agreement or the Transaction Documents with respect
to Nexell or the consummation by it of the transactions contemplated hereby
and thereby.
6. Certain Covenants and Agreements
--------------------------------
6.1 Pre-Closing Covenants.
---------------------
(A) Covenants of Baxter. From the date hereof until the Closing
-------------------
Date, Baxter covenants that it shall do the following:
(i) not sell, transfer or otherwise dispose of any of the
Nexell Securities;
(ii) not mortgage, pledge or otherwise subject any of the
Nexell Securities to any Encumbrance, except for Encumbrances arising by
operation of law and not due to any action or inaction on the part of
Baxter;
11
<PAGE>
(iii) not take any action inconsistent with the consummation of
this Agreement and the transactions contemplated hereunder;
(iv) cooperate with VIMRx in VIMRx's preparation of the Proxy
Statement, including providing to VIMRx, at its request, all information,
with respect to Baxter and its business, properties, personnel and
operations, as may be required for inclusion in the Proxy Statement and, to
the extent that any information previously provided to VIMRx pursuant to
this paragraph is discovered to be false or misleading, provide to VIMRx,
in writing, such additional or different information as may be required to
correct such deficiency; and
(v) in the event and to the extent, that events or
circumstances occur or arise, or Baxter becomes aware of events or
circumstances, which render any of the representations and warranties set
forth in Section 3 hereof inaccurate, and without limiting in any way
VIMRx's or Nexell's rights under Section 7.2 hereof, promptly notify VIMRx
and Nexell thereof.
(B) Covenants of VIMRx. From the date hereof until the Closing Date,
VIMRx covenants that it shall, and shall (except with respect to items (v)
and (vi) below) cause Nexell to :
(i) preserve and maintain its corporate existence and good
standing in the jurisdiction of its incorporation;
(ii) continue to operate, in all material respects, in the
ordinary course of business;
(iii) not take any action inconsistent with the consummation of
this Agreement and the transactions contemplated hereunder;
(iv) use its best efforts to maintain and preserve satisfactory
relationships with suppliers, contractors, customers, creditors and others
with which it has a business relationship;
(v) promptly prepare and file with the SEC the Proxy Statement,
and prior to filing the Proxy Statement with the SEC, submit such material
to Baxter and its counsel and provide Baxter and its counsel a reasonable
opportunity to review and comment upon such materials;
(vi) duly and promptly call, give notice of, convene and hold a
meeting of the VIMRx stockholders for the purpose of considering and taking
action upon this Agreement and all transactions and actions contemplated
herein requiring VIMRx stockholder approval, and, subject to the fiduciary
duties of the VIMRx Board of Directors under applicable law, include in the
Proxy Statement the recommendation of the VIMRx Board of Directors that the
VIMRx stockholders vote in favor of this Agreement and all such
transactions and actions;
12
<PAGE>
(vii) in the event and to the extent, that events or
circumstances occur or arise, or it becomes aware of events or
circumstances, which render any of the representations and warranties set
forth in Sections 4 or 5 hereof inaccurate, and without limiting in any way
Baxter's rights under Section 7.1 hereof, promptly notify Baxter thereof;
(viii) assume all of Nexell's obligations under Nexell's 1998
Non-Incentive Stock Option Plan;
(ix) cause Nexell to file with the Secretary of State for the
State of Delaware a Certificate of Amendment of Certificate of
Incorporation of Nexell whereby the corporate name of Nexell is changed to
"Nexell of California, Inc."; and
(x) subject to the approval of VIMRx's stockholders, file with
the Secretary of State for the State of Delaware a Certificate of Amendment
of Certificate of Incorporation of VIMRx in substantially the form annexed
hereto as Exhibit D, whereby, among other things, (x) the name of VIMRx is
---------
changed to "Nexell Therapeutics Inc." and (y) the Conversion Price
of the VIMRx Preferred Stock is changed to $2.75 per share.
6.2 Post-Closing Covenants by VIMRx and Nexell.
------------------------------------------
(A) Qualification to do Business in California. As soon as is
------------------------------------------
reasonably practicable following the Closing Date, (a) Nexell shall file an
Amended Statement and Designation by Foreign Corporation (or similar
document) with the Secretary of State of the State of California changing
its corporate name to "Nexell of California, Inc." and (b) if required by
California law, VIMRx (under the name "Nexell Therapeutics Inc.") shall
file a Statement and Designation by Foreign Corporation (or similar
document) with the Secretary of State of the State of California,
evidencing its qualification to do business in California.
(B) No Change of Control of Nexell. On and after the Closing Date,
------------------------------
VIMRx covenants and agrees that it shall not, and it shall cause Nexell not
to, either directly or indirectly, without the prior written consent of
Baxter so long as Baxter owns three percent (3%) or more of the issued and
outstanding capital stock of VIMRx, (i) sell, transfer or otherwise dispose
of all or substantially all of the operating assets of Nexell, (ii) issue,
sell, transfer or otherwise dispose of any securities of Nexell, or (iii)
permit a merger or consolidation involving Nexell where immediately
following such merger or consolidation Nexell shall not be the surviving
entity, VIMRx shall cease to own 100% of any securities of Nexell, and
VIMRx shall cease to possess 100% of the voting interest in Nexell.
(C) Notification to Nexell Employees. As soon as is reasonably
--------------------------------
practicable following the Closing Date, VIMRx shall notify all holders of
options to purchase shares of Nexell Common Stock under Nexell's 1998 Non-
Incentive
13
<PAGE>
Stock Option Plan of VIMRx's acquisition of all of the capital stock of
Nexell and VIMRx's assumption of such Plan.
(D) Authorized Shares of VIMRx Common Stock. On and after the
---------------------------------------
Closing Date, VIMRx covenants and agrees that, in the event that any VIMRx
Convertible Debenture would be convertible into a number of shares of VIMRx
Common Stock which is in excess of the authorized amount of VIMRx Common
Stock as then stated in VIMRx's certificate of incorporation, VIMRx shall
use its best efforts, without demand by Baxter, to obtain VIMRx stockholder
approval of any amendments to its certificate of incorporation required to
increase its authorized shares of Common Stock to such amount as is
necessary to issue Baxter authorized shares of VIMRx Common Stock upon such
conversion.
(E) No Redemption of Shares of VIMRx. On and after the Closing
--------------------------------
Date, VIMRx covenants and agrees that it shall not, either directly or
indirectly, without the prior written consent of Baxter, purchase, redeem
or otherwise acquire any outstanding shares of VIMRx Common Stock where,
immediately following such purchase, redemption or acquisition, Baxter
would own 20% or more of the issued and outstanding VIMRx Common Stock,
unless immediately prior to such purchase, redemption or other acquisition,
------
Baxter already owned 20% or more of the issued and outstanding VIMRx Common
Stock.
7. Conditions to Obligations of Baxter, VIMRx and Nexell
-----------------------------------------------------
7.1 Baxter's Conditions. The obligations of Baxter to consummate the
-------------------
transactions contemplated hereunder are conditioned upon the following, any
or all of which may be waived by Baxter in its sole and absolute
discretion:
(A) All warranties and representations of VIMRx and Nexell
contained in this Agreement that are qualified as to materiality shall be
true and correct on and as of the Closing Date with the same force and
effect as though such representations and warranties had been made on and
as of the Closing Date, and all representations and warranties of VIMRx and
Nexell which are not so qualified shall, in all material respects, be true
and correct on and as of the Closing Date with the same force and effect as
though such representations and warranties had been made on and as of the
Closing Date.
(B) VIMRx and Nexell shall, in all material respects, have
performed and complied with all of the covenants and agreements (including
the agreements to make the deliveries set forth in Section 8.2 hereof)
required by or pursuant to this Agreement or any Transaction Document
delivered pursuant to this Agreement, to be performed or complied with by
them on or prior to the Closing Date.
(C) There has not been, and no facts or circumstances exist as of
the Closing Date that would be reasonably likely to cause, any material
adverse
14
<PAGE>
change in either VIMRx's or Nexell's financial condition, operating
results or business prospects.
(D) VIMRx shall have assumed all of Nexell's obligations under
Nexell's 1998 Non-Incentive Stock Option Plan.
(E) Nexell shall have filed with the Secretary of State for the
State of Delaware a Certificate of Amendment of Certificate of
Incorporation of Nexell whereby the corporate name of Nexell is changed to
"Nexell of California, Inc."
(F) VIMRx shall have filed with the Secretary of State for the
State of Delaware, a Certificate of Amendment of Certificate of
Incorporation of VIMRx in substantially the form annexed hereto as
Exhibit D, whereby, among other things, (x) the name of VIMRx is changed to
---------
"Nexell Therapeutics Inc." and (y) the Conversion Price of the VIMRx
Preferred Stock is changed to $2.75 per share.
7.2 VIMRx's and Nexell's Conditions. The obligations of VIMRx and Nexell
-------------------------------
to consummate the transactions contemplated hereunder are conditioned upon
the following, any or all of which may be waived by VIMRx in its sole and
absolute discretion:
(A) All representations and warranties of Baxter contained in this
Agreement shall, in all material respects, be true and correct on and as of
the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date.
(B) Baxter shall, in all material respects, have performed and
complied with all of the covenants and agreements (including the agreement
to make the deliveries set forth in Section 8.1 hereof) required by or
pursuant to this Agreement, or any Transaction Document delivered pursuant
to this Agreement, to be performed or complied with by it on or prior to
the Closing Date.
(C) The Board of Directors of VIMRx shall have received a fairness
opinion by Piper Jaffray Inc., in form and substance satisfactory to such
Board, as to the fairness to VIMRx of the transactions contemplated herein.
7.3 Mutual Conditions. The respective obligations of each party hereto
-----------------
to consummate the transactions contemplated hereunder are conditioned upon
the following:
(A) This Agreement and the transactions and actions contemplated
herein shall have been approved and adopted by the requisite vote of
VIMRx's stockholders in accordance with applicable Delaware General
Corporation Laws and the rules and regulations of Nasdaq.
(B) No order of any court or Authority shall be in effect which
restrains or prohibits the transactions contemplated hereby, and no suit,
action or
15
<PAGE>
proceeding by any Authority or other person shall be pending or threatened
which seeks to restrain the consummation, or challenges the validity or
legality, of the transactions contemplated by this Agreement.
(C) All other consents, approvals or orders of any Authority, the
granting of which is required for the lawful consummation of the
transactions contemplated hereby, shall have been obtained; and all other
waiting and notification periods specified under applicable law, the
termination or expiration of which is necessary for such consummation,
shall have been terminated or shall have expired.
16
<PAGE>
8. Deliveries of the Parties
-------------------------
8.1 Deliveries of Baxter. At the Closing, Baxter shall deliver to VIMRx
--------------------
the following:
(A) the original Stock Certificate No. 3, representing the 19.5
shares of Nexell Common Stock in the name of Baxter, duly endorsed to VIMRx
or with stock powers attached thereto;
(B) the Nexell Warrant duly endorsed to VIMRx or with transfer
powers attached thereto;
(C) the Nexell Convertible Debentures duly endorsed to VIMRx or with
transfer powers attached thereto;
(D) an executed copy of each of the Transaction Documents to which
Baxter is a party;
(E) all governmental or other approvals, consents, grants, and
licenses, if any, required to be procured by Baxter in connection with the
transactions contemplated hereby; and
(F) a certificate of the Secretary or an Assistant Secretary of
Baxter, certifying the incumbency, signature and authorization of Victor W.
Schmitt, President, Venture Management, to execute, deliver and perform
this Agreement and all Transaction Documents on behalf of Baxter.
8.2 Deliveries of VIMRx. At the Closing, VIMRx shall deliver (or, as
-------------------
applicable, cause Nexell to deliver) to Baxter the following:
(A) stock certificate(s) evidencing the issuance to Baxter of the
number of shares of VIMRx Common Stock in accordance with Sections 2.2 (A)
and (B) hereof;
(B) stock certificate(s) evidencing the issuance to Baxter of the
number of shares of VIMRx Preferred Stock in accordance with Section 2.2
(B) hereof, if any;
(C) the VIMRx Warrant;
(D) the VIMRx Convertible Debentures;
(E) an executed copy of each of the other Transaction Documents to
which VIMRx and/or Nexell is a party;
(F) all governmental or other approvals, consents, grants, and
licenses, if any, required to be procured by VIMRx and/or Nexell in
connection with the transactions contemplated hereby;
17
<PAGE>
(G) copy of the certificate of incorporation of VIMRx, certified as
of the date as close as practicable to the Closing Date, by the Secretary
of State of the State of Delaware;
(H) copy of the certificate of incorporation of Nexell, certified as
of the date as close as practicable to the Closing Date, by the Secretary
of State of the State of Delaware;
(I) a certificate of the Secretary or an Assistant Secretary of
VIMRx, certifying and including the resolutions of the VIMRx Board of
Directors authorizing the execution, delivery and performance of this
Agreement and all Transaction Documents, and attesting to the incumbency
and signatures of all officers executing this Agreement and any Transaction
Document;
(J) a certificate of the Secretary or an Assistant Secretary of
Nexell, certifying and including the resolutions of the Nexell Board of
Directors authorizing the execution, delivery and performance of this
Agreement and all Transaction Documents, and attesting to the incumbency
and signatures of all officers executing this Agreement and any Transaction
Document; and
(K) a certificate of the President or Chief Executive Officer of
VIMRx, certifying as to the voting results with respect to VIMRx
stockholder consideration of this Agreement and all transactions and
actions contemplated herein requiring VIMRx stockholder approval.
9. Amendment to Registration Rights Agreement
------------------------------------------
Baxter and VIMRx hereby agree that, conditioned upon Closing and
effective as of the Closing Date, the Registration Rights Agreement is
amended so that the definition of "Registrable Securities" contained in
Section 1(e) thereof shall be deemed to include, in addition to all VIMRx
Common Stock set forth therein, all VIMRx Common Stock and all Conversion
VIMRx Securities to be acquired by Baxter pursuant to Section 2.2 hereof.
10. Termination of Stockholders' Agreement
--------------------------------------
Baxter, VIMRx and Nexell hereby agree that, conditioned upon Closing
and effective as of the Closing Date, the Stockholders' Agreement is
terminated and of no further force and effect.
11. Amendments to Certain Original Transaction Agreements
-----------------------------------------------------
In addition to Sections 9 and 10 hereof, and conditioned upon Closing
and effective as of the Closing Date, Baxter, VIMRx, and Nexell, as the
case may be, hereby amend the provisions of certain Original Transaction
Agreements as follows:
11.1 Certain Original Transaction Documents. The first sentence of each
--------------------------------------
of Section 23 of the Distribution Agreement, Section 13 of the Services
Agreement,
18
<PAGE>
Section 38 of the Antibody Manufacturing and Storage Agreement,
Section 38 of the Hardware and Disposables Manufacturing Agreement and
Section 36 of the Hardware and Disposables Supply Agreement is amended and
restated to read as follows:
Newco may assign its rights and obligations under this Agreement
to any Affiliate of Newco without the prior written consent of
Baxter, provided that such Affiliate is a wholly-owned subsidiary
--------
of VIMRx.
11.2 Hardware and Disposables Supply Agreement Section 2.3 of the
-----------------------------------------
Hardware and Disposables Supply Agreement is amended and restated in its
entirety to read as follows:
2.3 Licenses: Licenses granted by Baxter to Newco pursuant to
this Section 2 shall not be assignable and sublicenses may not be
granted thereunder, except (i) any such license may be assigned
in the event of an acquisition or transfer of substantially all
of the Ex Vivo Cell Processing business of Newco to a third
party; (ii) Newco may grant a sublicense under any such license
to an Affiliate of Newco that is a wholly-owned subsidiary of
VIMRx; and (iii) Newco may grant a sublicense under any such
license to a third party manufacturer in connection with the
manufacturing for Newco of any Supplied Product, provided that
--------
such assignee, licensee or third party manufacturer has agreed to
be bound by the terms of that certain Non-Competition and
Confidentiality Agreement of even date herewith, by and among
Baxter, VIMRx and Newco, in the same manner as Newco is bound.
11.3 Non-Competition and Confidentiality Agreement
---------------------------------------------
(A) Section 2.2 of the Non-Competition and Confidentiality Agreement
is amended and restated in its entirety to read as follows:
2.2. Baxter's obligations under the foregoing covenant and
agreement shall begin on the date hereof and shall expire on the
date that is the later of (i) the date that is five (5) years after
the date hereof or (ii) one year after the first date on which
Baxter neither owns at least ten percent (10%) of the Common Stock
of VIMRx, on a fully diluted basis, nor retains a seat on VIMRx's
board of directors, or (iii) the date on which the Marketing, Sales
and Distribution Agreement expires, as its term may be extended,
provided that all of Baxter's obligations under the foregoing
--------
covenant and agreement shall expire not later than the date that is
fifteen (15) years after the date hereof, except that following the
date that is fifteen (15) years after the date hereof, Baxter's
obligations shall continue (a) to the extent and for the period of
time that Baxter continues to act as Newco's exclusive worldwide
distributor for an Isolex(R) or Maxsep(R) Product or Reagent
19
<PAGE>
Kit under the terms of the Marketing, Sales and Distribution
Agreement, but only with respect to such Isolex(R) or Maxsep(R)
Product or Reagent Kit, and (b) to the extent and for the period of
time that Baxter continues to supply any Supplied Product under the
terms of the Hardware and Disposables Supply Agreement, but only
with respect to such Supplied Product.
(B) Section 3.1 of the Non-Competition and Confidentiality Agreement is
amended and restated in its entirety to read as follows:
3.1 Except as otherwise agreed by Baxter in writing, including
in any Acquisition and Operation Document, VIMRx covenants and
agrees that neither VIMRx nor any of its Affiliates (other than
Newco or any entity wholly-owned by VIMRx) shall, directly or
indirectly, anywhere in the world, (i) engage in, or (ii) render
consulting or advisory services to any entity that engages in, or
(iii) be a joint venturer, partner, licensor, member, shareholder
(other than, in the case of an entity with securities that are
publicly traded, a holder of 2% or less of the voting securities of
such an entity) or trustee of any entity for the purpose of
engaging in, the production, manufacture, marketing, sale or
distribution of any product which directly competes with any
Supplied Product or any product of the Business. VIMRx's
obligations under the foregoing covenant and agreement shall begin
on the date hereof and shall expire on the date that is the later
of (i) the date that is five (5) years after the date hereof or
(ii) one year after the first date on which VIMRx neither owns
voting control of Newco nor retains a seat on Newco's board of
directors; provided that all of obligations under the foregoing
--------
covenant and agreement shall expire not later than the date that is
fifteen (15) years after the date hereof, except that following the
date that is fifteen (15) years after the date hereof, VIMRx's
obligations shall continue to the extent and for the period of time
that Baxter continues to supply any Supplied Product under the
terms of the Hardware and Disposables Supply Agreement, but only
with respect to such Supplied Product.
(C) Section 3.2 of the Non-Competition and Confidentiality Agreement is
amended and restated in its entirety to read as follows:
3.2. Except as otherwise agreed by Baxter in writing, including
in any Acquisition and Operating Document, VIMRx covenants and
agrees that neither VIMRx nor any of its Affiliates shall, directly
or indirectly, anywhere in the world, (i) engage in, or (ii) render
consulting of advisory services to any entity that engages in, or
(iii) be a joint venturer, partner, licensor, member, shareholder
(other than in the case of any entity with securities that are
publicly traded, a holder of 2% or less of the voting securities of
such an
20
<PAGE>
entity) or trustee of any entity for the purpose of engaging in the
marketing, sale or distribution of any product which directly
competes with any product of Baxter for use in the separation of
human blood into its constituents, such as platelets, plasma, red
blood cells, leukocytes, and mononuclear cells, while a live donor
or patient is connected to the separation device (hereinafter
referred to as "On-Line Separation"). VIMRx's obligations under the
foregoing covenant and agreement shall begin on the date hereof and
shall expire on the date that is the later of (i) the date that is
five (5) years after the date hereof, or (ii) one year after the
first date on which Baxter neither owns at least ten percent (10%)
of the Common Stock of VIMRx, on a fully diluted basis, nor retains
a seat on VIMRx's board of directors, or (iii) the date on which
the Marketing, Sales and Distribution Agreement expires, as its
term may be extended; provided that all of VIMRx's obligations
--------
under the foregoing covenant and agreement shall expire not later
than the date that is fifteen (15) years after the date hereof.
(D) Section 4.1 of the Non-Competition and Confidentiality Agreement is
amended and restated in its entirety to read as follows:
4.1. Except as otherwise agreed by Baxter in writing, including
in any Acquisition and Operating document, Newco covenants and
agrees that neither Newco nor any of its Affiliates shall, anywhere
in the world, (i) engage in, or (ii) render consulting or advisory
services to any entity that engages in, or (iii) be a joint
venturer, partner, licensor, member, shareholder (other than in the
case of any entity with securities that are publicly traded, a
holder of 2% or less of the voting securities of such entity) or
trustee of any entity for the purpose of engaging in, the
production, manufacture, marketing, sale or distribution of any
product which directly competes with any Supplied Product, except
as such production, manufacture, marketing, sale or distribution is
conducted by Newco or an entity wholly-owned by VIMRx, for use in
Ex Vivo Cell Processing. Newco's obligations under the foregoing
covenant and agreement shall begin on the date hereof and shall
expire on the date that is the later of (i) eleven (11) years after
the date hereof or (ii) the date on which Baxter's obligation to
supply such Supplied Product expires or is terminated under the
terms of the Hardware and Disposables Supply Agreement for a reason
other than Newco's breach; provided that of Newco's obligations
--------
under the foregoing covenant and agreement shall expire not later
than the date that is fifteen (15) years after the date hereof,
except that following the date that is fifteen (15) years after the
date hereof, Newco's obligations shall continue to the extent and
for the period of time that Baxter continues to supply any Supplied
Product under the terms of the Hardware and Disposables Supply
Agreement, but only with respect to such Supplied Product.
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<PAGE>
(E) Section 4.3 of the Non-Competition and Confidentiality Agreement is
amended and restated in its entirety to read as follows:
4.3. Except as otherwise agreed by Baxter in writing, including
any Acquisition and Operating Document, Newco covenants and agrees
that neither Newco nor any of its Affiliates shall, directly or
indirectly, anywhere in the world, (i) engage in, or (ii) render
consulting or advisory services to any entity that engages in, or
(iii) be a joint venturer, partner, licensor, member, shareholder
(other than in the case of any entity with securities that are
publicly traded, a holder of 2% or less of the voting securities of
such entity) or trustee of any entity for the purpose of engaging
in the marketing, sale or distribution of any product which
directly competes with any product of Baxter for use in On-Line
Separation. Nothing herein or in Section 3.2 shall prevent or
restrict Newco, or any Affiliate of Newco that is wholly-owned by
VIMRx, from marketing, selling or distributing any product for use
in selection as described in Section 2.1(a) above, whether or not a
live donor or patient is connected to the selection device,
provided that such selection does not include On-Line Separation.
--------
Newco's obligations under the foregoing covenant and agreement
shall begin on the date hereof and shall expire on the date that is
the later of (i) the date that is five (5) years after the date
hereof or (ii) one year after the first date on which Baxter
neither owns at least ten percent (10%) of the common stock of
VIMRx, on a fully diluted basis, nor retains a seat on VIMRx's
board of directors, or (iii) the date on which the Marketing, Sales
and Distribution Agreement expires, as its term may be extended;
provided that all of Newco's obligations under the foregoing
--------
covenant and agreement shall expire not later than the date that is
fifteen (15) years after the date hereof.
(F) Section 7 of the Non-Competition and Confidentiality Agreement is
amended and restated in its entirety to read as follows:
Recipient may utilize the Confidential Information only for
the furtherance of the Recipient's rights and obligations under the
Acquisition and Operating Documents. Recipient, on behalf of itself
and its Representatives, agrees that except with respect to
Authorized Disclosures (as that capitalized term is defined below)
and as otherwise expressly permitted by this Agreement in
furtherance of the Recipient's rights and obligations under the
Acquisition and Operating Documents, Recipient will not, and will
cause any and all of its Representatives not to, on or after the
date hereof, in any form or manner, directly or indirectly,
divulge, disclose or communicate to any person, or utilize for its
commercial benefit or for the benefit of any other person, or to
the detriment of the Owner, any Confidential Information.
Notwithstanding anything contained in this Agreement to the
contrary, without the express prior written consent of Baxter,
22
<PAGE>
neither VIMRx nor Newco may disclose or use any Confidential
Information received by VIMRx or Newco from the Baxter Group to or
on behalf of any of its Affiliates (other than an entity that both
(i) is wholly-owned by VIMRx and (ii) agrees to be bound by the
provisions of this Agreement), unless such disclosure or use
constitutes an Authorized Disclosure. Notwithstanding anything
contained in this Agreement to the contrary, without the express
prior written consent of the Owner, Baxter may not disclose or use
any Confidential Information received from the VIMRx Group or Newco
to or on behalf of any of Baxter's Affiliates, unless such
disclosure or use constitutes an Authorized Disclosure. In
addition, Recipient agrees to, and will cause any and all of its
Representatives to, protect and secure any Confidential Information
in its possession or in the possession of its Representatives from
unauthorized disclosure or use. The standard of care imposed on
Recipient and its Representatives for protecting Confidential
Information will be the care employed by Recipient and its
Representatives to protect its confidential information but in no
event shall the care used by Recipient and its Representatives be
less than the exercise of reasonable and prudent care to prevent
unauthorized disclosure or use of such Confidential Information
(except that Recipient shall not be excused for its own negligence
or the negligence of its Representatives). In the event of the
destruction, loss or theft of any materials containing Confidential
information in the possession of Recipient or its Representatives,
Recipient shall notify Owner in writing immediately identifying the
materials so lost or destroyed.
(G) Section 19 of the Non-Competition and Confidentiality Agreement is
amended and restated in its entirety to read as follows:
Baxter may assign its rights and obligations hereunder to any
Affiliate of Baxter with prior notice to VIMRx and Newco. VIMRx may
assign its rights and obligations hereunder to any Affiliate of
VIMRx with prior notice to Baxter and Newco. Newco may assign its
rights and obligations hereunder to any Affiliate of Newco with
prior notice to and written consent of Baxter and VIMRx, which
consent will not be unreasonably withheld; and Newco may assign its
rights and obligations under this Agreement to any Affiliate of
Newco without the prior written consent of Baxter or VIMRx,
provided that such Affiliate is wholly-owned by VIMRx. No party may
assign any of its rights or obligations under this Agreement,
unless and to the extent expressly permitted herein.
Notwithstanding anything contained in this Section 19 to the
contrary, in the event of any permitted assignment of any party's
rights and obligations hereunder, the assigning party shall
continue to be bound by the obligations contained in Sections 2, 3,
4, 5, 7, 9, 10, 11, 13, 14, 15 and 24 applicable to it as if no
assignment had occurred. Subject to the
23
<PAGE>
foregoing, this Agreement shall inure to the benefit of and be
binding on the permitted successors and assigns of the parties
hereto.
12. Survival of Representations and Warranties
------------------------------------------
12.1 Survival.
--------
(A) All representations and warranties contained in this Agreement
or in any Transaction Document shall survive the Closing of the
transactions contemplated under this Agreement. All covenants and
agreements contained herein and in any Transaction Document shall survive
in accordance with their respective terms; provided, however, that for the
removal of doubt, none of the covenants set forth in Sections 6.1 hereof
shall survive the termination of this Agreement in accordance with Section
16 hereof.
(B) In no event shall any party hereto be entitled to or recover
exemplary or punitive damages in any action under this Agreement or
relating to the subject matter hereof.
13. Transactional Taxes
-------------------
Baxter and VIMRx shall each bear one-half of any applicable
Transactional Taxes with respect to the sale, transfer, assignment,
delivery or issuance of the Nexell Securities or the Acquired VIMRx
Securities.
14. Further Assurances and Cooperation
----------------------------------
Following the date hereof, and subject to the terms and conditions
hereof, each of Baxter, VIMRx and Nexell severally agrees to execute and
deliver such other documents and take such other actions as shall be
reasonably requested by another party hereto to carry out and effectuate
the transactions contemplated by this Agreement. On and subsequent to the
Closing Date, each party hereto severally covenants and warrants that it
shall, whenever and as often as it shall be reasonably requested to do so
by another party hereto to this Agreement, execute, acknowledge and deliver
or cause to be executed, acknowledged and delivered, any and all such
further documents and instruments as may be reasonably necessary, expedient
or proper in order to complete any and all of the conveyances, transfers,
sales and assignments herein provided for.
24
<PAGE>
15. Notices
-------
All notices, requests, demands and other communications permitted or
required under this Agreement shall be in writing and shall be either
personally delivered (including couriers such as FedEx) or sent by pre-paid
certified mail, return receipt requested or facsimile transmission, with a
confirmation copy personally delivered or sent by pre-paid certified mail,
addressed or transmitted to the address or number stated below of the party
hereto to which notice is given, or to such other address or number as such
party may have fixed by notice given in accordance with the terms hereof:
To Baxter: Baxter Healthcare Corporation
1627 Lake Cook Road
Deerfield, Illinois 60015
Attention: President - Venture Management
Associate General Counsel Hyland Immuno
Facsimile: (847) 940-6289
With a copy to: Seyfarth, Shaw, Fairweather & Geraldson
55 East Monroe Street
Chicago, Illinois 60603-5803
Attention: Christopher A. Lause, Esq.
Facsimile: (312) 269-8869
To VIMRx: VIMRx Pharmaceuticals Inc.
2751 Centerville Road
Suite 210
Wilmington, Delaware 19808
Attention: Chief Executive Officer
Facsimile: (302) 998-3794
With a copy to: Epstein Becker Green, P.C.
250 Park Avenue
New York, New York 10177
Attention: Lowell S. Lifschultz, Esq.
Facsimile: (212) 661-0989
To Nexell: Nexell Therapeutics Inc.
9 Parker
Irvine, California 92518
Attention: Chief Executive Officer
Facsimile: (949) 470-6645
25
<PAGE>
With a copy to: Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
Attention: Lowell S. Lifschultz, Esq.
Facsimile: (212) 661-0989
Any notice, sent as provided above, shall be deemed given, if sent by
certified mail, upon delivery at the address provided for above (or, in the
event delivery is refused, the first date on which delivery was tendered)
or, if sent by facsimile transmission, upon receipt by the sender of
confirmation of delivery.
16. Expenses
--------
Except as set forth in Section 13 hereof, each party hereto shall
bear its own expenses (including all fees and expenses of attorneys,
accountants, investment bankers, brokers or other representatives or
consultants) incurred in connection with the negotiation, preparation,
consummation and performance of this Agreement and the Transaction
Documents and the transactions contemplated hereby and thereby.
17. Termination
-----------
17.1 Conditions. This Agreement may be terminated at any time on or
prior to the Closing Date:
(A) by mutual consent of Baxter, VIMRx and Nexell;
(B) by VIMRx, if (i) there has been a material misrepresentation or
breach on the part of Baxter with respect to any representation or warranty
of Baxter set forth herein, or (ii) there has been any material failure on
the part of Baxter to comply with any of its obligations or to perform any
of its covenants hereunder, which failure, if capable of remedy, has not
been remedied within 15 days of receipt by Baxter of notice thereof, or
(iii) any of the conditions set forth in Sections 7.2 and 7.3 hereof shall
not have been fulfilled by June 30, 1999 (other than by virtue of a breach
of this Agreement by VIMRx or Nexell) and the fulfillment thereof shall not
have been waived by VIMRx; or
(C) by Baxter, if (i) there has been a material misrepresentation or
breach on the part of VIMRx or Nexell in any of its representations or
warranties set forth herein, or (ii) there has been any material failure on
the part of VIMRx or Nexell to comply with any of its obligations or to
perform any of its covenants hereunder, which failure, if capable of
remedy, has not been remedied within 15 days of receipt by VIMRx or Nexell,
as appropriate, of notice thereof, or (iii) any of the conditions set forth
in Sections 7.1 and 7.3 hereof shall not have been fulfilled by June 30,
1999 (other than by virtue of a breach of the Agreement by Baxter) and the
fulfillment thereof shall not have been waived by Baxter.
17.2 Effective Date. A termination pursuant to Section 17.1(B) or (C)
--------------
hereof shall be effective immediately upon delivery of a notice of
termination by the
26
<PAGE>
party or parties hereto having the right to terminate to
the other party or parties hereto.
17.3 No Liability. In the event of a termination of this Agreement as
------------
provided in this Section 17, this Agreement shall forthwith terminate and
there shall be no liability on the part of Baxter, VIMRx or Nexell, except
for liability arising from a breach of this Agreement. Notwithstanding
anything in this Agreement to the contrary, failure of the VIMRx
stockholders to approve any of the matters set forth in the Proxy Statement
relating to this Agreement or any transaction or action contemplated herein
shall not be a breach of this Agreement.
18. Miscellaneous
-------------
18.1 Entire Agreement; No Modification; Enforceability of Original
-------------------------------------------------------------
Transaction Agreements. This Agreement, including the Exhibits and
----------------------
Transaction Documents delivered pursuant hereto, sets forth the entire
agreement and understanding between the parties hereto as to the specific
subject matter hereof and thereof, and merges and supersedes all prior
discussions, agreements and understandings of every kind and nature between
them with respect to the specific subject matter hereof and thereof, and no
party hereto shall be bound by any condition, definition, warranty or
representation other than as expressly provided for in this Agreement. This
Agreement shall not be changed or amended except by a writing signed by
Baxter, VIMRx and Nexell. Notwithstanding anything in this Agreement to the
contrary, except as specifically modified herein or as modified in a
separate writing signed by Baxter, VIMRx and Nexell, as the case may be,
all of the Original Transaction Agreements shall remain in full and effect
in accordance with the provisions thereof.
18.2 Waiver of Breach. The waiver by a party hereto of a breach or
----------------
violation by another party hereto of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach or
violation by any party hereto of the same or any other provision of this
Agreement. No such waiver shall be effective unless in writing signed by
the party hereto claimed to have made the waiver.
18.3 Benefit of Parties; Assignment. This Agreement shall be binding
------------------------------
upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, legal representatives, successors and
permitted assigns. No party hereto shall have the right to assign or
delegate any of its rights or obligations arising hereunder, except with
the prior written consent of each other party hereto; provided, however,
-----------------
that any party hereto may assign any or all of its rights, and delegate any
or all of its obligations, hereunder to any person or entity who shall, by
merger, consolidation, transfer of assets or otherwise, have acquired all
or substantially all of the assets (not counting cash and cash equivalents)
of such party; provided, further, that no such delegation shall relieve the
-----------------
delegating party of the obligation to satisfy and discharge the
obligation(s) so delegated. Notwithstanding the foregoing, Baxter shall
have the right to assign this Agreement, and any rights and obligations
arising
27
<PAGE>
hereunder, to an Affiliate of Baxter without the prior written consent of
any other party hereto; provided, that no such assignment shall relieve
Baxter of any of its obligations hereunder. Any purported assignment or
delegation in violation of this Section 18.3 shall be null and void ab
--
initio.
------
18.4 Headings. The headings of the sections and paragraphs of this
--------
Agreement are inserted for convenience of reference only and shall not
constitute a part hereof.
18.5 Governing Law; Jurisdiction. This Agreement shall be governed by
---------------------------
and construed in accordance with the laws of the State of Delaware without
giving effect to principles of conflict of laws. Each party to this
Agreement expressly and irrevocably (A) consents that any legal action or
proceeding against it under, arising out of or in any manner relating to,
this Agreement, or any other Document delivered in connection herewith, may
be brought in any court of the State of Delaware located within the
District of Delaware or in the United States District Court for the
District of Delaware, (B) consents and submits to the personal jurisdiction
of any of such courts in any such action or proceeding, (C) consents to the
service of any complaint, summons, notice or other process relating to any
such action or proceeding by delivery thereof to him, her or it by hand or
by any other manner provided for in Section 15 hereof, (D) waives any claim
or defense in any such action or proceeding based on any alleged lack of
personal jurisdiction, improper venue or forum non conveniens or any
--------------------
similar basis, and (E) waives all rights, if any, to trial by jury with
respect to any such action or proceeding. Nothing in this Section 18.5
shall affect or impair in any manner or to any extent the right of any
party hereto to commence legal proceedings or otherwise proceed against any
other party hereto in any jurisdiction or to serve process in any manner
permitted by law.
18.6 Multiple Counterparts; Execution by Fax. This Agreement may be
---------------------------------------
signed in any number of counterparts which taken together shall constitute
one and the same instrument. This Agreement may be executed and delivered
by exchange of facsimile copies showing the signatures of the parties
hereto, and those signatures need not be affixed to the same copy. The
facsimile copies showing the signatures of the parties will constitute
originally signed copies of the same agreement requiring no further
execution.
18.7 Exhibits. All Exhibits referred to in this Agreement are attached
--------
hereto and are incorporated herein by reference as if fully set forth
herein.
18.8 Construction. The language in all parts of this Agreement shall in
------------
all cases be construed as a whole according to its fair meaning, strictly
neither for nor against any party hereto, and without implying a presumption
that the terms thereof shall be more strictly construed against one party
hereto by reason of the rule of construction that a document is to be
construed more strictly against the person who himself or through his agent
prepared the same, it being agreed that representatives of all parties
hereto have participated in the preparation hereof.
28
<PAGE>
18.9 Publicity. No party to this Agreement shall issue or cause the
---------
publication of any press release or other public announcement with respect
to this Agreement or the transactions contemplated hereby without first
providing a draft of such press release or announcement to the other parties
hereto and obtaining the consent of the other parties hereto; provided,
--------
however, that nothing herein shall prevent any party hereto from making any
-------
disclosure required by law.
18.10 Number and Gender. Whenever in this Agreement the singular is
-----------------
used, it shall include the plural if the context so requires, and whenever
the masculine gender is used in this Agreement, it shall be construed as if
the masculine, feminine or neuter gender, respectively, has been used where
the context so dictates, with the rest of the sentence being construed as if
the grammatical and terminological changes thereby rendered necessary have
been made.
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BAXTER HEALTH CARE CORPORATION
By: ___________________________________
Name: Victor W. Schmitt
Title: President, Venture Management
VIMRx PHARMACEUTICALS INC.
By: ____________________________________
Name: Richard L. Dunning
Title: President and CEO
NEXELL THERAPEUTICS INC.
By: ____________________________________
Name: L. William McIntosh
Title: President and CEO
30
<PAGE>
US Bancorp Piper Jaffray Letterhead
ANNEX B
March __, 1999
The Board of Directors
VIMRx Pharmaceuticals Inc.
2751 Centerville Road, Suite 210
Wilmington, Delaware 02135
Members of the Board:
In connection with the proposed transaction ("Transaction") in which VIMRx
Pharmaceuticals Inc. ("VIMRx"), a Delaware corporation, will acquire all the
securities (including common stock, convertible debentures and warrants) of
Nexell Therapeutics, Inc. ("Nexell"), a Delaware corporation, owned by Baxter
Healthcare Corporation ("Baxter"), a Delaware corporation, and pursuant to which
Nexell will become a wholly-owned subsidiary of VIMRx, you have requested our
opinion as to the fairness, from a financial point of view, to VIMRx of the
proposed consideration to be paid by VIMRx to Baxter in the Transaction pursuant
to the Acquisition Agreement referred to below. Under the terms of the
Acquisition Agreement referred to below, the consideration to be paid by VIMRx
to Baxter in the Transaction consists of the following: (i) 3,000,000 shares of
VIMRx common stock, $.001 par value per share; (ii) a reduction in the per
share conversion price of the 66,304 shares of Series A Convertible Preferred
Stock of VIMRx, par value $.001 per share, held by Baxter to $2.75 from $5.50;
(iii) 6.5% convertible subordinated debentures issued by VIMRx in an aggregate
principal amount equal to $33,000,000 (replacing the (a) Series 1 6.5%
Convertible Subordinated Debenture due November 30, 2004 in the principal
amount of $10,000,000 issued by Nexell to Baxter and (b) Series 3 6.5%
Convertible Subordinated Debenture due November 30, 2004 in the principal
amount of $20,000,000 issued by Nexell to Baxter, plus all accrued but unpaid
interest (if any) as of the closing date of the Acquisition), which debentures
shall be convertible into additional shares of VIMRx common stock commencing on
November 20, 2002 at a conversion price of equal to ninety-five percent (95%) of
the average closing sale prices of VIMRx common stock on the thirty (30) trading
days preceding, but not including, the date of such conversion, as reported by
NASDAQ; and (iv) a seven year warrant to purchase up to and including an
additional 5,200,000 shares of VIMRx Common Stock at $1.15 per share. The terms
and conditions of the Transaction are more fully set forth in the Acquisition
Agreement.
U.S. Bancorp Piper Jaffray Inc., as a customary part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, underwriting and secondary
distributions of securities, private placements and valuations for estate,
corporate and other purposes. We will receive a fee for providing this opinion.
This opinion fee is not contingent upon the consummation of the Transaction.
VIMRx has also agreed to indemnify us against certain liabilities in connection
with our services. We have not
DRAFT FOR DISCUSSION PURPOSES ONLY
<PAGE>
VIMRx Pharmaceuticals Inc.
March __, 1999
Page 2
acted as financial advisor to VIMRx in connection with the Transaction. U.S.
Bancorp Piper Jaffray Inc. does advise VIMRx in other financial and strategic
matters. In the ordinary course of our business, we and our affiliates may
actively trade securities of VIMRx and Baxter for our own account or the account
of our customers and, accordingly, may at any time hold a long or short position
in such securities.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed (i) the definitive Acquisition Agreement, dated
as of February 18, 1999, by and among VIMRx, Baxter and Nexell, (ii) certain
public information related to VIMRx (iii) certain publicly available financial
and securities data of VIMRx and selected public companies deemed comparable to
Nexell, (iv) to the extent publicly available, certain information concerning
selected transactions deemed comparable to the proposed Transaction, (v) certain
publicly available information relative to Nexell, (vi) certain internal
historical and forecast financial information of Nexell and VIMRx on a combined
and stand-alone basis prepared for financial planning purposes, and furnished by
Nexell and VIMRx management. We had discussions with members of the management
of Nexell and VIMRx concerning the financial condition, current operating
results and business outlook for Nexell and VIMRx on a combined and stand-alone
basis. In addition, we have visited the corporate headquarters of VIMRx and
Nexell and reviewed such other financial studies, business plans, and analyses
provided by the managements of Nexell and VIMRx and considered such other
information as we deemed appropriate for the purposes of this opinion.
We have relied upon and assumed the accuracy, completeness and fairness of the
financial statements and other information that was publicly available or was
provided to us by Nexell and VIMRx, or otherwise made available to us, and have
not assumed responsibility or liability for the independent verification of such
information. Nexell and VIMRX have advised us that they do not publicly
disclose internal financial information of the type provided to us and that such
information was prepared for financial planning purposes and not with the
expectation of public disclosure. We have relied upon the assurance of the
management of Nexell and VIMRx that the information provided to us by Nexell and
VIMRx has been prepared on a reasonable basis, and, with respect to financial
planning data and other business outlook information, reflects the best
currently available estimates, and that they are not aware of any information or
facts that would make the information provided to us incomplete or misleading.
In addition, we have assumed that, in the course of obtaining the necessary
regulatory approvals for the Transaction, no restrictions, including any
divestiture requirements, will be imposed that will have a material adverse
effect on the contemplated benefits of the Transaction.
In arriving at our opinion, we have not performed any appraisals or valuations
of any specific
DRAFT FOR DISCUSSION PURPOSES ONLY
<PAGE>
VIMRx Pharmaceuticals Inc.
March __, 1999
Page 3
assets or liabilities of Nexell or VIMRx, and have not been furnished with any
such appraisals or valuations. We express no opinion regarding the liquidation
value of any entity.
This opinion is necessarily based upon the information available to us and facts
and circumstances as they exist and are subject to evaluation on the date
hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the price at which shares of VIMRx common stock have traded or may
trade at any future time. We have not undertaken to update, revise or reaffirm
or revise this opinion or otherwise comment upon any events occurring after the
date hereof and do not have any obligation to update, revise or reaffirm this
opinion.
This opinion is directed to and is for the use and benefit of the Board of
Directors of VIMRx and is rendered to the Board of Directors in connection with
its consideration of the Transaction. This opinion is not intended to be and
does not constitute a recommendation to any stockholder as to how such
stockholder should vote with respect to the Transaction. We were not requested
to opine as to, and this opinion does not address, the basic business decision
to proceed with or effect the Transaction. This opinion shall not be published
or otherwise used, nor shall any public references to us be made, without our
prior written approval.
Based upon and subject to the foregoing and based upon such other factors as we
consider relevant, it is our opinion that the consideration proposed to be paid
by VIMRx to Baxter in the Transaction pursuant to the Acquisition Agreement is
fair, from a financial point of view, to VIMRx as of the date hereof.
Sincerely,
DRAFT FOR DISCUSSION PURPOSES ONLY
<PAGE>
ANNEX C
VIMRX PHARMACEUTICALS INC.
Unaudited Pro Forma Condensed Combined Financial Information
The unaudited pro forma condensed combined statement of operations
information of the Company for the year ended December 31, 1998 set forth in
this Annex C to the Company's Proxy Statement gives effect to the acquisition of
Baxter's minority interest in Nexell as if it had occurred on January 1, 1998.
The unaudited pro forma condensed combined balance sheet information at December
31, 1998 gives effect to the Acquisition as if it had occurred on December 31,
1998. The unaudited pro forma condensed combined statement of operations
information excludes material non-recurring charges related to purchased in-
process research and development, which totaled approximately $4.1 million.
For accounting purposes, the Acquisition will be treated as a purchase of
assets. Accordingly, for purposes of the unaudited pro forma condensed combined
statement of operations information, the excess of the purchase price over the
fair market value of the acquired assets (goodwill) is being amortized over
approximately 12.5 years.
The unaudited pro forma condensed combined financial statement information
has been prepared by the Company's management based upon the financial
statements of the Company. Nexell's business was already consolidated in the
Company's 1998 financial statements and the Acquisition represents the
acquisition of the 19.5% of Nexell that the Company does not currently own.
Unaudited pro forma financial information does not purport to be indicative of
either the future results of operations or the results of operations that would
have occurred if the Acquisition had been consummated on the indicated dates.
The pro forma adjustments are based on available information and certain
assumptions that the Company believes to be reasonable. The unaudited pro forma
condensed combined financial information should be read in conjunction with the
audited financial statements in the Company's Annual Report to Shareholders for
the year ended December 31, 1998, on Form 10-K which is included with this Proxy
Statement.
<PAGE>
VIMRX PHARMACEUTICALS INC.
Unaudited Pro Forma Condensed Combined Balance Sheet Information
December 31, 1998
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
VIMRX Adjustments
-------------------------------------------------------
<S> <C> <C> <C>
Other Intangible assets $ 9,909,000 $ 2,656,000(2) $ 12,565,000
Goodwill $ 27,470,000 13,356,000(2) 40,826,000
All other assets 50,223,000 50,223,000
--------------------------------- -------------------
Total assets $ 87,602,000 $16,012,000 $ 103,614,000
================================= ===================
Total liabilities $ 38,787,000 $ 300,000(1) $ 39,087,000
--------------------------------- -------------------
Stockholders' equity:
Class A convertible preferred stock 100 100
Common stock 67,000 3,000(1) 70,000
Additional paid in capital 182,538,900 19,797,000(1) 202,335,900
Accumulated deficit (133,533,000) (4,088,000(2) (137,621,000)
All other shareholders' equity accounts (258,000) (258,000)
--------------------------------- -------------------
Total 48,815,000 15,712,000 64,527,000
--------------------------------- -------------------
Total liabilities and shareholders' equity $ 87,602,000 $16,012,000 $ 103,614,000
================================= ===================
</TABLE>
2
<PAGE>
VIMRX PHARMACEUTICALS INC.
Unaudited Pro Forma Condensed Combined Statement of Operations Information
For The Year Ended December 31,1998
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
VIMRX Adjustments
---------------------------------------- ----------------
<S> <C> <C> <C>
Amortization of goodwill and intangibles $ 3,482,000 $1,281,000(2) $ 4,763,000
All other revenue and operating expenses 35,740,000 35,740,000
------------------------------------- ----------------
Total operating loss 39,222,000 1,281,000 40,503,000
Interest expense 2,038,000 413,000(3) 2,451,000
Minority interest in consolidated subsidiary (4,136,000) 3,685,000(2) (451,000)
All other income and expense (2,162,000) (2,162,000)
------------------------------------- ----------------
Net loss $34,962,000 $5,379,000 $40,341,000
Preferred Stock dividends 3,988,000 3,988,000
------------------------------------- ----------------
Net loss applicable to Common Stock $38,950,000 $5,379,000 $44,329,000
===================================== ================
Proforma weighted average number of shares
outstanding 67,284,000 3,000,000 70,284,000
===================================== ================
Net loss per share $0.58 $0.63
===================================== ================
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT INFORMATION
1. Pursuant to the Acquisition Agreement, the Company will issue to Baxter
3,000,000 shares of Common Stock and a warrant to purchase an additional
5,200,000 shares of Common Stock at $1.15 per share, and will change the
conversion price of the Series A Cumulative Convertible Preferred Stock held by
Baxter from $5.50 per share to $2.75 per share. The total fair value of the
preceding consideration is approximately $19.8 million. In addition, the Company
will incur approximately $300,000 of transaction related costs.
2. The purchase price was allocated to goodwill, other intangible assets, and
purchased in-process research and development of Nexell. The purchased in-
process research and development of approximately $4.1 million has been deemed
to be non-recurring and directly attributable to the Acquisition and,
accordingly, has been excluded from the pro forma statement of operations
information and will be expensed in the period the Acquisition is consummated.
The minority interest is eliminated in the pro forma statement of operations
information to establish 100% ownership. There is no elimination of minority
interest on the pro forma balance sheet information as it has been reduced to $0
as of December 31, 1998
3
<PAGE>
due to operating losses. The other intangible assets are being amortized on a
straight-line basis over a period of expected benefit of approximately 12.5
years.
3. The Company will also exchange approximately $30,000,000 of Nexell 6-1/2%
Convertible Subordinated Debentures (plus accrued interest through the closing
date of the Acquisition) for approximately $33,000,000 of 6-1/2% Convertible
Subordinated Debentures, convertible commencing November 30, 2002, into common
stock of the Company at a conversion price equal to 95% of the market price at
the time of conversion. The 5% discount from market at the time of conversion
will be amortized over the period to November 2, 2002 as additional interest
expense.
4
<PAGE>
ANNEX D
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
VIMRX PHARMACEUTICALS INC.
============================================
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
==============================================
VIMRX Pharmaceuticals Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies as follows:
1. The name of the Corporation is VIMRX Pharmaceuticals Inc. and the
name under which the Corporation originally was incorporated was "Cellular
Immunology Corporation."
2. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of Delaware on December 13, 1986.
3. The Amended and Restated Certificate of Incorporation of the
Corporation, as heretofore amended or supplemented (the "Certificate of
Incorporation"), is hereby further amended by striking out "Article I" and
substituting in lieu thereof a new "Article I" changing the name of the
Corporation to read as follows:
"FIRST: The name of the Corporation is:
Nexell Therapeutics Inc."
4. The Amended and Restated Certificate of Incorporation of the
Corporation, as heretofore amended or supplemented (the "Certificate of
Incorporation"), is hereby further amended by striking out "Article IV" and
substituting in lieu thereof a new "Article IV" changing the authorized capital
stock of the Corporation to read as follows:
"FOURTH
A. The authorized capital stock of the Corporation shall consist of one
hundred sixty-one million, one hundred fifty thousand (161,150,000) shares,
consisting of one hundred sixty million (160,000,000) shares of Common
Stock, each having a par value of
<PAGE>
$.001 (the "Common Stock"), and one million, one hundred fifty thousand
(1,150,000) shares of Preferred Stock, each having a par value of $.001 (the
"Preferred Stock").
B. The Preferred Stock may be issued from time to time in one or more
series of any number of shares provided that the aggregate number of shares
issued and not canceled of any and all such series shall not exceed the total
number of shares of Preferred Stock hereinabove authorized. Each series of
Preferred Stock shall be distinctively designated by letter or descriptive
words. All series of Preferred Stock shall rank equally and be identical in all
respects except as provided by this Article FOURTH or in a resolution of the
Board of Directors providing for the issuance of any series of Preferred Stock.
C. Authority is hereby expressly vested in the Board of Directors from time
to time to issue the Preferred Stock as Preferred Stock of any series and in
connection with the creation of each such series to fix by the resolution or
resolutions providing for the issue of shares thereof the designations,
preferences, limitations and relative participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, to the full
extent now or hereafter permitted by this Certificate of Incorporation and the
laws of the State of Delaware, including, without limitation:
(1) the distinctive designation of such series and the number of shares
which shall constitute such series, which number may be increased (but not above
the total number of authorized shares of the Preferred Stock) or decreased (but
not below the number of shares thereof then outstanding) from time to time by a
resolution or resolutions of the Board of Directors, all subject to the
conditions or restrictions set forth in the resolution or resolutions adopted by
the Board of Directors providing for the issuance of any series of Preferred
Stock;
(2) the dividend rate payable on shares of such series, the conditions
and dates upon which such dividends shall be payable, the preferences or
relation which such dividend shall bear to the dividends payable on any other
class or classes or any other series of capital stock (except as otherwise
expressly provided in this Certificate of Incorporation), and whether such
dividends shall be cumulative or non-cumulative and, if cumulative, the date or
dates from which dividends shall accumulate;
(3) whether the shares of such series shall be subject to redemption by
the Corporation and, if made subject to redemption, the price or prices at
which, and the terms and conditions on which, the shares of such series may be
redeemed by the Corporation;
(4) the amount or amounts payable upon the shares of such series in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation and the preferences or relation which such payments shall bear
to such payments made on any other class or classes or any other series of
capital stock (except as otherwise expressly provided in this Certificate of
Incorporation);
(5) whether or not the shares of such series shall be made convertible
into, or exchangeable for, shares of any other class or classes of capital stock
of the Corporation, or any series thereof, or for any other series of the same
class of capital stock of the Corporation or for debt of the Corporation
evidenced by an instrument of indebtedness, and, if so convertible or
2
<PAGE>
exchangeable, the conversion price or prices, or the rate or rates of exchange,
and the adjustments thereof, if any, at which such conversion or exchange may be
made, and any other terms and conditions of such conversion or exchange;
(6) whether the holders of shares of such series shall have any right or
power to vote or to receive notice of any meeting of stockholders, either
generally or as a condition to specified corporate action; and
(7) any other preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions thereof as may be
permitted by the laws of the State of Delaware and as shall not be inconsistent
with this Article FOURTH.
D. Shares of Preferred Stock which have been issued and reacquired in any
manner by the Corporation (excluding, until the Corporation elects to retire
them, shares which are held as treasury shares, but including shares redeemed,
shares purchased and retired and shares which have been converted into shares of
Common Stock) shall have the status of authorized but unissued shares of
Preferred Stock and may be reissued as a part of the series of which they were
originally a part or may be reissued as a part of another series of Preferred
Stock, all subject to the conditions or restrictions on issuance set forth in
the resolution or resolutions adopted by the Board of Directors providing for
the issuance of any series of Preferred Stock.
E. Except as otherwise provided by the resolution or resolutions providing
for the issuance of any series of Preferred Stock, or in subsection H of this
Article FOURTH, after payment shall have been made to the holders of Preferred
Stock of the full amount of dividends to which they shall be entitled pursuant
to the resolution or resolutions providing for the issuance of any series of
Preferred Stock, the holders of Common Stock shall be entitled, to the exclusion
of the holders of Preferred Stock of any and all series, to receive such
dividends as from time to time may be declared by the Board of Directors.
F. Except as otherwise provided by the resolution or resolutions providing
for the issuance of any series of Preferred Stock, in the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, after payment shall have been made to the holders of Preferred
Stock of the full amounts to which they shall be entitled pursuant to the
resolution or resolutions providing for the issuance of any series of Preferred
Stock, the holders of Common Stock shall be entitled, to the exclusion of the
holders of Preferred Stock of any and all series, to share, ratably according to
the number of shares of Common Stock held by them, in all remaining assets of
the Corporation available for distribution to its stockholders.
G. The holders of Preferred Stock shall not have any preemptive rights
except to the extent such rights shall be specifically provided for in the
resolution or resolutions providing for the issuance thereof adopted by the
Board of Directors.
H. The Board of Directors hereby creates and establishes and authorizes the
issuance of a first series of preferred stock, such series to consist of 150,000
shares of this Corporation's authorized and unissued Preferred Stock, each share
having a par value of $.001, and the Board of Directors hereby fixes the
designation of such series as "Series A Cumulative Convertible Preferred Stock"
(hereinafter referred to as the "Series A Preferred Stock") and fixes the number
3
<PAGE>
of shares constituting such series at 150,000, and hereby determines the powers,
preferences, rights, qualifications, limitations and restrictions of such series
as follows:
SECTION 1.
DIVIDENDS
(a) The holders of the Series A Preferred Stock shall be entitled to
receive dividends thereon at the rate of 6% of the Liquidation Preference (as
defined in Section 2) per share per annum, (as adjusted for any combinations,
consolidations, stock distributions or stock dividends with respect to such
shares) as and when declared by the Board of Directors, before any dividend or
distribution shall be declared, set apart for, or paid upon the Common Stock of
the Corporation, which dividend shall be payable in additional shares of Series
A Preferred Stock, each valued at their Liquidation Preference. The dividends on
the Series A Preferred Stock shall be cumulative, so that if the Corporation
fails in any fiscal year to pay such dividends on all of the issued and
outstanding Series A Preferred Stock, such deficiency in the dividends shall be
fully paid before any dividends or distributions shall be paid on or set apart
for the Common Stock. All dividends and distributions on the Series A Preferred
Stock shall be made pro rata per share to all holders of Series A Preferred
Stock; provided, however, that, notwithstanding the foregoing, until all
cumulative dividends on the Series A Preferred Stock shall have been fully paid,
all dividends and distributions on the Series A Preferred Stock shall be made
ratably to the holders thereof in proportion to the respective amounts that
would be payable on such shares if such dividend arrearages were paid in full.
Such dividends shall accrue annually on the anniversary of the Original Issuance
Date (as defined in Section 3(d)).
(b) For purposes of this Section 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase and other than redemptions in liquidation or dissolution of the
Corporation) for cash or property, including any such transfer, purchase or
redemption by a subsidiary of the Corporation.
SECTION 2.
LIQUIDATION RIGHTS
(a) Treatment at Liquidation, Dissolution or Winding Up.
(i) Except as otherwise provided in Section 2(b) below, in the
event of any liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, the holders of Series A Preferred
Stock shall be entitled to be paid first out of the assets of the Corporation
available for distribution to holders of the Corporation's capital stock of all
classes, before payment or distribution of any of such assets to the holders of
any other class of the corporation's capital stock, an amount equal to $1,000
per share of Series A Preferred Stock (the "Liquidation Preference"), which
amount shall be subject to equitable adjustment whenever there shall occur a
stock dividend, stock split, combination of shares,
4
<PAGE>
reclassification or other similar event affecting such shares), and shall
include any accrued but unpaid dividends.
(ii) After payment shall have been made in full to the holders
of Series A Preferred Stock pursuant to Section 2(a)(i) hereof or funds
necessary for such payment shall have been set aside by the Corporation in trust
for the account of the holders of Series A Preferred Stock to be available for
such payment, the remaining assets of the Corporation shall be distributed
ratably to the holders of Common Stock to the exclusion of the Series A
Preferred Stock.
(iii) If the assets of the Corporation shall be insufficient to
permit the payment in full to the holders of Series A Preferred Stock of all
amounts distributable to them under Section 2(a)(i) hereof, then the entire
assets of the Corporation available for such distribution shall be distributed
ratably among the holders of Series A Preferred Stock in proportion to the full
preferential amount each such holder is otherwise entitled to receive.
(b) Treatment of Reorganizations, Consolidations, Mergers and Sales of
Assets. A consolidation or merger of the Corporation with or into another
unaffiliated corporation or a sale of all or substantially all of the assets of
the Corporation, shall not be regarded as a liquidation, dissolution or winding
up of the affairs of the Corporation for purposes of this Section 2, but shall
result in conversion of the Series A Preferred Stock into Common Stock as set
forth in Section 3(c).
(c) Distributions Other Than Cash. The value of any distribution
provided for in this Section 2, or portion thereof, payable in property
other than cash shall be the fair value (as determined by the Board of
Directors in good faith) of such property at the time of such distribution.
SECTION 3.
CONVERSION
The holders of Series A Preferred Stock shall have conversion rights (the
"Conversion Rights") and the Series A Preferred Stock shall be subject to
conversion, as follows:
(a) Right to Convert; Conversion Price. Each share of Series A Preferred
Stock shall be convertible, without the payment of any additional consideration
by the holder thereof and at the option of the holder thereof, at any time after
June 17, 1999, at the office of the Corporation or any transfer agent for the
Series A Preferred Stock, into such whole number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $1,000 by the Conversion
Price, determined as hereinafter provided, in effect at the time of conversion.
The Conversion Price at which shares of Common Stock shall be deliverable upon
conversion without the payment of any additional consideration by the holder of
Series A Preferred Stock (the "Conversion Price") shall initially be $2.75. Such
initial Conversion Price shall be subject to adjustment, in order to adjust the
number of shares of Common Stock into which Series A Preferred Stock is
convertible, as hereinafter provided. The right of conversion with respect to
any shares of Series A Preferred Stock which the Corporation redeems pursuant to
Section 5(a) hereof shall terminate at the close of business on the Redemption
Date (as defined in Section 5 of
5
<PAGE>
this Certificate of Designations), unless the Corporation shall default in the
payment of the redemption price for such shares of Series A Preferred Stock, in
which case such termination shall occur upon payment of the redemption price of
such shares.
(b) Mechanics of Conversion; Dividends; Fractional Shares. Before any
holder of Series A Preferred Stock shall be entitled to convert the same into
shares of Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series A Preferred Stock, and shall give written notice
to the Corporation at such office that such holder elects to convert the same.
At the time of each conversion of shares of Series A Preferred Stock, the
Corporation shall also issue shares of Common Stock in an amount equal to all
dividends declared and unpaid on the shares of Series A Preferred Stock
surrendered for conversion to the date upon which such conversion is deemed to
occur, valued at the Conversion Price. In lieu of any fractional shares of
Common Stock to which the holder would otherwise be entitled, the Corporation
shall pay cash equal to such fraction multiplied by the then effective
Conversion Price. The Corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of Series A Preferred Stock, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid, together with cash in lieu of any
fraction of a share. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series A Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
(c) Automatic Conversion.
(i) Each share of Series A Preferred Stock shall automatically
be converted into shares of Common Stock at the then effective Conversion
Price on the earliest of:
(1) December 17, 2004; or
(2) immediately prior to the effective time of any
merger, sale of assets, reorganization or like event in which the Corporation is
not the surviving entity (if such event occurs prior to June 17, 1999, then the
Conversion Price shall be equal to the fair value of the consideration to be
received by the holder of a share of Common Stock, as determined in good faith
by the Corporation's Board of Directors, but in no event greater than $2.75), or
(3) upon the written election of the holders of not less
than a majority in voting power of the then outstanding shares of Series A
Preferred Stock to require such mandatory conversion.
(ii) Upon the occurrence of an event specified in Section
3(c)(i) hereof, all shares of Series A Preferred Stock shall be converted
automatically without any further action by any holder of such shares and
whether or not the certificate(s) representing such shares are surrendered to
the Corporation or the transfer agent for the Series A Preferred Stock;
provided, however, that the Corporation shall not be obligated to issue a
certificate or certificates evidencing the shares of Common Stock issuable upon
such conversion unless the certificate(s) evidencing such shares of Series A
Preferred Stock being converted are either delivered to the
6
<PAGE>
Corporation or the transfer agent for the Series A Preferred Stock, or the
holder notifies the Corporation or such transfer agent that such certificate or
certificates have been lost, stolen, or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection therewith ("Indemnity Agreement"), except that such
holder shall not be required to provide any indemnity bond. Upon the automatic
conversion of Series A Preferred Stock, each holder of Series A Preferred Stock
shall surrender the certificate(s) representing such holder's shares of Series A
Preferred Stock or the aforesaid Indemnity Agreement at the office of the
Corporation or of the transfer agent for the Series A Preferred Stock.
Thereupon, there shall be issued and delivered to such holder, promptly at such
office and in such holder's name as shown on such surrendered certificate(s), a
certificate or certificates for the number of shares of Common Stock into which
the shares of Series A Preferred Stock surrendered were convertible on the date
on which such automatic conversion occurred. No fractional shares of Common
Stock shall be issued upon the automatic conversion of Series A Preferred Stock.
In lieu of any fractional shares of Common Stock to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to such fraction
multiplied by the then effective Conversion Price.
(d) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after December 17, 1997 (the "Original
Issuance Date") effect a subdivision of the outstanding Common Stock, the
Conversion Price in effect immediately before that subdivision shall be
proportionately decreased. If the Corporation shall at any time or from time to
time after the Original Issuance Date combine the outstanding shares of Common
Stock, the Conversion Price in effect immediately before the combination shall
be proportionately increased. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(e) Adjustment for Certain Dividends and Distributions.
(1) In the event the Corporation at any time or from time to
time after the Original Issuance Date shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock, then and in
each such event the Conversion Price then in effect shall be decreased as of the
time of such issuance or, in the event such a record date shall have been fixed,
as of the close of business on such record date, by multiplying the Conversion
Price then in effect by a fraction:
(A) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or
the close of business on such record date, and
(B) the denominator of which shall be the total number
of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or
the close of business on such record date plus the
number of shares of Common Stock issuable in payment
of such dividend or distribution;
7
<PAGE>
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(2) For the purposes of Section 3(e)(1) hereof, the total number
of shares of Common Stock deemed to be issued and outstanding shall include (i)
all shares of Common Stock issuable on conversion of all shares of Series A
Preferred Stock outstanding and (ii) all shares of Common Stock issued and
outstanding and entitled to receive such dividend.
(f) Adjustments for Other Dividends and Distributions. In the event the
Corporation at any time or from time to time after the Original Issuance Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, including a
cash dividend, then and in each such event provision shall be made so that the
holders of Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation and/or cash that they would have
received had their Series A Preferred Stock been converted into Common Stock on
the date of such event and had they thereafter, during the period from the date
of such event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, giving application to all
adjustments called for herein during such period.
(g) Adjustment for Reclassification, Exchange or Substitution. If the
Common Stock issuable upon the conversion of the Series A Preferred Stock shall
be changed into the same or a different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for above, or a reorganization, merger, consolidation, or sale of assets
provided for in Section 3(c), then and in each such event the holder of each
such share of Series A Preferred Stock shall have the right thereafter to
convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification,
or other change, by holders of the number of shares of Common Stock into which
such shares of Series A Preferred Stock might have been converted immediately
prior to such reorganization, reclassification, or change, all subject to
further adjustment as provided herein.
(h) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 3,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each affected
holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any affected holder of Series A Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Conversion Price at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other
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property which at the time would be received upon the conversion of each share
of Series A Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, the Corporation shall mail to each
holder of Series A Preferred Stock at least ten (10) days prior to such record
date a notice specifying the date on which any such record is to be taken for
the purpose of such dividend or distribution.
(j) Common Stock Reserved. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all Series A Preferred Stock.
(k) Certain Taxes. The Corporation shall pay any issue or transfer taxes
payable in connection with the conversion of any shares of Series A Preferred
Stock; provided, however, that the Corporation shall not be required to pay any
tax that may be payable in respect of any transfer to a name other than that of
the holder of such Series A Preferred Stock.
SECTION 4.
VOTING RIGHTS
Except as otherwise required by law or by Section 7, the holders of Series
A Preferred Stock shall not have the right to vote on any matter submitted to a
vote of the stockholders of the Corporation. With respect to all questions as to
which, under law, stockholders are entitled to vote by classes, the holders of
Series A Preferred Stock shall vote together as a single class separately from
the holders of Common Stock.
SECTION 5.
NO REISSUANCE OF SERIES A PREFERRED STOCK
No share or shares of Series A Preferred Stock acquired by the Corporation
by reason of redemption, purchase, conversion or otherwise shall be reissued,
and all such shares shall be canceled, retired and eliminated from the shares
which the Corporation shall be authorized to issue.
SECTION 6.
PROTECTIVE COVENANT
The Corporation shall not, without the affirmative vote or written consent
of the holders of a majority of the then issued and outstanding shares of Series
A Preferred Stock, amend its Certificate of Incorporation or adopt a resolution
of the Board of Directors to provide for the creation or issuance of any class
or series of capital stock which shall rank pari passu or senior to the Series A
Preferred Stock in priority to receive the liquidation preference on the Series
A Preferred Stock."
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5. The amendment to the Certificate of Incorporation herein certified
has been duly adopted in the manner and by the vote prescribed by Section 242 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this certificate by signed by its President and Chief
Executive Officer and attested by its Secretary this ______ day of
______________, 1999.
VIMRx PHARMACEUTICALS INC.
By:____________________________________
Richard L. Dunning
President and Chief Executive Officer
Attest:
By:_____________________________
Lowell S. Lifschultz
Secretary
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