<PAGE>
As filed with the Securities and Exchange Commission on June 17, 1997.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
JUNE 16, 1997 (MAY 10, 1997)
MEDAREX, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 0-19312 22-2822175
(State of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1545 ROUTE 22 EAST, ANNANDALE, NEW JERSEY 08801-0953
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (908) 713-6001
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE>
MEDAREX, INC.
-------------
TABLE OF CONTENTS
FOR
CURRENT REPORT ON FORM 8-K
Item 5. Other Events............................................. 3
Item 7. Financial Statements and Exhibits........................ 3
Signature ......................................................... 4
2
<PAGE>
ITEM 5. OTHER EVENTS.
On May 5, 1997, Medarex, Inc., a New Jersey corporation ("Medarex"),
Medarex Acquisition Corp., a California corporation and wholly-owned subsidiary
of Medarex ("Merger Sub"), and GenPharm International, Inc. ("GenPharm"), a
California corporation, entered into an Agreement and Plan of Reorganization
(the "Merger Agreement") pursuant to which (i) Merger Sub will be merged with
and into GenPharm (the "Merger") and GenPharm will become a wholly-owned
subsidiary of Medarex, and (ii) the holders of the outstanding shares of
GenPharm capital stock will be entitled to receive up to $65 million in shares
of Medarex common stock, par value $.01 per share (the "Medarex Common Stock").
Subsequent to the execution and delivery of the Merger Agreement, the parties
entered into an Amended and Restated Agreement and Plan of Reorganization dated
as of May 5, 1997 which sets forth certain non-material amendments to the
Merger Agreement. A copy of such Amended and Restated Plan of Reorganization is
filed herewith as Exhibit 2.1. The purpose of this Form 8-K is to file the
Amended and Restated Plan of Reorganization with the Commission.
This Current Report on Form 8-K contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
Medarex's projections, estimates, expectations or beliefs concerning among other
things, financial items that relate to management's future plans or objectives
or to Medarex's future economic and financial performance. Forward-looking
statements involve known and unknown risks and uncertainties and are indicated
by words such as "anticipates", "expects", "believes", "plans", "could" and
similar words and phrases. These risks and uncertainties include, but are not
limited to, uncertainties regarding the completion of the acquisition,
difficulties that may be encountered in integrating the businesses and
technologies of Medarex and GenPharm following the Merger and other risks that
may be detailed from time to time in Medarex's periodic reports and registration
statements filed with the Securities and Exchange Commission.
3
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits. The following materials are filed as exhibits to
this Current Report on Form 8-K:
Exhibit
Number Description of Exhibit
- ------- ----------------------
2.1 Amended and Restated Agreement and Plan of Reorganization among
Medarex, Inc., Medarex Acquisition Corp. and GenPharm
International, Inc. dated as of May 5, 1997, together with the
exhibits thereto.
4
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MEDAREX, INC.
Registrant
Date: June 16, 1997 By:/s/Michael A. Appelbaum
--------------------------------------
Michael A. Appelbaum
Senior Vice President - Finance
and Administration, Secretary,
Treasurer and Chief Financial
Officer
5
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
Number Description Number
------- ----------- ------
2.1 Amended and Restated Agreement and Plan of Reorganization among
Medarex, Inc., Medarex Acquisition Corp. and GenPharm International,
Inc. dated as of May 5, 1997, together with the exhibits thereto.
6
<PAGE>
EXHIBIT 2.1
________________________________________________
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
MEDAREX, INC.,
MEDAREX ACQUISITION CORP.
AND
GENPHARM INTERNATIONAL, INC.
Dated as of May 5, 1997
________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
AGREEMENT AND PLAN OF REORGANIZATION........................................... 1
ARTICLE I THE MERGER........................................................... 2
SECTION 1.1 The Merger................................................... 2
SECTION 1.2 Closing...................................................... 2
SECTION 1.3 Effective Time of the Merger................................. 2
SECTION 1.4 Effects of the Merger........................................ 2
SECTION 1.5 Articles of Incorporation; By-Laws........................... 3
SECTION 1.6 Directors and Officers....................................... 3
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES................... 3
SECTION 2.1 Effect on Capital Stock...................................... 3
SECTION 2.2 Exchange of Certificates..................................... 10
SECTION 2.3 Assumption of Options........................................ 11
SECTION 2.4 Assumption of Warrant........................................ 12
ARTICLE III REPRESENTATIONS AND WARRANTIES..................................... 12
SECTION 3.1 Representations and Warranties of the Company................ 12
SECTION 3.2 Representations and Warranties of Parent and Merger Sub...... 26
ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER; OTHER
COVENANTS.............................................................. 31
SECTION 4.1 Conduct of Business of the Company Pending the Merger........ 31
SECTION 4.2 Conduct of Business of Merger Sub............................ 35
SECTION 4.3 Shareholders' Consent/Meeting................................ 35
SECTION 4.4 Access to Information; Confidentiality....................... 35
SECTION 4.5 Affiliates................................................... 36
SECTION 4.6 No Solicitation.............................................. 36
SECTION 4.7 Employee Benefits Matters.................................... 37
SECTION 4.8 Directors' and Officers' Indemnification and Insurance....... 38
SECTION 4.9 Further Action; Reasonable Best Efforts...................... 38
SECTION 4.10 Notification of Certain Matters.............................. 39
SECTION 4.11 Public Announcements......................................... 39
SECTION 4.12 Tax Free Reorganization Treatment............................ 39
SECTION 4.13 Rule 144 Information......................................... 39
SECTION 4.14 Preparation of Form S-4 and the Consent Solicitation
Statement/Prospectus................................................... 39
SECTION 4.15 Contingent Payments.......................................... 40
SECTION 4.16 Parent Shareholders' Meeting; Payment of Additional Shares... 41
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 4.17 FIRPTA Matters............................................... 41
SECTION 4.18 Expenses..................................................... 41
SECTION 4.19 NMS Listing.................................................. 41
SECTION 4.20 Blue Sky Laws................................................ 41
SECTION 4.21 Employee Stock Bonus......................................... 41
SECTION 4.22 Shareholder Agreements....................................... 42
ARTICLE V CONDITIONS OF MERGER................................................. 42
SECTION 5.1 Conditions to Obligation of Each Party to Effect the Merger.. 42
SECTION 5.2 Conditions to Obligations of Parent and Merger Sub........... 43
SECTION 5.3 Conditions to Obligations of the Company..................... 46
ARTICLE VI TERMINATION, AMENDMENT AND WAIVER................................... 48
SECTION 6.1 Termination.................................................. 48
SECTION 6.2 Effect of Termination........................................ 50
SECTION 6.3 Breakup Fee.................................................. 50
SECTION 6.4 Amendment.................................................... 52
SECTION 6.5 Waiver....................................................... 52
ARTICLE VII REGISTRATION OF SECURITIES; LIMITATION ON
SALE OF PARENT COMMON SHARES......................................... 52
SECTION 7.1 Registration of Shares....................................... 52
SECTION 7.2 Restrictions on Transfer of Parent Common Shares............. 52
ARTICLE VIII GENERAL PROVISIONS................................................ 55
SECTION 8.1 Non-Survival of Representations, Warranties and Agreements... 55
SECTION 8.2 Notices...................................................... 55
SECTION 8.3 Certain Definitions.......................................... 56
SECTION 8.4 Severability................................................. 57
SECTION 8.5 Entire Agreement; Assignment................................. 58
SECTION 8.6 Parties in Interest.......................................... 58
SECTION 8.7 Governing Law................................................ 58
SECTION 8.8 Consent to Jurisdiction...................................... 58
SECTION 8.9 Headings..................................................... 59
SECTION 8.10 Counterparts................................................. 59
</TABLE>
EXHIBITS
4.6 Affiliates Letter
SCHEDULES
A Disclosure Schedule
ii
<PAGE>
<TABLE>
<CAPTION>
Term Page Number
- ---- -----------
<S> <C>
"Additional Shares" 5
"Additional Stock Resolution" 41
"Adjusted Placement Amount" 7
"Agreement" 1
"Audited Balance Sheet" 16
"Balance Sheets" 16
"Board Designee" 40
"Business Combination" 51
"Certificates" 10
"CGCL" 2
"Closing" 2
"Closing Date" 2
"Code" 1
"Common Exchange Ratio" 6
"Common Stock Payment Amount" 6
"Company" 1
"Company Articles of Incorporation" 3
"Company By-Laws" 3
"Company Common Stock" 1
"Company Employees" 42
"Company Options" 11
"Company Plans" 20
"Company Preferred Stock" 1
"Company Securities" 14
"Confidentiality Agreement" 36
"Consents" 43
"Consent Solicitation Statement/Prospectus" 15
"Contingent Payments" 6
"Contingent Payment Adjustment" 8
"Constituent Corporations" 2
"Conversion Rates" 4
"Convertible Note" 7
"Designated Shareholders" 42
"Disclosure Schedule" 12
"Dissenters' Shares" 10
"Effective Time" 2
"Employee Share Amount" 42
"Employee Shares" 41
"Environmental Laws" 23
"ERISA" 19
"Exchange Act" 29
"Exchange Agent" 10
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
"Fair Market Value" 8
"FDA" 15
"Final Payment Date" 6
"Financial Statements" 16
"Form S-4" 15
"Fractional Share Payment" 9
"Fully Diluted Shares" 6
"GAAP" 16
"Governmental Entity" 15
"Hazardous Substance" 23
"Indemnified Parties" 38
"Initial Payment Shares" 4
"Initial Placement" 4
"Initial Placement Amount" 5
"Initial Placement Ceiling" 7
"Initial Placement Ceiling Adjustment" 7
"Initial Placement Date" 5
"Initial Placement Floor" 7
"Initial Placement Floor Adjustment" 7
"Initial Placement Participants" 53
"Initial Shares" 4
"Intellectual Property" 22
"Letter of Transmittal" 10
"Lock-Up Period" 52
"Material Adverse Effect" (For the Company) 12
"Material Adverse Effect" (For Parent and Merger Sub) 27
"Merger" 1
"Merger Agreement" 2
"Merger Consideration" 3
"Merger Sub" 1
"NASD" 28
"Parent" 1
"Parent Common Shares" 1
"Parent Intellectual Property" 31
"Parent Preferred Shares" 27
"Parent SEC Reports" 29
"Per Share Placement Amount" 5
"Placement Agent" 4
"Placement Agent Fee Amount" 53
"Placement Date Shares" 4
"Placement Notice" 53
"Plans" 11
"Preference Amount" 4
"Pricing Committee" 54
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
"Required Amendments" 43
"Requisite Regulatory Approvals" 43
"Returns" 21
"Representatives" 36
"Sale" 52
"SEC" 11
"Second Payment Amount" 5
"Second Payment Date" 5
"Securities Act" 15
"Series C Preferred Exchange Ratio" 12
"Shareholder's Meeting" 35
"Specified Contracts" 23
"Surviving Corporation" 2
"Takeover Proposal" 49
"Tax" 22
"Tax Liability" 8
"Transaction Proposal" 37
"Unaudited Balance Sheet" 16
"Voting Stock" 52
</TABLE>
v
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION, dated as of May
5, 1997 (the "Agreement"), among Medarex, Inc., a New Jersey corporation (the
"Parent"), Medarex Acquisition Corp., a California corporation and a direct
wholly-owned subsidiary of Parent ("Merger Sub"), and GenPharm International,
Inc., a California corporation (the "Company").
WHEREAS, the Board of Directors of the Company, Parent and Merger Sub have
approved, and deem it advisable and in the best interests of their respective
stockholders to consummate the business combination transaction provided for
herein pursuant to which the Merger Sub will merge with and into the Company
with the Company being the surviving corporation in the Merger (the "Merger"),
thereby becoming a direct wholly-owned subsidiary of Parent.
WHEREAS, Parent, Merger Sub and the Company desire that, upon the terms and
conditions set forth herein, the issued and outstanding shares of Company common
stock, without par value (the "Company Common Stock"), and Company preferred
stock, without par value (the "Company Preferred Stock"), be converted upon the
Merger into shares of voting common stock, par value $.01 per share, of the
Parent ("Parent Common Shares"), and/or the right to receive certain additional
shares of Parent Common Shares and that each outstanding option to purchase
shares of Company Common Stock shall be assumed by Parent as hereinafter
provided.
WHEREAS, the parties hereto have previously entered into an Agreement and
Plan of Reorganization dated May 5, 1997 (the "Prior Agreement") and desire to
enter into this Agreement to amend and restate the Prior Agreement.
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, mutual covenants and agreements herein contained
and intending to be legally bound hereby, Parent, Merger Sub and the Company
hereby agree as follows:
<PAGE>
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
----------
set forth in this Agreement, and in accordance with the California General
Corporation Law (the "CGCL"), at the Effective Time (as defined in Section 1.3
below), the Merger Sub shall be merged with and into the Company (Merger Sub and
the Company sometimes being hereinafter referred to as the "Constituent
Corporations"). Upon the Effective Time, the separate corporate existence of
the Merger Sub shall cease, and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation") under the name GenPharm
International, Inc.
SECTION 1.2 Closing. Unless this Agreement shall have been
-------
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 6.1, and subject to the satisfaction or waiver of the
conditions set forth in Article V, the closing of the Merger (the "Closing")
will take place as promptly as practicable (and in any event within two business
days) following satisfaction or waiver of the conditions set forth in Article V,
other than those conditions which by their terms are to be satisfied at the
Closing (the "Closing Date"), at the offices of Satterlee Stephens Burke & Burke
LLP, 230 Park Avenue, New York, New York 10169, unless another date, time or
place is agreed to in writing by the parties.
SECTION 1.3 Effective Time of the Merger. As soon as practicable
----------------------------
after the satisfaction of or waiver of the conditions set forth in Article V,
the parties hereto shall cause the Merger to be consummated by preparing,
executing and filing an agreement of merger in conformity with Section 1101 of
the CGCL (the "Merger Agreement") with the Secretary of State of the State of
California, in such form as required by, and executed in accordance with the
relevant provisions of, the CGCL (the date and time of the filing of the Merger
Agreement with the Secretary of State of the State of California (or such later
time as is specified in the Merger Agreement) being the "Effective Time").
SECTION 1.4 Effects of the Merger. Upon the effectiveness of the
---------------------
Merger, the Surviving Corporation shall possess all of the rights, privileges,
powers and franchises, of a public as well as of a private nature, of each of
the Constituent Corporations; and shall be subject to all the restrictions,
disabilities and duties of each of the Constituent Corporations and all
property, real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever account, for stock subscriptions as well as
all other things in action or belonging to each of such Constituent Corporations
shall be vested in the Surviving Corporation; and all property, rights,
privileges, powers and franchises, and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the Constituent Corporation. The title to any real estate vested by deed or
otherwise in either Constituent Corporation shall not revert or be in any way
impaired by reason of the Merger; but all rights of creditors and all liens upon
any property of either of the Constituent Corporations shall thenceforth attach
to the Surviving Corporation, and may be enforced against it to the same extent
as if said debts, liabilities and duties had been incurred or contracted by it.
2
<PAGE>
SECTION 1.5 Articles of Incorporation; By-Laws. (a) At the
----------------------------------
Effective Time, the Articles of Incorporation of the Surviving Corporation shall
be the Restated Articles of Incorporation of the Company, as in effect
immediately prior to the Effective Time (the "Company Articles of
Incorporation"), as amended by the Merger Agreement.
(b) At the Effective Time, the By-Laws of the Surviving Corporation
shall be the By-Laws of the Company, as in effect immediately prior to the
Effective Time (the "Company By-Laws"), until thereafter amended or repealed in
accordance with their terms and the Articles of Incorporation of the Surviving
Corporation and as provided by law.
SECTION 1.6 Directors and Officers. The directors of Merger Sub
----------------------
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed, as the case may be, and qualified.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock. At the Effective Time, by
-----------------------
virtue of the Merger and without any action on the part of the holders of any
shares of Company Common Stock, Company Preferred Stock or any shares of capital
stock of Merger Sub:
(a) Common Stock of Merger Sub. Each share of common stock, par
--------------------------
value $.01 per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into one thousand shares of common stock
of the Surviving Corporation owned by Parent, which shall be all of the issued
and outstanding capital stock of the Surviving Corporation as of the Effective
Time;
(b) Conversion of Shares. Except as otherwise provided herein, as
--------------------
payment of the Merger Consideration (as defined below) at the Effective Time
each issued and outstanding share of Company Common Stock and Company Preferred
Stock, except Dissenters' Shares (as defined herein), shall, by virtue of the
Merger, be converted into the right to receive Parent Common Shares to be
determined as set forth below. For the purposes of this Agreement, "Merger
Consideration" shall mean $62,725,000, subject to adjustment as provided in
subsection 2.1(b)(iv) below.
(i) Company Preferred Stock. (A) The outstanding shares of Company
-----------------------
Preferred Stock are entitled, upon the effectiveness of the Merger, to receive a
portion of the
3
<PAGE>
Merger Consideration with an aggregate value of $40,376,196 (the "Preference
Amount"), (payable as determined below) before any payment in respect of the
Merger Consideration is to be made to holders of Company Common Stock. The
balance of any Merger Consideration in excess of the Preference Amount is to be
shared by the holders of Company Common Stock and each series of Company
Preferred Stock on a share-for-share basis after the deemed conversion of the
Company Preferred Stock into Company Common Stock at the respective conversion
rates ("Conversion Rates") set forth in the table below:
<TABLE>
<CAPTION>
PREFERENCE AMOUNT
------------------------------
$ PER NO. OF SHARING CONV. AS CONV.
SERIES SHARE SHARES AGGREGATE PERCENTAGES RATE SHS.
- ---------- ------ --------- ----------- ------------ ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Series A .375 800,000 $ 300,000 .743% 0.5 400,000
Series B .375 800,000 300,000 .743% 0.5 400,000
Series C 1.50 4,055,200 6,082,800 15.065% 0.5 2,027,600
Series D 1.75 2,342,858 4,100,002 10.154% 0.5 1,171,429
Series E 3.50 4,675,700 16,362,500 40.525% 0.5 2,337,850
Series F 9.00 111,112 1,000,008 2.477% 1.040 115,556
Series G 10.00 230,000 2,300,000 5.696% 1.055 242,650
Series H 7.00 1,143,697 8,005,879 19.828% 1.0 1,143,697
Series I 7.00 275,001 1,925,007 4.769% 1.0 275,001
----------- ------ ---------
TOTALS $40,376,196 100% 8,113,783
=========== ====== =========
</TABLE>
(B) Initial Payment. At the Closing Date, Parent will issue 2,000,000
shares of Parent Common Shares (the "Initial Payment Shares") to the
holders of the Company Preferred Stock. On the Initial Placement Date (as
defined below), Parent will issue a number of additional shares of Parent
Common Shares (the "Placement Date Shares") to the holders of Company
Preferred Stock equal to the lesser of (x) 1,250,000, or (y) the excess of
(1) the quotient obtained by dividing the Preference Amount (or, if lower
in amount, the Merger Consideration, as adjusted) by the Per Share
Placement Amount (as defined below) over (2) 2,000,000. The Initial
Payment Shares and the Placement Date Shares are together referred to in
this Agreement as the "Initial Shares." The holders of the Initial Shares
shall be entitled to participate in a placement of such Initial Shares (the
"Initial Placement") managed by a placement agent (the "Placement Agent")
chosen by Parent all in accordance with the terms and conditions set forth
in Section 7.2 hereof. The date of the Closing of the Initial Placement
(the "Initial Placement Date") shall occur on or before December 31, 1997.
In the event the Initial Placement does not occur prior to December 31,
1997, the Initial Placement Date shall be deemed to be December 31, 1997.
4
<PAGE>
The "Per Share Placement Amount" means the quotient obtained by
dividing (x) the gross proceeds derived from the sale of the Initial Shares
in the Initial Placement by (y) the number of Initial Shares sold in the
Initial Placement; provided that if the Initial Placement does not occur,
the Per Share Placement Amount shall be the Fair Market Value of the Parent
Common Shares on December 31, 1997. The "Initial Placement Amount" means
the product obtained by multiplying the Per Share Placement Amount by the
total number of Initial Shares, whether or not all are offered in the
Initial Placement.
The fractional share of Parent Common Shares which the holder of each
outstanding share of each series of Company Preferred Stock shall be
entitled to receive as of the Effective Time shall be equal to the quotient
obtained by dividing (1) the product obtained by multiplying (x) the total
number of Initial Payment Shares by (y) the applicable Sharing Percentage
for such series of Company Preferred Stock, by (2) the total number of
shares of such series of Company Preferred Stock outstanding immediately
prior to the Effective Time as set forth in the table in subsection
2.1(b)(i)(A) above.
The fractional share of Parent Common Shares which the holder of each
outstanding share of each series of Company Preferred Stock shall be
entitled to receive on the Initial Placement Date shall be equal to the
quotient obtained by dividing (1) the product obtained by multiplying (x)
the total number of Placement Date Shares by (y) the applicable Sharing
Percentage for such series of Company Preferred Stock, by (2) the total
number of shares of such series of Company Preferred Stock outstanding
immediately prior to the Effective Time as set forth in subsection
2.1(b)(i)(A) above.
(C) Second Payment. For the purposes of this Agreement, "Additional
Shares" shall mean any and all Parent Common Shares issued as payment of
the Merger Consideration that are not Initial Shares. In addition to the
Initial Shares to be distributed to the holders of Company Preferred Stock
pursuant to subsection 2.1(b)(i)(B) above, on December 31, 1998 (the
"Second Payment Date"), the holders of Company Preferred Stock shall be
entitled to receive Additional Shares having an aggregate Fair Market Value
as of the Second Payment Date equal to the Merger Consideration, as
adjusted, less the Initial Placement Amount (the "Second Payment Amount"),
up to but not exceeding the Preference Amount.
The fractional share of Parent Common Shares which the holder of each
outstanding share of each series of Company Preferred Stock shall be
entitled to receive on the Second Payment Date (in addition to any
fractional share of Parent Common Shares issuable with respect thereto
pursuant to subsection 2.1(b)(ii) below) shall be equal to the quotient
obtained by dividing (1) the product obtained by multiplying (x) the
aggregate number of shares of Parent Common Shares to be issued on the
Second Payment Date by (y) the applicable Sharing Percentage set forth in
the table in subsection 2.1 (b)(i)(A) above for such series of Company
Preferred Stock, by (2) the total number
5
<PAGE>
of shares of such series of Company Preferred Stock outstanding immediately
prior to the Effective Time as set forth in the table in subsection
2.1(b)(i)(A) above.
(ii) Common Stock. Once the Initial Placement Amount, plus any
------------
Additional Shares, having an aggregate value as determined above equal to the
full Preference Amount has been distributed to the holders of the Company
Preferred Stock, each series of Company Preferred Stock shall, for purposes of
determining Additional Shares to be issued in respect thereof pursuant to this
Agreement, be deemed to be converted into shares of Company Common Stock on the
basis of the Conversion Rates set forth above in subsection 2.1(b)(i)(A), and on
the Second Payment Date each share of Company Common Stock, including shares of
Company Common Stock into which each share of Company Preferred Stock is deemed
to have been converted as herein provided, shall share in the Merger
Consideration, as adjusted, to be distributed, if any, in excess of the
Preference Amount (the "Common Stock Payment Amount"). The fractional share of
Parent Common Shares which the holders of each share of Company Common Stock
shall be entitled to receive pursuant to this subsection 2.1(b)(ii) shall be
equal to (1) the Common Stock Payment Amount, divided by (2) the product of (x)
the Fully Diluted Shares (as defined below) multiplied by (y) the Fair Market
Value of a Parent Common Share on the Second Payment Date (the "Common Exchange
Ratio").
For the purposes of this Agreement, "Fully Diluted Shares" shall mean
the sum of (1) issued and outstanding shares of Company Common Stock, (2) the
number of shares of Company Common Stock issuable upon the conversion of the
Company Preferred Stock as set forth in subsection 2.1(b)(i)(A) above and (3)
the number of shares issuable upon the exercise of the Company Options (as
defined herein) outstanding as of the Effective Time.
(iii) Final Payment. In the event that any of the Contingent
-------------
Payments (as defined below) has not been received by the Company by December 15,
1998 but is received by December 15, 1999, the holders of Company Preferred
Stock and Company Common Stock shall be entitled to receive Additional Shares
having a Fair Market Value as of the Final Payment Date (as defined below) equal
to the Merger Consideration, as adjusted, less the sum of (1) the Initial
Placement Amount, (2) the Second Payment Amount and (3) the Common Stock Payment
Amount.
For the purposes of this Agreement, "Final Payment Date" shall mean a
date after the Second Payment Date selected by Parent not later than the earlier
of (1) thirty (30) days following the receipt of the last Contingent Payment and
(2) December 31, 1999.
For the purposes of this Agreement "Contingent Payments" shall mean
those payments due the Company pursuant to that certain Cross License Agreement
dated March 26, 1997 among Cell Genesys, Inc., Abgenix, Inc., Xenotech, L.P.,
Japan Tabacco Inc. and the Company including all principal and interest payments
and other consideration received by the Company pursuant to that certain
Convertible Subordinated Promissory Note of Cell Genesys, Inc. in the principal
amount of $15,000,000 held by the Company (the "Convertible Note").
6
<PAGE>
If, prior to the Final Payment Date, the holders of Company Preferred
Stock shall have received a portion of the Merger Consideration at least equal
to the Preference Amount, the fractional share of Parent Common Shares which the
holder of each outstanding share of Company Common Stock, including Shares of
Company Preferred Stock deemed converted pursuant to subsection 2(b)(ii) hereof,
shall be entitled to receive on the Final Payment Date shall be determined in
the same manner as in subsection 2.1(b)(ii) above. If, prior to the Final
Payment Date, the holders of Company Preferred Stock shall not have received a
portion of the Merger Consideration at least equal to the Preference Amount,
then the Final Payment Amount shall be paid as provided in subsection
2.1(b)(i)(B) above, but only up to an amount equal to the excess of the
Preference Amount over the portion of the Merger Consideration theretofore
distributed to the holders of Company Preferred Stock; and the balance, if any,
of the Final Payment Amount shall be paid in accordance with subsection
2.1(b)(ii).
(iv) Adjustments to Merger Consideration. (A) In the event the
-----------------------------------
product obtained by multiplying (x) 3,500,000 by (y) the Per-Share Placement
Amount (the "Adjusted Placement Amount") shall be less than $20,000,000 (the
"Initial Placement Floor"), the aggregate amount of the Merger Consideration, as
adjusted, to be paid under this Agreement shall be decreased by 50% of the
difference between the Adjusted Placement Amount and $20,000,000 (the "Initial
Placement Floor Adjustment"). In the event the Adjusted Placement Amount shall
exceed $30,000,000 (the "Initial Placement Ceiling") then the aggregate amount
of the Merger Consideration, as adjusted, to be paid under this Agreement shall
be increased by 50% of the difference between the Adjusted Placement Amount and
$30,000,000 (the "Initial Placement Ceiling Adjustment"). Notwithstanding the
foregoing, in the event any Additional Shares are sold in the Initial Placement,
then the Initial Placement Floor and the Initial Placement Ceiling shall be
increased, respectively, by an amount equal to the percentage increase in
Additional Shares over Initial Shares.
(B) The aggregate amount of the Merger Consideration to be delivered
pursuant to subsection 2.1(b) above shall also be reduced on a dollar-for-dollar
basis to the extent that the amount of the Company's cash and cash equivalents
plus working capital (exclusive of cash and cash equivalents and any Contingent
- ----
Payments) and the amount by which the Merger Consideration is reduced pursuant
to subsection 2.1(b)(iv)(C) (unless paid by Parent), less (1) long-term
----
liabilities as set forth on the unaudited balance sheet for the month
immediately preceding the Closing Date, (2) expenses projected to be incurred in
the ordinary course of business between the Closing Date and December 31, 1997,
and (3) all severance obligations not previously accrued as of Closing Date,
plus (1) all revenues projected to be received by the Company between the
- ----
Closing Date and December 31, 1997, (2) the $750,000 Eisai milestone payment,
expected in early 1998, less any costs and expenses associated with the receipt
of said payment after December 31, 1997, and (3) the aggregate amount of the
Contingent Payments (net of the liability for income taxes attributable to the
Contingent Payments, including the receipt of the Convertible Note, as
determined under Section 4.15(b) (the "Tax Liability") and legal and other
expenses related thereto) received by the Company after the Closing Date is less
than $33 million (the "Contingent Payment Adjustment"), provided, however, that
there shall be a credit against any such Contingent Payment Adjustment in an
amount equal to any Initial
7
<PAGE>
Placement Floor Adjustment made pursuant to subsection 2.1(b)(iii)(A) above
resulting from the sale of Initial Shares below the Initial Placement Floor. On
or before the Closing Date, Parent and the Company will use their best good
faith efforts to agree upon the projected income and expenses of the Company for
the period between the Closing Date and December 31, 1997.
(C) The aggregate amount of the Merger Consideration to be determined
pursuant to subsection 2.1(b) above shall also be reduced, on a dollar-for-
dollar basis, in an amount equal to the lesser of (x) one-half ( 1/2) of the
amount of any fee paid by the Company to any investment banking firm or
financial advisor engaged by the Company in connection with the Merger and the
transactions contemplated by this Agreement or (y) $100,000.
For the purposes of this Agreement, the "Fair Market Value" of the
Parent Common Shares shall be equal to the average closing sales prices of the
Parent Common Shares as reported on The Nasdaq National Market for the ten (10)
trading days immediately preceding the date which is five (5) trading days prior
to the date such Fair Market Value is to be determined.
(c) Prepayment of Merger Consideration. Parent shall have the right at any
----------------------------------
time to prepay all or a portion of the Merger Consideration by delivering
Additional Shares to the holders of Company Preferred Stock or Company Common
Stock, as the case may be, in a manner consistent with the above provisions.
Parent shall receive a credit against the Merger Consideration due equal to the
Fair Market Value of such Additional Shares on the date such Additional Shares
are delivered to the holders of Company Preferred Stock or Company Common Stock,
as the case may be. No Additional Shares shall be delivered as such a
prepayment until after the Initial Placement Date, unless they are to be sold as
part of the Initial Placement.
(d) Payment of Merger Consideration in Cash. Anything herein to the
---------------------------------------
contrary notwithstanding, Parent shall have the option to pay all or a portion
of the Merger Consideration in cash at any time, in a manner consistent with the
above provisions, but only in the event that either (x) the shareholders of
Parent shall have disapproved the issuance of the Additional Shares at a meeting
held pursuant to Section 4.16, or (y) the Fair Market Value per share of the
Parent Common Shares at the date of such payment is $5.00 or less.
(e) Transferability. The right to receive Initial Shares or Additional
---------------
Shares pursuant to this Section 2.1 is a right received by holders of Company
Common Stock and Company Preferred Stock as of the Effective Time which may not
be assigned or transferred in any manner except by operation of law, or by will
or by the laws of descent.
(f) Nature of Additional Shares. Parent and the Company have provided for
---------------------------
the payment of Additional Shares in the manner described herein as a result of
bona-fide negotiations in determining the relative value of the two companies.
The Additional Shares represent additional consideration for the Company Common
Stock and Company Preferred Stock and are not intended as royalty payments.
8
<PAGE>
(g) Fractional Shares. No fractional shares shall be issued by Parent in
-----------------
the Merger. Each shareholder of the Company who otherwise would be entitled to
a fractional interest shall receive an amount of cash (without interest)
determined by multiplying the Fair Market Value of the Parent Common Shares on
the Closing Date or the applicable Contingent Payment Date, as the case may be,
by the fractional share interest to which such shareholder would otherwise be
entitled (the "Fractional Share Payment"). With respect to the distribution of
Initial Shares and each distribution of Additional Shares, fractional share
interests shall be aggregated such that no shareholder will receive, in any
single distribution, cash in excess of the Fair Market Value of one share of
Parent Common Shares (determined in accordance with the preceding sentence).
The payment of cash in lieu of fractional shares is made solely for the purpose
of avoiding the expense and inconvenience of issuing and transferring fractional
shares and does not represent separately bargained-for consideration.
(h) Adjustments. If between the date hereof and the date of payment of any
-----------
shares pursuant to this Section 2.1 or Section 2.3 hereof the outstanding shares
of Parent Common Shares shall be changed into a different number of shares, or
if a stock split, combination, stock dividend, stock rights or extraordinary
dividend thereon shall be declared with a record date within said period, the
number of shares to be issued or delivered pursuant to this Section 2.1 or
Section 2.3 hereof shall be adjusted correspondingly.
(i) Closing of the Company's Transfer Books. At the Effective Time, the
---------------------------------------
stock transfer books of the Company shall be closed and no transfer of Company
Common Stock or Company Preferred Stock shall be made thereafter.
(j) Cancellation and Retirement of Company Common Stock and Company
---------------------------------------------------------------
Preferred Stock. As of the Effective Time, all shares of Company Common Stock
- ---------------
and Company Preferred Stock issued and outstanding immediately prior to the
Effective Time, shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Common Stock and Company Preferred Stock
shall cease to have any rights with respect thereto, except the right to receive
the Merger Consideration and any Fractional Share Payment.
(k) Dissenters' Shares. Shares of Company Common Stock that have not been
------------------
voted for adoption of the Merger and with respect to which appraisal rights
shall have been properly exercised and perfected in accordance with the CGCL
("Dissenters' Shares") shall not be converted into the right to receive Parent
Common Shares as set forth in this Section 2.1 on or after the Effective Time,
but shall be entitled to receive from Parent such consideration as is determined
to be due with respect to such Dissenters' Shares pursuant to the relevant
provisions of the CGCL. The Company shall give Parent (i) prompt notice of any
written demands for appraisals, withdrawals or demands for appraisal and any
other instruments in respect thereof received by the Company and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal. The Company will not voluntarily make any payment with respect
to any demands for appraisal and will not, except with the prior written consent
of
9
<PAGE>
Parent, settle or offer to settle any such demands. Parent will pay all sums
due to holders of Dissenters' Shares.
SECTION 2.2 Exchange of Certificates.
------------------------
(a) Exchange Agent. After the Effective Time, a bank or trust company
--------------
designated by Parent shall act as agent (the "Exchange Agent") in effecting the
exchange of certificates ("Certificates") which, immediately prior to the
Effective Time, represent Company Common Stock or Company Preferred Stock for
certificates of Parent Common Shares and, subsequent to such exchange, in
distributing Additional Shares. As soon as practicable after the Effective
Time, the Exchange Agent shall mail a transmittal form (the "Letter of
Transmittal") to each holder of Certificates theretofore representing any such
shares of Company Common Stock and Company Preferred Stock advising such holder
of the procedure for surrendering to the Exchange Agent any such Certificates
for exchange. If any certificates of Parent Common Shares are to be issued in a
name other than that in which a Certificate so surrendered is then registered,
it shall be a condition of such exchange that the Certificate surrendered be
accompanied by payment of any applicable transfer taxes and documents required
for a valid transfer. From and after the Effective Time, until so surrendered,
each Certificate shall be deemed for all corporate purposes, except as set forth
below, to evidence the number of shares of Parent Common Shares and the right to
receive the Additional Shares into which the shares of Company Common Stock or
Company Preferred Stock represented by such Certificate shall have been
converted. Unless and until any Certificate shall be so surrendered, the
holder of such Certificate shall have no right to vote or to receive any
dividends paid or other distributions made to holders of record of Parent Common
Shares after the Effective Time. Upon surrender of a Certificate, the holder of
record thereof shall receive, together with certificates representing the Parent
Common Shares to which he shall be entitled in accordance with Section 2.1, all
dividends and other distributions with respect to such shares which shall have
been paid or made to holders of record of Parent Common Shares after the
Effective Time in the case of Initial Shares, or after any Contingent Payment
Date, in the case of Additional Shares, in each such case, without interest
thereon. Parent shall be authorized to deliver Parent Common Shares
attributable to any Certificate theretofore issued which has been lost or
destroyed upon receipt of satisfactory evidence of ownership of the shares
formerly represented thereby and of appropriate indemnification.
(b) No Liability. None of Parent, Merger Sub, the Company or the Exchange
------------
Agent shall be liable to any person in respect of any Parent Common Shares (or
dividends or distributions with respect thereto) or Fractional Share Payment
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. If any Certificates shall not have been surrendered
prior to five years after the Effective Time (or immediately prior to such
earlier date on which any Parent Common Shares, any Fractional Share Payment or
any dividends or distributions with respect to Parent Common Shares in respect
of such Certificate would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 3.1(e)(ii)), any such shares, cash,
dividends or distributions in respect of such Certificates shall, to the extent
permitted by applicable law, become the property of Parent, free
10
<PAGE>
and clear of all claims or interest of any person previously entitled thereto
other than the holder of such Certificate as specified in Section 2.2(a).
SECTION 2.3 Assumption of Options. (a) As of the Effective Time, Parent
---------------------
shall assume each option to purchase shares of Company Common Stock ("Company
Options") outstanding at the Effective Time under the Company's stock option
plans (the "Plans") and each Company Option shall thereafter be exercisable for
a number of shares of Parent Common Shares equal to the number of shares of
Company Common Stock subject to such Company Option immediately prior to the
Effective Time multiplied by the Common Exchange Ratio. The exercise price per
share of Parent Common Shares for such Company Options shall be the exercise
price per share under such Company Option divided by the Common Exchange Ratio,
rounded to the nearest $.01, all in accordance with Section 425(a) of the Code
and the regulations promulgated thereunder, without regard to whether the
Company Option qualifies as an incentive stock option with the meaning of
Section 422A of the Code, although an assumed Company Option is intended to be
an incentive stock option if the Company Option so qualifies.
(b) Each assumed Company Option shall be upon the same terms and
conditions as were applicable under the Company Option to purchase Company
Common Stock except for the adjustments contemplated hereinabove in Section
2.3(a). Parent will take all corporate and other action necessary to reserve
and make available sufficient shares of Parent Common Shares for issuance upon
exercise of such Company Options (including the Additional Shares payable as
described above), will use its best efforts to list such shares on The Nasdaq
Stock Market, will prepare and file with the Securities and Exchange Commission
("SEC") registration statements on the appropriate forms relating to the
issuance upon exercise of the shares of Parent Common Shares underlying Company
Options held by Company employees and will use its best efforts to have such
registration statements declared effective as soon as practicable after the
Effective Time and shall maintain the effectiveness of such registration
statements. Parent will cause a Registration Statement on Form S-8 to be filed
with the SEC to register the shares of Parent issuable under the foregoing
Company Options as soon as practical following the Effective Time but not in
excess of 120 days thereafter.
SECTION 2.4 Assumption of Warrant to Purchase Company Series C Preferred
------------------------------------------------------------
Stock. As of the Effective Time, Parent shall assume the outstanding warrant to
- -----
purchase 50,000 shares of Company Series C Preferred Stock, which shall
thereafter continue in effect on the same terms except that (i) for each share
of Series C Preferred Stock purchasable thereunder there shall be purchased
following the Effective Time a fractional share of Parent Common Shares equal to
the same fractional share that a holder of Series C Preferred Stock as of the
Effective Time receives pursuant to the terms of this Agreement (the "Series C
Preferred Exchange Ratio") and (ii) the exercise price per share of Parent
Common Shares shall be $3.00 divided by the Series C Preferred Exchange Ratio.
Parent shall provide a substitute warrant to the holder reflecting the
foregoing, upon surrender of the existing warrant.
11
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Company. Except as set
---------------------------------------------
forth in Schedule A previously delivered to Parent (the "Disclosure Schedule),
the Company hereby represents and warrants to Parent and Merger Sub as follows:
(a) Organization and Qualification. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California and has the requisite corporate power and authority and any
necessary governmental approvals to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power, authority
and governmental approvals would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect (as defined below) on
the Company. The Company is duly qualified or licensed as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing which would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company. The Company has no subsidiaries.
When used with respect to the Company, the term "Material Adverse Effect"
means any material adverse change in, or effect on (i) the business, prospects,
results of operations or condition (financial or other) of the Company or (ii)
the ability of the Company to consummate any of the transactions contemplated
hereby.
(b) Company Articles of Incorporation and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of the Company
Articles of Incorporation and the Company By-Laws. The Company is not in
violation of any of the provisions of the Company Articles of Incorporation or
the Company By-Laws.
(c) Capitalization. The authorized capital stock of the Company consists
of 32,000,000 shares of Company Common Stock and 33,691,116 shares of Company
Preferred Stock of which (i) 800,000 shares are designated as Series A Preferred
Stock; (ii) 800,000 shares are designated as Series B Preferred Stock, (iii)
4,105,200 shares are designated as Series C Preferred Stock; (iv) 4,105,200
shares are designated as Series C1 Preferred Stock; (v) 2,350,000 shares are
designated as Series D Preferred Stock; (vi) 2,350,000 shares of designated as
Series D1 Preferred Stock; (vii) 5,142,858 shares are designated as Series E
Preferred Stock; (viii) 5,142,858 shares are designated as Series E1 Preferred
Stock; (ix) 145,000 shares are designated as Series F Preferred Stock; (x)
250,000 shares are designated as Series G Preferred Stock; (xi) 1,500,000 shares
are designated as Series H Preferred Stock; (xii) 1,500,000 shares are
designated as Series H1 and (xiii) 500,000 shares are designated as Series I
Preferred Stock.
12
<PAGE>
As of the date hereof, (i) 1,893,413 shares of Company Common Stock were
issued and outstanding, all of which were validly issued, fully paid and
nonassessable and were not issued in violation of the preemptive (or similar)
rights of any shareholder of the Company; (ii) 800,000 shares of Series A
Preferred Stock (convertible into 400,000 shares of Company Common Stock),
800,000 shares of Series B Preferred Stock (convertible into 400,000 shares of
Company Common Stock), 4,055,200 shares of Series C Preferred Stock (convertible
into 2,027,600 shares of Company Common Stock), 0 shares of Series C1 Preferred
Stock, 2,342,858 shares of Series D Preferred Stock (convertible into 1,171,429
shares of Company Common Stock), 0 shares of Series D1 Preferred Stock,
4,675,700 shares of Series E Preferred Stock (convertible into 2,337,850 shares
of Company Common Stock), 0 shares of Series E1 Preferred Stock, 111,112 shares
of Series F Preferred Stock (convertible into 115,556 shares of Company Common
Stock), 230,000 shares of Series G Preferred Stock (convertible into 242,650
shares of Company Common Stock), 1,143,697 shares of Series H Preferred Stock
(convertible into 1,143,697 shares of Company Common Stock), 0 shares of Series
H1 Preferred Stock and 275,001 shares of Series I Preferred Stock (convertible
into 275,001 shares of Company Common Stock) were issued and outstanding, all of
which were validly issued, fully paid and nonassessable and were not issued in
violation of any preemptive (or similar) rights of any shareholder of the
Company; (iii) no shares of Company Common Stock were held in the treasury of
the Company; (iv) 568,749 shares are subject to outstanding, unexercised options
pursuant to the Company Plans; and (v) warrants to purchase 127,500 shares of
Company Common Stock which will terminate at the Effective Time and warrants to
purchase 50,000 shares of Company Series C Preferred Stock which will not
terminate at the Effective Time, all as listed on Section 3.1(c) of the
Disclosure Schedule. Since April 30, 1997, no options to purchase shares of
Company Common Stock have been granted and no shares of Company Common Stock
have been issued except for shares issued pursuant to the exercise of Company
Options. Except as set forth above, as of the date hereof, there are
outstanding (i) no shares of capital stock or other voting securities of the
Company; (ii) no securities of the Company convertible into or exchangeable or
exercisable for shares of capital stock or other voting securities of the
Company; and (iii) no options, calls, warrants or other rights to acquire from
the Company, and no obligation of the Company to issue, any capital stock,
voting securities or securities convertible into or exchangeable or exercisable
for capital stock or other voting securities of the Company (collectively,
"Company Securities"). There are no outstanding obligations of the Company to
repurchase, redeem or otherwise acquire any Company Securities or to provide
funds to or make any investment (in the form of a loan, capital contribution,
guarantee or otherwise). The Company does not own any equity securities of any
corporation, partnership, trust, company or other corporate entity. Section
3.1(c)(i) of the Disclosure Schedule lists the holders of Company Common Stock
and Company Preferred Stock by name and address and the number of shares held as
of April 30, 1997. Section 3.1(c)(ii) of the Disclosure Schedule sets forth for
each outstanding Company Option the name of the holder of such option, the
number of shares of Company Common Stock subject to such option, the exercise
price of such option and the vesting schedule for such option, including the
extent vested to date, and whether the vesting of such options will be
accelerated by the transactions contemplated by this Agreement.
13
<PAGE>
(d) Authority Relative to Agreement. The Company has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations under this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the transactions so
contemplated (other than the approval and adoption of the Merger, this Agreement
and certain amendments to the Company Articles of Incorporation described in
Section 3.1(d) of the Disclosure Schedule by the holders of a majority of the
outstanding shares of Company Common Stock and Company Preferred Stock each
voting separately as a single class). This Agreement has been duly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by the other parties hereto, constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally. The only vote of the holders of any class or
series of outstanding securities of the Company required for approval of this
Agreement and the Merger is the affirmative vote of the holders of a majority of
the outstanding shares of Company Common Stock and Company Preferred Stock each
voting separately as a single class.
(e) No Conflict; Required Filings and Consents. Subject only to the
approval of the Merger, this Agreement and certain amendments to the Company
Articles of Incorporation described in Section 3.1(d) of the Disclosure Schedule
by the holders of Company Common Stock and Company Preferred Stock: (i) The
execution, delivery and performance of this Agreement by the Company does not
(A) conflict with or violate the Company Articles of Incorporation or Company
By-Laws; (B) assuming that all consents, approvals and authorizations
contemplated by subsection (ii) below have been obtained and all filings
described in such subsection have been made, conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to the Company or by
which its properties are bound or affected; or (C) result in any breach or
violation of or constitute a default (or an event which with notice or lapse of
time or both would become a default) or result in the loss of a benefit under,
or give rise to any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of the Company pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchises, or other
instrument or obligation to which the Company is a party or by which the Company
or its properties are bound or affected, except, in the case of clauses (B) and
(C), for any such conflicts, violations, breaches, defaults or other occurrences
which would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on the Company.
(ii) The execution delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby by the
Company do not require any consent, approval, authorization or permit of, action
by, filing with or notification to, any United States federal, state or local
court, administrative agency or commission, or entity created by rule,
regulation or order of any United States federal, state or local commission or
other
14
<PAGE>
governmental agency, authority or instrumentality (a "Governmental Entity"), or
any third party to any agreement, contract, license or other instrument or
obligation to which the Company is a party, except for (A) the filing with the
SEC of a registration statement on Form S-4 (the "Form S-4") under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to which the
Parent Common Shares to be issued in the Merger shall be registered, including
therein a combined consent solicitation statement and prospectus as amended or
supplemented from time to time, (the "Consent Solicitation
Statement/Prospectus") and the obtaining from the SEC of such orders as may be
required in connection therewith; (B) consents, authorizations, approvals or
filings pursuant to the applicable provisions of federal and state securities
laws; (C) applicable filings under state anti-takeover laws, if any; (D) the
filing of the Merger Agreement and other certificates as required by the CGCL;
and (E) such consents, approvals, authorizations or permits of, actions by or
notifications to a Governmental Entity or third party the failure of which to
obtain would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. The Company does not conduct business in, nor
is it otherwise subject to the laws of, any jurisdiction outside the United
States as it relates to this Agreement and the consummation of the Merger and
other transactions contemplated hereby and the Company makes no representation
or warranty with respect to any consent, approval, authorization or permit of,
action by, filing with or notification to any non-United States Governmental
Entity that may be required in connection with the execution, delivery and
performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby.
(f) Compliance. (i) The Company holds, and is in compliance with, all
permits, licenses, exemptions, orders and approvals of all Governmental
Entities, including the United States Food and Drug Administration ("FDA") and
United States Department of Health and Human Services, and committees thereof,
necessary for the operation of the business of the Company, except to the extent
the failure to so hold or comply would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. To the best knowledge
of the Company, there are no proceedings pending, threatened or contemplated by
any Governmental Entity seeking to terminate, revoke or materially limit any
such permit, license, exemption, order or approval.
(ii) Since January 1, 1991, neither the Company nor, to the best knowledge
of the Company, any of its respective executive officers, directors or employees
has been the subject of any investigation or order of any Governmental Entity
arising under applicable laws, and to the best knowledge of the Company, no such
investigation or order is pending or threatened, except for such investigations
or orders, including those pending or threatened, which individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
(g) Financial Statements. (A) The Company has furnished to Parent (1) an
audited balance sheet of Company as of December 31, 1995 and 1996 (the "Audited
Balance Sheet"), (2) an audited statement of operations of Company for the
fiscal years ended December 31, 1994, 1995 and 1996, (3) an unaudited balance
sheet of Company as of April 30, 1997 (the "Unaudited Balance Sheet"), and (4)
an unaudited statement of operations of Company for the
15
<PAGE>
period ended April 30, 1997, (collectively, the "Financial Statements"). The
Audited Balance Sheet and the Unaudited Balance Sheet are hereinafter
collectively referred to as the "Balance Sheets".
(B) The Financial Statements (including, in each case, any related notes
thereto) are correct in all material respects and have been prepared in
accordance with U.S. generally accepted accounting principles ("GAAP") applied
on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto and except further that the notes (if any) to the
unaudited Financial Statements have not been prepared in accordance with GAAP
and the unaudited Financial Statements do not present all the items required by
GAAP) and fairly present the financial position of the Company at the respective
dates thereof and the results of its operations and cash flows for the periods
indicated (subject in the case of unaudited statements, to normal year-end audit
adjustments).
(C) Except as and to the extent set forth on the Balance Sheets including
the notes thereto, the Company does not have any liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise) which would be
required to be reflected on a balance sheet or in the notes thereto prepared in
accordance with generally accepted accounting principles consistently applied,
except for liabilities or obligations incurred in the ordinary course of
business since the date of the Unaudited Balance Sheet, and which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(h) Information Supplied. None of the information supplied or to be
supplied by the Company in writing or otherwise approved in writing by the
Company for inclusion in (A) the Form S-4 will, at the time the Form S-4 becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (B) the Consent
Solicitation Statement/Prospectus will not, at the date it is first mailed to
the Company's stockholders or at the Closing Date, contain any statement which,
in the light of the circumstances under which such statement is made, is false
or misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements therein not false or misleading
or necessary to correct any statement in any earlier communication with respect
to the solicitation of any Company shareholder's consent or any amendment or
supplement thereto, except that no representation is made by the Company with
respect to statements made or incorporated by reference therein based on
information supplied by Parent or Merger Sub for including or incorporation by
reference in the Consent Solicitation Statement/Prospectus.
(i) Absence of Certain Changes or Events. Since the date of the Unaudited
Balance Sheet, the Company has not:
(A) incurred any obligation or liability (fixed or contingent), except
normal trade or business obligations incurred in the ordinary course of business
and consistent with past practice, and except in connection with this Agreement
and the transactions contemplated hereby;
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(B) discharged or satisfied any lien, security interest or encumbrance or
paid any obligation or liability (fixed or contingent), other than in the
ordinary course of business and consistent with past practice;
(C) mortgaged, pledged or subjected to any lien, security interest or other
encumbrance any of its assets or properties (other than mechanic's,
materialman's and similar statutory liens arising by operation of law, liens for
current real and personal property taxes incurred but not yet due and payable,
purchase money security interests arising as a matter of law between the date of
delivery and payment, and other liens of an immaterial nature);
(D) transferred, leased or otherwise disposed of any of its assets or
properties except in the ordinary course of business and consistent with past
practice or, except in the ordinary course of business and consistent with past
practice, acquired any assets or properties;
(E) cancelled or compromised any debt or claim, except in the ordinary
course of business and consistent with past practice;
(F) waived or released any rights of material value;
(G) except pursuant to those contracts listed on Sections 3.1(o) and 3.1(q)
of the Disclosure Schedule, transferred or granted any rights under any
concessions, leases, licenses, agreements, patents, inventions, trademarks,
trade names, service marks or copyrights or with respect to any know-how;
(H) made or granted any wage or salary increase applicable to any group or
classification of employees generally, other than normal salary increases
consistent with past practices, entered into any employment contract with, made
any loan to, or entered into any material transaction of any other nature with,
any officer or employee of Company;
(I) entered into any transaction, contract or commitment which provides for
a period of performance which extends beyond twelve (12) months from the date
hereof or involves payment or receipt after the date hereof of amounts in excess
of $50,000, except (i) contracts listed on Sections 3.1(o) and 3.1(q) of the
Disclosure Schedule and (ii) this Agreement and the transactions contemplated
hereby;
(J) suffered any casualty loss or damage to any of its properties (whether
or not such loss or damage shall have been covered by insurance) which adversely
affects in any material respect its ability to conduct business; or
(K) made any amendments or changes to the Company Articles of Incorporation
or Company Bylaws;
(L) had any labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
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(M) had any change in accounting methods or practices (including any change
in depreciation or amortization policies or rates);
(N) made any revaluation of any of its assets;
(O) made any declaration, setting aside or payment of a dividend or other
distribution with respect to Company Common Stock or Company Preferred Stock, or
any direct or indirect redemption, purchase or other acquisition of any of its
capital stock other than pursuant to the exercise of repurchase rights under
stock option agreements;
(P) loaned to any person or entity, incurred any indebtedness, guaranteed
any indebtedness, issued or sold any debt securities or guaranteed any debt
securities of others except for advances to employees for travel and business
expenses in the ordinary course of business, consistent with past practices;
(Q) become aware of commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of the Company or its affairs;
(R) received notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined herein) or of infringement by the
Company of any third party's Intellectual Property rights;
(S) issued or sold any of its shares of capital stock, or securities
exchangeable, convertible or exercisable therefor, or of any other of its
securities other than pursuant to the exercise of employee stock options;
(T) incurred any change in pricing or royalties set or charged to its
customers or licensees or in pricing or royalties set or charged by persons who
have licensed Intellectual Property to the Company;
(U) agreed to enter into a strategic alliance or granted third party
royalty rights; or
(V) taken any other action which, if it had been taken after the date
hereof, would have required the consent of Parent under Section 4.1 hereof.
Except as otherwise disclosed in this Agreement or in the Disclosure
Schedule, as of the date hereof, the Company does not have knowledge of any
facts or circumstances or of any change, event or development in or affecting
the Company that would reasonably be expected, either individually or in the
aggregate, to have a Material Adverse Effect.
(j) Absence of Litigation. Except as disclosed Section 3.1(j) of the
Disclosure Schedule there are no suits, claims, actions, proceedings or
investigations pending or, to the knowledge of the Company, threatened against
the Company or any properties or rights of the Company, before any court,
arbitrator or other Governmental Entity, domestic or foreign, that individually
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or in the aggregate, would reasonably be expected to have a Material Adverse
Effect or to delay or prevent the consummation of the transactions contemplated
hereby beyond October 31, 1997. Neither the Company nor any of its properties
is or are subject to any order, writ, judgment, injunction, decree,
determination or award having, or which would reasonably be expected to have, a
Material Adverse Effect on the Company or which would prevent or delay the
consummation of the transactions contemplated hereby beyond October 31, 1997.
(k) Labor Matters. The Company is not a party to any collective
bargaining agreement. Since January 1, 1996, the Company has not (i) had any
employee strikes, work stoppages, slowdowns or lockouts; (ii) received any
requests for certifications of bargaining units or any other requests for
collective bargaining; or (iii) become aware of any efforts to organize
employees of the Company into a collective bargaining unit.
(l) Employee Benefit Plans. (i) Section 3.1(l) of the Disclosure Schedule
contains a true and complete list of each "employee benefit plan" (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), including, without limitation, multi-employer plans within
the meaning of ERISA Section 3(37)), stock purchase, stock option, severance,
employment, change-in-control, fringe benefit, collective bargaining, bonus,
incentive, deferred compensation and all other employee benefit plans,
agreements, programs, policies or other arrangements, whether or not subject to
ERISA (including any funding mechanism therefor now in effect or required in the
future as a result of the transaction contemplated by this Agreement), whether
formal or informal, legally binding or not, under which any employee or former
employee of the Company has any material present or future right to benefits or
under which the Company has any material present or future liability. All such
plans, agreements, programs, policies and arrangements shall be collectively
referred to as the "Company Plans."
(ii) Except as set forth in Section 3.1(l) of the Disclosure Schedule,
with respect to each Company Plan, the Company has delivered, or made available,
to the Parent a current, accurate and complete copy (or, to the extent no such
copy exists, an accurate description) thereof and, to the extent applicable, (A)
any related trust agreement, annuity contract or other funding instrument; (B)
the most recent determination letter; (C) any summary plan description and other
written communications (or a description of any oral communications) by the
Company to its employees concerning the extent of the benefits provided under a
Company Plan; and (D) for the three most recent years (I) the Form 5500 and
attached schedules; (II) audited financial statements; (III) actuarial valuation
reports; and (IV) attorney's response to auditor's request for information.
(iii) (A) Each Company Plan has been established and administered in all
material respects in accordance with its terms, and in all material respects in
compliance with the applicable provisions of ERISA, the Code and other
applicable laws, rules and regulations; (B) each Company Plan which is intended
to be qualified within the meaning of Code section 401(a) has received a
favorable determination letter or has filed a timely request (or has time
remaining in which it may file a timely request in the future) for a
determination letter as to its
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qualification and, to the knowledge of the Company, nothing has occurred,
whether by action or failure to act, which would cause the loss of such
qualification; (C) with respect to any Company Plan, no actions, suits or claims
(other than routine claims for benefits in the ordinary course) are pending or
threatened, no facts or circumstances exist which, to the knowledge of the
Company, would give rise to any such actions, suits or claims, except for such
action, suits or claims the effects of which would not individually or in the
aggregate reasonably be expected to result in a Material Adverse Effect, and the
Company will promptly notify Parent of any pending or threatened claims arising
between the date hereof and the Closing Date; (D) neither the Company nor to the
knowledge of the Company any other party has engaged in a prohibited
transaction, as such term is defined under Code section 4975 or ERISA section
406, which would subject the Company or Parent to any taxes, penalties or other
liabilities under Code section 4975 or ERISA sections 409 or 502(i) that is
reasonably likely to result in material liability; (E) no event has occurred and
no condition exists that would subject the Company to any tax, fine or penalty
imposed by ERISA, the Code or other applicable laws, rules and regulations
including, but not limited to, the taxes imposed by Code sections 4971, 4972,
4977, 4979, 4980B, 4976(a) or the fine imposed by ERISA section 502(c) that is
reasonably likely to result in a material liability to the Company; (F) all
insurance premiums required to be paid with respect to Company Plans as of the
date hereof have been or will be paid prior to their respective due dates; (G)
all contributions required to be made prior to the date hereof under the terms
of any Company Plan, the Code, ERISA or other applicable laws, rules and
regulations have been or will be made; and (H) no Company Plan provides for an
increase in benefits on or after the date hereof.
(iv) No Company Plan is, or has ever been, subject to Title IV of ERISA
and, except as set forth in Section 3.1(l) of the Disclosure Schedule, there are
no unfunded Company Plans under which benefits are payable presently, or in the
future, to present or former employees of the Company.
(v) Each Company Plan which is intended to meet the requirements for tax-
favored treatment under Subchapter B of Chapter 1 of Subtitle A of the Code
meets such requirements in all material respects, and the Company has received a
favorable determination from the Internal Revenue Service with respect to any
trust intended to be exempt from taxation within the meaning of Code section
501(c)(9).
(vi) Except as set forth on Section 3.1(l) of the Disclosure Schedule, no
Company Plan exists which could result in the payment to any Company employee of
any money or other property or rights or accelerate or provide any other rights
or benefits to any Company employee as a result of the transactions contemplated
by this Agreement, whether or not such payments would constitute a parachute
payment within the meaning of Code section 280G.
(m) Tax Matters. (i) Except as set forth in Section 3.1(m) of the
Disclosure Schedule, (A) the Company has filed, been included in or sent, all
returns, declarations and reports and information returns and statements
required to be filed or sent by the Company relating to any Taxes (as defined
below) with respect to any income, properties or operations of the Company
20
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(collectively, "Returns"); (B) as of the time of filing, the Returns were
correct in all material respects; (C) the Company has timely paid or made
provision for all Taxes that have been shown as due and payable on the Returns
that have been filed; (D) the Company has made or will make provisions for all
Taxes payable for any periods that end before the Effective Time for which no
Returns have yet been filed and for any periods that begin before the Effective
Time and end after the Effective Time to the extent such Taxes are attributable
to the portion of any such period ending at the Effective Time; (E) the charges,
accruals and reserves for Taxes reflected on the books of the Company are
adequate under generally accepted accounting principles to cover the Tax
liabilities accruing or payable by the Company in respect of periods prior to
the date hereof; (F) the Company is not delinquent in the payment of any Taxes
nor has requested any extensions of time within which to file or send any
Return, which Return has not since been filed or sent; (G) no deficiency for any
Taxes has been proposed, asserted or assessed, in writing, against the Company
other than those Taxes being contested in good faith by appropriate proceedings
(if necessary, Section 3.1(m) of the Disclosure Schedule shall set forth the
nature of the proceedings, the type of return, the deficiencies proposed,
asserted or assessed and the amount hereof, and the taxable year in question);
(H) the Company has not granted any extension of the limitation period
applicable to any Tax claims other than those Taxes being contested in good
faith by appropriate proceedings; (I) the Company is not subject to liability
for Taxes of any person; (J) the Company is not and has not been a party to any
tax sharing agreement; and (K) the Company is not or has not been a party to any
nexus or allocation agreements with any State of the United States.
(ii) "Tax" means with respect to any person (A) any net income, gross
income, gross receipts, sales, use, ad valorem, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, value-added, windfall profits, custom duty or other tax, capital
stock, social security (or similar), unemployment, disability, transfer,
alternative or add-on minimum, estimated or other governmental assessment or
charge of any kind whatsoever, together with any interest and any penalty,
addition to tax or additional amount imposed by any taxing authority (domestic
or foreign) on such person and (B) any liability of the Company or any
subsidiary for the payment of any amount of the type described in clause (A) as
a result of being a member of an affiliated or combined group.
(n) Intellectual Property. (i) The Company owns, is licensed or otherwise
possesses legally enforceable rights to use (in each case, free and clear of any
liens or encumbrances of any kind), the patents, know-how, trademarks, service
marks, brand names and computer software and any applications for such patents,
know-how, trademarks, tradenames, service marks and brand names, computer
software or other intellectual property and proprietary rights used in or
necessary for the conduct of its business as currently conducted (collectively,
"Intellectual Property"). The Intellectual Property filed by or on behalf of
the Company with the United States Patent and Trademark Office is listed in
Section 3.1(n) of the Disclosure Schedule. Each license or other agreement
relating to Intellectual Property to which the Company is a party has been
complied with by the Company in all material respects and is in full force and
effect; (ii) the Company has not licensed or otherwise granted to others any
rights to use any such Intellectual Property except as contemplated by this
Agreement, or as set forth
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in Section 3.1(n) of the Disclosure Schedule; (iii) to the Company's knowledge
and except as set forth in Section 3.1(n) of the Disclosure Schedule, the use of
such Intellectual Property by the Company does not infringe on or otherwise
violate the rights of any person and is in accordance with any applicable
license pursuant to which the Company acquired the right to use such
Intellectual Property; and (iv) to the knowledge of the Company and except as
set forth in Section 3.1(n) of the Disclosure Schedule, no person is
challenging, infringing on or otherwise violating any right of the Company with
respect to such Intellectual Property. To the Company's knowledge, all such
patents, trademarks, service marks, and copyrights held by the Company or
licensed by the Company are valid and subsisting. The Company is not, nor will
it be as a result of the execution and delivery of this Agreement or the
performance of its obligations hereunder, be in breach of any license,
sublicense or other agreement, relating to the Intellectual Property or any
third party right to such Intellectual Property except for such breaches that
individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect.
(o) Title to Properties; Liens and Encumbrances. Section 3.1(o) of the
Disclosure Schedule sets forth a complete and accurate list of all real
properties leased by the Company. Except as set forth in Section 3.1(o) of the
Disclosure Schedule and except for such defects in the title as would not,
either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, the Company has valid leasehold interests in its
respective real properties and has valid title to all of its respective other
properties and assets (except for leased properties and assets, in which case
the Company has a valid leasehold interest therein), subject only to (i)
statutory liens arising or incurred in the ordinary course of business with
respect to which the underlying obligations are not delinquent or the validity
of which is being contested in good faith by appropriate proceedings, (ii) liens
securing indebtedness of the Company which is created substantially
simultaneously with the purchase of the relevant properties or assets and which
do not encumber property other than such property or assets, and (iii) liens
that either individually or in the aggregate would not reasonably be expected to
have a Material Adverse Effect. The Company does not own any real property in
fee.
All of the Company's material tangible personal property, equipment,
fixtures and inventories used in the ordinary course of its business are in
good, merchantable condition, reasonable wear and tear excluded, or in
reasonably repairable condition, suitable for the purposes for which they are
being used, and valued at the lower of cost or market for purposes of the
Balance Sheets. Section 3.1(o) of the Disclosure Schedule contains a list of
Company's material depreciable assets as of March 31, 1997. No value in excess
of applicable reserves has been given to any inventory with respect to obsolete
or discontinued products for purposes of the Balance Sheets. All of the
material inventories and equipment, including equipment leased to others, are
well maintained and in good operating condition.
(p) Environmental Matters. The property, assets and operations of the
Company are in compliance in all material respects with all applicable federal,
state, local or foreign laws, rules, orders, decrees, judgments, injunctions,
licenses, permits or regulations relating to environmental matters
(collectively, the "Environmental Laws"), except to the extent that failure
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to comply with such Environmental Laws would not have a Material Adverse Effect.
To the Company's knowledge, none of the property, assets or operations of the
Company are the subject of any federal, state, local or foreign investigation
evaluating whether any remedial action is needed to respond to a release or
threatened release into the environment, of any substance regulated by, or which
would form the basis of liability, under any Environmental Laws (a "Hazardous
Substance"), or are in contravention of any federal, state, local or foreign
law, order or regulation that would have a Material Adverse Effect. The Company
has not received any notice or claim, nor are there pending, threatened or
reasonably anticipated lawsuits against it with respect to material violations
of an Environmental Law or in connection with the release or threatened release
of any Hazardous Substance into the environment. The Company has no material
contingent liability in connection with any release or threatened release of any
Hazardous Substance into the environment.
(q) Certain Contracts and Agreements. (A) Section 3.1(q) of the
Disclosure Schedule sets forth a list of all the Company's material contracts,
licenses, agreements or leases other than this Agreement and the agreements
contemplated hereby (the "Specified Contracts"). True and correct copies of the
most current version of said Specified Contracts have been made available to
Parent. The Company is not in default in the performance of any of its material
obligations under any Specified Contract. No event has occurred which (whether
with or without notice, lapse of time or the happening or occurrence of any
other event) would constitute a default of any of its material obligations by
the Company under any Specified Contract or, to the Company's knowledge, by any
other party thereto.
(B) Except as disclosed in Section 3.1(q) of the Disclosure Schedule, the
Company is not a party to any contract containing non-competition clauses,
restrictive covenants or similar provisions that would limit Parent's or the
Surviving Corporation's ability after the Closing to engage in any line of
business in any geographic area or to compete against any person.
(C) Except as set forth in Section 3.1(q) of the Disclosure Schedule, the
Company does not have, is not a party to nor is it bound by:
(1) any collective bargaining agreements,
(2) any agreements or arrangements that contain any severance pay or post-
employment liabilities or obligations,
(3) any bonus, deferred compensation, sales compensation plan, pension,
profit sharing or retirement plans, or any other employee benefit plans or
arrangements or agreements to change any such plans whether written or oral,
(4) any employment or consulting agreement with an employee or individual
consultant, or any consulting or sales agreement under which a firm or other
organization provides services to the Company,
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(5) any agreement or plan, including, without limitation, any stock option
plan, stock appreciation rights plan or stock purchase plan, any of the benefits
of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement,
(6) any fidelity or surety bond or completion bond,
(7) any lease of personal property having a value individually in excess of
$50,000,
(8) any agreement of indemnification or guaranty,
(9) any agreement containing any covenant limiting the freedom of the
Company to engage in any line of business or to compete with any person,
(10) any agreement relating to capital expenditures and involving future
payments in excess of $50,000,
(11) any agreement relating to the disposition or acquisition of assets or
any interest in any business enterprise outside the ordinary course of the
Company's business,
(12) any mortgages, indentures, loans or credit agreements, security
agreements or the agreements or instruments relating to the borrowing of money
or extension of credit, including guaranties referred to in clause (8) hereof,
(13) any purchase order or contract for the purchase of raw materials or
services involving $25,000 or more,
(14) any construction contracts,
(15) any distribution, joint marketing or development agreement,
(16) any agreement pursuant to which the Company has granted or may grant
in the future, to any party a source-code license or option or other right to
use or acquire source-code, or
(17) any other agreement that involves $50,000 or more or is not cancelable
without penalty within thirty (30) days.
Except for such alleged breaches, violations and defaults, and events that
would constitute a breach, violation or default with the lapse of time, giving
of notice, or both, as are all noted in Section 3.1 (q), of the Disclosure
Schedule, the Company has not materially breached, violated or defaulted under,
or received notice that it has breached, violated or defaulted under, any of the
terms or conditions of any Specified Contract. Each Specified Contract is in
full
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force and effect and, except as otherwise disclosed in Section 3.1(q), of the
Disclosure Schedule, is not subject to any default thereunder of which the
Company has knowledge by any party obligated to the Company pursuant thereto.
(r) Transactions with Affiliates. Except as disclosed in Section 3.1(r)
of the Disclosure Schedule, there are no contracts, agreements, arrangements or
understandings of any kind between any affiliate of the Company, on the one
hand, and the Company, on the other hand, other than any such contracts,
agreements, arrangements and understandings that either individually or in the
aggregate are de minimis in nature.
(s) Pre-clinical and Clinical Testing. The preclinical tests and clinical
trials of the Company were and, if still pending, are being conducted in all
material respects in accordance with protocols filed with the appropriate
regulatory authorities for each such clinical trial or human trial, as the case
may be. The Company has no knowledge of any other studies or tests the results
of which are inconsistent with or otherwise call into question the results
described or referred to in communications with the appropriate regulatory
authorities. The Company has not received any notices or other correspondence
from the FDA or any other Governmental Entity requiring the termination,
suspension or modification of any human trials being conducted by the Company or
on the Company's behalf as of the date hereof.
(t) Brokers' and Finders' Fees; Third Party Expenses. The Company has not
incurred, nor will it incur without the prior written consent of Parent,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby. Section 3.1(u) to the Disclosure Schedule sets
forth the Company's current reasonable estimate of all third party expenses
expected to be incurred by the Company in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby.
(u) Minute Books. The minute books of the Company made available to
counsel for Parent are the only minute books of the Company and contain a
reasonably accurate summary of all meetings of directors (or committees thereof)
and shareholders or actions by written consent since the time of incorporation
of the Company.
(v) HuMab-Mouse Technology. To the Company's knowledge, the Company's
HuMab-Mouse/(TM)/ mice that are currently owned by the Company are able to
produce high affinity human monoclonal antibodies against antigens in the manner
described in the scientific papers authored by Company employees and published
in scientific journals as heretofore supplied by the Company to Parent. In
addition, to the Company's knowledge, the transportation of the mice currently
owned by the company to Parent's animal facilities located outside the State of
California will not have a material adverse effect on such mice, so long as
appropriate precautions are taken regarding transportation of such mice
consistent with the Company's past practice.
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(w) Scope of Representations. Anything to the contrary in this Section
3.1 notwithstanding, no representation or warranty made by the Company in this
Agreement shall be deemed to be untrue or incorrect at the date hereof if the
failure of such representation or warranty to be true and correct as of such
date (or as of any other specified date) does not have, individually or in the
aggregate, a Material Adverse Effect on the Company at the date hereof.
SECTION 3.2 Representations and Warranties of Parent and Merger Sub.
-------------------------------------------------------
Parent and Merger Sub, jointly and severally, hereby represent and warrant to
the Company as follows:
(a) Corporate Organization. Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of New Jersey;
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, and each of Parent and
Merger Sub has the requisite corporate power and authority and any necessary
governmental authority to own, operate or lease its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority and
governmental approvals could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect. Parent and Merger Sub are each
duly qualified or licensed as a foreign corporation to do business, and each are
in good standing, in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing which would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
When used with respect to Parent or Merger Sub, the term "Material Adverse
Effect" means any material adverse change in or effect on (i) the business,
prospects, results of operations or condition (financial or other) of Parent and
its subsidiaries taken as a whole or (ii) the ability of Parent or Merger Sub to
consummate any of the transactions contemplated hereby.
(b) Charter and By-Laws. Parent has heretofore furnished to the Company
complete and correct copies of the Certificate of Incorporation and By-Laws of
Parent each as currently in effect and of the Certificate of Incorporation and
By-Laws of Merger Sub each as currently in effect. Neither Parent nor Merger
Sub is in violation of any of the provisions of its respective Certificate of
Incorporation or By-Laws.
(c) Capitalization. The authorized capital stock of Parent consists of 40
million Parent Common Shares and two million Parent Preferred Shares, without
par value (hereinafter referred to as "Parent Preferred Shares"). As of April
4, 1997, (i) 18,655,511 Parent Common Shares were issued and outstanding, and
(ii) no Parent Preferred Shares were issued and outstanding. All of the Parent
Common Shares issuable in exchange for Company Common Stock in accordance with
the terms of this Agreement have been duly authorized and reserved for issuance
and, when so issued, will be validly issued, fully paid and nonassessable and
not issued in violation of the preemptive rights of any shareholder of Parent.
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(d) Authority Relative to Agreement. Each of Parent and Merger Sub has
all necessary corporate power and authority to enter into this Agreement, to
perform its obligations hereunder and to consummate the transaction contemplated
hereby. The execution, delivery and performance of this Agreement by each of
Parent and Merger Sub and the consummation by each of Parent and Merger Sub of
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of Parent or Merger Sub, and no other
corporate proceedings on the part of Parent or Merger Sub or their stockholders
are necessary to authorize this Agreement or to consummate such transaction.
This Agreement has been duly executed and delivered by each of Parent and Merger
Sub and, assuming due authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of each of Parent and Merger
Sub enforceable against them in accordance with its terms.
(e) No Conflict; Required Filings and Consents. (i) The execution,
delivery and performance of this Agreement by Parent and Merger Sub do not and
will not: (A) conflict with or violate the Certificate of Incorporation or By-
Laws of Parent or the Articles of Incorporation or By-Laws of Merger Sub; (B)
assuming that all consents, approvals and authorizations contemplated by
subsection (ii) below have been obtained and all filings described in such
subsection have been made, conflict with or violate any law, rule, regulation,
order judgment or decree applicable to Parent or Merger Sub or by which either
of them or their respective properties are bound or affected; or (C) result in
any breach or violation of or constitute a default (or an event which with
notice or lapse of time or both could become a default) or result in the loss of
a material benefit under, or give rise to any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the property or assets of Parent or Merger Sub pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent or Merger
Sub is a party or by which Parent or Merger Sub or any of their respective
properties are bound or affected, except, in the case of clauses (B) and (C),
for any such conflicts, violations, breaches, defaults or other occurrences
which could not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect on Parent.
(ii) The execution, delivery and performance of this Agreement by Parent
and Merger Sub and the consummation of the transactions contemplated hereby by
Parent and Merger Sub do not and will not require any consent, approval,
authorization or permit of, action by, filing with or notification to, any
federal, state or local Governmental Entity, except for: (A) the filings with
the SEC of the Form S-4 and the obtaining from the SEC of such orders as may be
required in connection therewith; (B) filings with the National Association of
Securities Dealers Inc. ("NASD") on which the Parent Common Shares are currently
eligible for trading; (C) the filing and recordation of the Merger Agreement as
required by the CGCL; and (D) applicable filings under state anti-takeover laws
and state Blue-Sky Laws, if any.
(f) Compliance. (i) Parent and its subsidiaries hold, and are in
compliance with, all permits, licenses, exemptions, orders and approvals of all
Governmental Entities necessary for the operation of the businesses of Parent
and each subsidiary, except to the extent the failure to
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so hold or comply will not have, individually or in the aggregate, a Material
Adverse Effect, and to the best knowledge of Parent there are no proceedings
pending, threatened or contemplated by any Governmental Entity seeking to
terminate, revoke or materially limit any such permit, license, exemption, order
or approval. Neither Parent nor any of its subsidiaries nor the conduct of
their business is in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which its or any of their respective properties are bound or
affected, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Parent or any of its subsidiaries is a party or by which Parent or any of its
subsidiaries or its or any of their respective properties are bound or affected,
except for any such conflicts, defaults or violations which could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. As of the date of this Agreement, no investigation by any
United States Governmental Entity with respect to Parent is pending, or to best
knowledge of Parent, threatened, other than, in each case, those the outcome of
which, individually or in the aggregate, would not have a Material Adverse
Effect.
(g) SEC Filings; Financial Statements. (i) Parent and each of its
subsidiaries has filed all forms, reports, statements and documents required to
be filed with the SEC since January 1, 1993, pursuant to Sections 12(b), 12(g),
13, 14 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
(collectively, the "Parent SEC Reports"), each of which complied in all material
respect with the applicable requirements of the Exchange Act and the rules and
regulations of the SEC thereunder, as in effect on the date so filed. Parent
has delivered to the Company, in the form filed with the SEC (including any
amendments thereto) copies of (A) its Annual Report on Form 10-K for each of the
three fiscal years ended December 31, 1994, 1995 and 1996; (B) all definitive
proxy statements relating to Parent's meetings of stockholders (whether annual
or special) held since January 1, 1993; and (C) all other Parent SEC Reports or
registration statements filed by Parent with the SEC since January 1, 1993.
None of such forms, reports or documents (including any financial statements or
schedules included or incorporated by reference therein) filed by Parent
contained, when filed (in the case of documents filed pursuant to the Exchange
Act) or when declared effective by the SEC (in the case of registration
statements filed under the Securities Act), any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(ii) Each of the audited and unaudited consolidated financial statements
of Parent (including, in each case, any related notes thereto) included in the
Parent SEC Reports complied as to form when filed in all material respects with
the rules and regulations of the SEC with respect thereto, has been prepared in
accordance with U.S. generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto) and fairly presents the consolidated financial position of
Parent and its subsidiaries at the respective dates thereof and the consolidated
results of its operations and changes in cash flows for the periods indicated
(subject in the case of unaudited statements, to normal year-end audit
adjustments).
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(iii) Except as and to the extent set forth on the balance sheet of Parent
at December 31, 1996, including the notes thereto, included in Parent's Annual
Report on Form 10-K for the year ended December 31, 1996, Parent does not have
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) which would be required to be reflected on a balance
sheet or in the notes thereto prepared in accordance with generally accepted
accounting principles, except for liabilities or obligations incurred after the
date of said Annual Report in the ordinary course of business, which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(h) Information Supplied. None of the information supplied or to be
supplied by Parent or Merger Sub in writing or otherwise approved by Parent for
inclusion in (i) the Form S-4 will, at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Consent Solicitation
Statement/Prospectus will, at the date the Consent Solicitation
Statement/Prospectus is first mailed to the Company's stockholders or at the
Closing Date, contain any statement which, in the light of the circumstances
under which such statement is made, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of any
Company shareholder's consent or any amendment or supplement thereto. The Form
S-4 will comply as to form in all material aspects with the requirements of the
Securities Act and the rules and regulations promulgated thereunder, except that
no representation or warranty is made by Parent or Merger Sub with respect to
statements made on incorporated by reference therein based on information
supplied by the Company for inclusion or incorporation by reference in the Form
S-4.
(i) Absence of Certain Changes or Events. Since December 31, 1996, except
as disclosed in the Parent SEC Reports filed since that date, Parent has
conducted its business only in the ordinary course and in a manner consistent
with past practice and, since such date except as disclosed in the Parent SEC
Reports, there has not been any change, event or development in or affecting
Parent that constitutes or would reasonably be expected to have a Material
Adverse Effect on Parent or to delay or prevent the consummation of the
transactions contemplated hereby beyond October 31, 1997. In addition to the
foregoing, as of the date hereof Parent does not know or have reason to know of
any facts or circumstances or of any change, event or development in or
affecting Parent or its subsidiaries that would reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect.
(j) Absence of Litigation. There are no suits, claims, actions,
proceedings or investigations pending or, to the knowledge of Parent, threatened
against Parent or any of its subsidiaries, or any properties or rights of Parent
or any of its subsidiaries, before any court, arbitrator or other Governmental
Entity, domestic or foreign, that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect. Neither Parent nor
any of its subsidiaries nor any of their respective properties is or are subject
to any order, writ, judgment, injunction, decree, determination or award having,
or which could reasonably be
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expected to have, a Material Adverse Effect or to delay or prevent the
consummation of the transactions contemplated hereby beyond October 31, 1997.
(k) Brokers. No broker, finder or investment banker (other than Vector
Securities International, Inc.) is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Parent or Merger Sub.
(l) Ownership of Company Common Stock. As of the date of this Agreement,
Parent and its subsidiaries beneficially own shares of Company Common Stock
representing less than 5% of the outstanding shares of Company Common Stock.
(m) Parent Intellectual Property. (i) Parent owns, is licensed or
otherwise possesses legally enforceable rights to use (in each case, free and
clear of any liens or encumbrances of any kind), the patents, know-how,
trademarks, service marks, brand names and computer software and any
applications for such patents, know-how, trademarks, tradenames, service marks
and brand names, computer software or other intellectual property and
proprietary rights used in or necessary for the conduct of its business as
currently conducted (collectively, "Parent Intellectual Property"). Each
license or other agreement relating to Parent Intellectual Property to which
Parent is a party has been complied with by Parent in all material respects and
is in full force and effect; (ii) Parent has not licensed or otherwise granted
to others any rights to use any such Parent Intellectual Property except as
contemplated by this Agreement, or as set forth in Parent's SEC filings; (iii)
to Parent's knowledge and except as set forth in Parent's SEC filing, the use of
such Parent Intellectual Property by Parent does not infringe on or otherwise
violate the rights of any person and is in accordance with any applicable
license pursuant to which Parent acquired the right to use such Parent
Intellectual Property; and (iv) to the knowledge of Parent and except as set
forth in Parent's SEC filing, no person is challenging, infringing on or
otherwise violating any right of Parent with respect to such Parent Intellectual
Property. To Parent's knowledge, all such patents, trademarks, service marks,
and copyrights held by Parent or licensed by Parent are valid and subsisting.
Parent is not, nor will it be as a result of the execution and delivery of this
Agreement or the performance of its obligations hereunder, be in breach of any
license, sublicense or other agreement, relating to the Parent Intellectual
Property or any third party right to such Parent Intellectual Property except
for such breaches that individually or in the aggregate would not reasonably be
expected to have a Material Adverse Effect.
(n) Scope of Representations. Anything to the contrary in this Section
3.2 notwithstanding, no representation or warranty made by Parent in this
Agreement shall be deemed to be untrue or incorrect at the date hereof if the
failure of such representation or warranty to be true and correct as of such
date (or as of any other specified date) does not have, individually or in the
aggregate, a Material Adverse Effect at the date hereof.
ARTICLE IV
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CONDUCT OF BUSINESS PENDING THE MERGER; OTHER COVENANTS
SECTION 4.1 Conduct of Business of the Company Pending the Merger. The
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Company covenants and agrees that, during the period from the date hereof to the
Effective Time, except as otherwise required by the terms of this Agreement or
unless Parent shall otherwise agree in writing, the business of the Company
shall be conducted only in, and the Company shall not take any action except in,
the ordinary course of business and in a manner consistent with past practice
and in compliance with applicable laws; and the Company shall use its reasonable
best efforts to preserve intact the business organization of the Company, to
keep available the services of the present officers, employees and consultants
of the Company and to preserve the present relationships of the Company with its
customers, suppliers and other persons with whom the Company or any of its
subsidiaries has significant business relations and to preserve and maintain in
effect all of the Company's Intellectual Property.
Except as otherwise provided in this Agreement, by way of amplification and
not in limitation of the foregoing, the Company shall not, between the date of
this Agreement and the Effective Time, directly or indirectly do, or propose or
commit to do, any of the following without the prior written consent of Parent:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (ii) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for, shares of its
capital stock, or (iii) purchase, redeem or otherwise acquire or agree to
acquire any shares of capital stock of the Company or any other securities
convertible into shares of capital stock or any rights, warrants or options to
acquire any such shares or convertible securities except for shares of Company
Common Stock and/or Company Preferred Stock purchasable from employees upon
termination of employment in accordance with the Company's usual and customary
practice;
(b) authorize for issuance, issue, deliver, sell or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise), pledge
or otherwise encumber any shares of its capital stock, any other voting
securities or any securities convertible into, or any rights warrants or options
to acquire, any such shares, voting securities or convertible securities or any
other securities or equity equivalents (including without limitation stock
appreciation rights) except that shares of Company Common Stock may be issued
upon exercise of Company Options and the conversion of Company Preferred Stock
outstanding as of the date hereof;
(c) except to the extent required under existing Company Plans as in
effect on the date of this Agreement, (i) increase the compensation or fringe
benefits of any of its directors, officers or employees, except for increases in
compensation of employees and officers of the Company or its subsidiaries in the
ordinary course of business in accordance with past practice, or (ii) grant any
severance or termination pay not currently required to be paid under existing
Company Plans, except on an individual basis in the ordinary course of business
and consistent
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with past practice, or (iii) establish, adopt, enter into or amend or terminate
any Company Plan or other plan, agreement, trust, fund, policy or arrangement
for the benefit of any directors, officers or employees except as required by
law or as provided in this Agreement; provided that the provisions of this
Section 4.1 shall not prohibit the Company and its subsidiaries from hiring
personnel from time to time in the ordinary course of their business, consistent
with past practice and in consultation with Parent;
(d) amend the Company Articles of Incorporation, the Company By-Laws or
other comparable charter or organizational documents or alter through merger,
liquidation, reorganization, restructuring or in any other fashion the corporate
structure or ownership of the Company;
(e) except as allowed pursuant to Section 4.7 of this Agreement, acquire
or agree to acquire (i) by merging or consolidation with, or by purchasing a
substantial portion of the stock or assets of, or by any other manner, any
business or any corporation, partnership, joint venture, association or other
business organization or division thereof or (ii) any assets (not otherwise
subject to paragraph (h) below) other than in the ordinary course of business
consistent with past practice;
(f) sell, lease, license, mortgage or otherwise encumber or subject to any
lien or otherwise dispose of any of its properties or assets other than in the
ordinary course of business consistent with past practice and in amounts that
are not, individually or in the aggregate, material to the Company;
(g) (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person (other than or endorsements of negotiable
instruments and similar guarantees in the ordinary course of business consistent
with past practice), issue or sell any debt securities or warrants or other
rights to acquire any debt securities of the Company, guarantee any debt
securities of another person, enter into any "keep well" or other agreement to
maintain the financial condition of another person or enter into any arrangement
having the economic effect of any of the foregoing, except for short-term
borrowings (including deposits) incurred in the ordinary course of business
consistent with past practice, or (ii) make any loans, advances or capital
contributions to, or investments in, any other person;
(h) expend, or commit to expend, funds for capital expenditures other than
in accordance with the Company's current capital expenditure plans in excess of
$10,000 in any one transaction or related series of transactions;
(i) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(j) recognize any labor union (unless legally required to do so) or enter
into any collective bargaining agreement;
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(k) except as may be required as a result of a change in generally
accepted accounting principles or as recommended by the Company's independent
accountants and consented to in writing by Parent (which consent shall not be
unreasonably withheld) prior to such change, change any of the accounting
methods, practices or principles used by the Company;
(l) make any Tax election or settle or compromise any income Tax liability
in excess of $10,000 except for the sales and use tax matter set forth in
Section 3.1(m) of the Disclosure Schedule or file any federal income tax return
prior to the last day prescribed by law, in the case of any of the foregoing,
material to the business, financial condition or results of operations of the
Company, without the prior consent of Parent, which consent shall not be
unreasonably withheld;
(m) commence any litigation (except any litigation arising out of or in
connection with this Agreement) or any dispute resolution process or settle or
compromise any litigation in which the Company is a defendant (whether or not
commenced prior to the date of this Agreement) or settle, pay or compromise any
claims not required to be paid;
(n) enter into any new line of business;
(o) commence any new preclinical or clinical trials or submit any data or
other materials or enter into any material discussions with the FDA or any other
Governmental Entity (except discussions in the ordinary course of business);
(p) transfer to any person or entity any rights to the Company's
Intellectual Property (other than pursuant to end-user licenses in the ordinary
course of business);
(q) enter into or amend any agreements pursuant to which any other party
is granted marketing, distribution or similar rights of any type or scope or any
third party royalty rights with respect to any products of the Company;
(r) amend or otherwise modify (or agree to do so), except in the ordinary
course of business, or violate the terms of, any of the agreements set forth or
described in the Disclosure Schedule;
(s) acquire or agree to acquire by merging or consolidating with, or by
purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets in an amount in excess of $50,000 in the case of a single transaction or
in excess of $100,000 in the aggregate in any 30-day period;
(t) revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable other than in
the ordinary course of business;
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(u) pay, discharge or satisfy, in an amount in excess of $50,000 (in any
one case) or $100,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Company's Financial Statements
(or the notes thereto) or that arose in the ordinary course of business
subsequent to March 31, 1997 or expenses consistent with the provisions of this
Agreement incurred in connection with any transaction contemplated hereby;
(v) enter into or modify any new or existing agreements for the lease or
purchase of real property; or
(w) authorize any of, or commit or agree to take any of, the foregoing
actions or any action which would make any of the representations or warranties
of the Company contained in this Agreement untrue and incorrect as of the date
when made if such action had then been taken.
SECTION 4.2 Conduct of Business of Merger Sub. Merger Sub has not
---------------------------------
engaged, and during the period from the date of this Agreement to the Effective
Time, Merger Sub shall not engage, in any activities of any nature except as
provided in, or in connection with the transactions contemplated by, this
Agreement.
SECTION 4.3 Shareholders' Consent/Meeting. As soon as practicable after
-----------------------------
the date of this Agreement, the Company will take all action necessary in
accordance with and subject to applicable law and the Company Articles of
Incorporation and the Company By-Laws to obtain the written consent to the
Merger and this Agreement and the transactions contemplated hereby or to convene
a meeting of its shareholders (the "Shareholder's Meeting") to consider and vote
upon the adoption and approval of this Agreement. Subject to the next
succeeding sentence, the Company, through its Board of Directors, shall
recommend to its stockholders approval of the foregoing matters, and such
recommendation shall be included in the Consent Solicitation
Statement/Prospectus. The Board of Directors of the Company may fail to make
such recommendation, or withdraw, modify or change such recommendation, if and
only if the Board, after advice of outside counsel, determines in good faith
that the making of such recommendation, or the failure to so withdraw, modify or
change such recommendation, could reasonably be deemed to constitute a breach of
its fiduciary duties under applicable law.
SECTION 4.4 Access to Information; Confidentiality. (a) From the date
--------------------------------------
hereof to the Effective Time, the Company (i) shall, and shall cause its
officers, directors, employees, auditors and other agents to, afford the
officers, auditors and other agents of Parent, reasonable access at all
reasonable times (during normal business hours so as not to unduly or
unreasonably interfere with the business of the Company) to its senior officers,
agents, properties, offices and other facilities and to all books and records,
and shall furnish Parent and such other persons with all financial, operating
and other data and information as Parent, through its officers, may from time to
time reasonably request, and (ii) shall make available its senior officers, upon
reasonable prior notice and during normal business hours, to confer on a regular
basis with the
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appropriate officers of Parent regarding the ongoing operations of the Company,
the implementation of the transactions contemplated hereby and other matters
related hereto. No investigation pursuant to this Section 4.4 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
(b) Each of Parent and Merger Sub will hold information it receives
pursuant to Section 4.4(a)(i) which is nonpublic in confidence to the extent
required by, and in accordance with, the provisions of that certain
Confidentiality Agreement dated February 27, 1997 between Parent and the Company
(the "Confidentiality Agreement").
SECTION 4.5 Affiliates. Prior to the Closing Date, the Company shall
----------
deliver to Parent a letter identifying all persons who are, on the record date
established for the Consent Solicitation Statement/Prospectus, "affiliates" of
the Company for purposes of Rule 145 under the Securities Act. The Company
shall use its reasonable best efforts to cause each such person
to deliver to Parent on or prior to the Closing Date a written agreement
substantially in the form attached as Exhibit 4.5 hereto.
SECTION 4.6 No Solicitation. Subject to the proviso below, the Company
---------------
shall not, nor shall the Company authorize or permit any of its officers,
directors or employees or any investment banker, financial advisor, attorney,
accountant or other representative (collectively, "Representatives") retained by
it to, solicit, initiate, encourage (including by way of furnishing information
or assistance), or take any other action to facilitate, any inquiries or the
making of any proposal which constitutes, or may reasonably be expected to lead
to, any Transaction Proposal (as defined below) or enter into or maintain or
continue any discussions or negotiate with any person in furtherance of such
inquiries or to obtain a Transaction Proposal, or agree to or endorse any
Transaction Proposal, and the Company shall notify Parent orally (as promptly as
practicable, and in any event within two business days) as to any Transaction
Proposal which it or any of its Representatives may receive, specifying in
reasonable detail the material terms thereof and, if requested by Parent, the
Company shall furnish a written summary of such material terms (other than the
identity of the party making such Transaction Proposal). Nothing contained in
this Section 4.6 or this Agreement to the contrary shall restrict the Board of
Directors of the Company from (i) furnishing information to any person or entity
who makes an unsolicited inquiry concerning a possible Transaction Proposal, or
(ii) entering into negotiations or discussions with any person or entity that
makes an unsolicited Transaction Proposal regarding that Transaction Proposal,
or (iii) entering into an unsolicited Transaction Proposal, if, in the case of
either clauses (ii) or (iii), the Board of Directors of the Company determines
in good faith, after advice of counsel, that (a) the failure to do so could
reasonably be deemed a breach of its fiduciary duties under applicable law or
(b) failing to make, withdrawing, modifying or changing a recommendation to the
Company's stockholders with respect to the approval and adoption of this
Agreement if the Board of Directors of the Company determines in good faith,
after advice of counsel, that making such recommendation, or failure to
withdraw, modify or change such recommendation, could reasonably be deemed a
breach of its fiduciary duties under applicable law. The Company shall provide
such information to Parent regarding any inquiry, negotiation, discussion or
proposal under this Section 4.6 as is necessary,
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in the reasonable judgment of the Board of Directors of the Company, to achieve
a level playing field so that Parent shall not be at a disadvantage, provided
that the name of any such other person need not be disclosed to Parent. The
Company shall obtain a confidentiality agreement from the person making such
inquiries or proposals containing substantially the same terms and provisions as
that obtained from Parent, provided that to the extent such confidentiality
agreement with such third party contains provisions that are more favorable to
such third party than the comparable provisions in the Confidentiality
Agreement, such provisions in the Confidentiality Agreement shall be amended
correspondingly.
As used herein, the term "Transaction Proposal" means (x) any acquisition
or purchase of substantially all of the assets of, or any controlling interest
in, or any debt or equity offering of, the Company or any Business Combination,
as defined herein, or (y) any proposal, plan or agreement to do any of the
foregoing. The Company will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing.
SECTION 4.7 Employee Benefits Matters. (a) Except as otherwise provided
-------------------------
in this Section 4.7, on and after the Effective Time, Parent shall, or shall
cause Surviving Corporation to, maintain the Company Plans set forth in Section
3.1(l) of the Disclosure Schedule (other than the Plans) for the benefit of
employees of the Company as such Company Plans are in effect immediately prior
to the Effective Time; provided that Parent or Surviving Corporation may replace
any Company Plan with a plan of Parent which provides benefits that are
substantially similar to those benefits provided to Parent's employees.
(b) Except as otherwise provided in this Section 4.7, on and after the
Effective Time, Parent shall, or shall cause Surviving Corporation to, maintain
compensation for Company employees, at the same levels as in effect on the date
of this Agreement, subject to increases in accordance with Company policy.
(c) On and after the Effective Time, Company employees shall be entitled
to participate in the equity compensation plans of Parent for employees of
Parent on the same basis as similarly situated employees of Parent.
(d) On and after the Effective Time, the base salary and other
compensation and benefits described in Section 4.7 (a) through (d) hereof may be
altered by the Surviving Corporation consistent with the Company's past
practices, to remain competitive or in accordance with industry practice;
provided that the aggregate compensation and benefits provided to the Surviving
Corporation employees shall be no less favorable than the compensation and
benefits provided to Company employees immediately prior to the Effective Time
and may be reduced only in the event of a material adverse change in the
business of the Surviving Corporation.
SECTION 4.8 Directors' and Officers' Indemnification and Insurance. (a)
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It is understood and agreed that the Company shall defend, indemnify and hold
harmless, and after the Effective Time, the Surviving Corporation and the Parent
shall, jointly and severally, defend,
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indemnify and hold harmless, each present and former employee, agent, director
and officer of the Company (the "Indemnified Parties") to the fullest extent
required or permitted under (a) applicable law and (b) as provided in their
respective charters and by-laws, which rights to be defended, indemnified and
held harmless shall survive the Merger and shall continue in full force and
effect without time limitation from and after the Effective Time. Without
limiting the foregoing, the Company, and after the Effective Time the Surviving
Corporation and the Parent, will periodically advance expenses as incurred with
respect to the foregoing, to the fullest extent permitted by applicable law;
provided the person to whom the expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such person is not
entitled to indemnification. In addition, the Articles of Incorporation and the
By-Laws of the Surviving Corporation with respect to indemnification, shall not
be amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who at the Effective Time were directors, officers, agents or
employees of the Company or otherwise entitled to indemnification pursuant to
the Company's Articles of Incorporation. In the event that the Surviving
Corporation transfers all or substantially all of its operations to another
corporation or other entity, proper provision shall be made so that the
successor or transferee thereof shall assume any remaining obligations of the
Surviving Corporation set forth in this Section 4.8.
(b) Parent shall cause the Company either (x) to continue in force for at
least five years from the Closing Date, the Company's policy insuring its
officers and directors for errors and omissions liability at least with respect
to acts and omissions through the Closing Date, or (y) procure equivalent
insurance.
(c) Each current officer and director of the Company shall have rights as a
third party beneficiary under this Section 4.8 as separate contractual rights
for his or her benefit.
SECTION 4.9 Further Action; Reasonable Best Efforts. Upon the terms and
---------------------------------------
subject to the conditions hereof, each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including but not limited to using
its reasonable best efforts to make all required regulatory filings and
applications and to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of Governmental Entities and parties
to contracts as are necessary for the consummation of the transaction
contemplated by this Agreement and to fulfill the conditions to the Merger. To
the extent practicable in the circumstances and subject to applicable laws, each
party shall provide the other with the opportunity to review all information
relating to the other party, or any of its subsidiaries, which appears in any
filing made with, or written materials submitted to, any Governmental Entity in
connection with obtaining the necessary regulatory approvals for the
consummation of the transactions contemplated by this Agreement. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and directors of
each party to this Agreement shall use their reasonable best efforts to take all
such necessary action.
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SECTION 4.10 Notification of Certain Matters. The Company shall give
-------------------------------
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence or non-occurrence of any event which would likely cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect, and (ii) any failure of the Company, Parent
or Merger Sub, as the case may be, to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 4.10 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 4.11 Public Announcements. Each party shall consult with the
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other before issuing any press release or otherwise making any public statements
with respect to the Merger and shall not issue any such press release or make
any such public statement prior to such consultation, except as may be required
by law or any listing agreement with its securities exchange or quotation
system, provided, however, that each party may talk to their shareholders
without the consent of the other in accordance with applicable law.
SECTION 4.12 Tax Free Reorganization Treatment. None of Parent, Merger
---------------------------------
Sub, the Company or any of their respective affiliates shall take or cause to be
taken any action, whether before or after the Effective Time, other than those
actions specifically required or permitted by this Agreement, which would
disqualify the Merger as a tax-free reorganization within the meaning of Section
368 of the Code.
SECTION 4.13 Rule 144 Information. Parent hereby agrees that from the
--------------------
Effective Time until the third anniversary of the Effective Time, if Parent is
not subject to Section 13 or 15(d) of the Exchange Act, it will ensure that
there is publicly available the information specified in Rule 144(c)(2) under
the Securities Act.
SECTION 4.14 Preparation of Form S-4 and the Consent Solicitation
----------------------------------------------------
Statement/Prospectus. (i) Promptly following the date of this Agreement, the
- --------------------
Company and Parent shall prepare and file with the SEC the Form S-4, in which
the Consent Solicitation Statement/Prospectus will be included as a prospectus,
in order to register the Parent Common Shares to be issued in the Merger. Each
of the Company and Parent shall use its reasonable best efforts to have the Form
S-4 declared effective under the Securities Act as promptly as practicable after
such filing. The Company will use its reasonable best efforts to cause the
Consent Solicitation Statement/Prospectus to be mailed to the Company's
shareholders as promptly as practicable after the Form S-4 is declared effective
under the Securities Act and shall submit this Agreement and the transactions
contemplated hereby to the holders of Company Common Stock and Company Preferred
Stock for approval and adoption as provided by the CGCL and the Company Article
of Incorporation and Company By-Laws. The Company shall use its best efforts to
solicit and obtain the consent of its shareholders sufficient to approve the
Merger and this Agreement and to enable the Closing to occur as promptly as
practicable. Parent shall also use its reasonable best efforts to take any
action (other than qualifying to do business in any jurisdiction in which it is
not now so qualified) required to be taken under any applicable state securities
laws in connection with the issuance of Parent Common Shares in the
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Merger, and the Company shall furnish all information concerning the Company and
the holders of the Company Common Stock and Company Preferred Stock as may be
reasonably requested in connection with any such action. The information
provided and to be provided by Parent, Merger Sub and the Company, respectively,
for use in the Form S-4 shall, at the time the Form S-4 becomes effective and on
the Closing Date, be true and correct in all material respects and shall not
omit to state any material fact required to be stated therein or necessary in
order to make such information not misleading, and the Company, Parent and
Merger Sub each agree to correct any information provided by it for use in the
Form S-4 which shall have become false or misleading.
SECTION 4.15(a) Contingent Payments. Parent shall use its commercially
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reasonable best efforts and shall take all reasonably required actions to ensure
receipt by the Company of the full amount of the Continent Payments at least 15
days prior to the Second Payment Date. In the event that the full amount of the
Contingent Payments cannot be obtained by the Second Payment Date, Parent shall
continue to use its commercially reasonable best efforts and shall take all
reasonably required action to ensure receipt by the Company of the full amount
of the Contingent Payments at least 15 days prior to the Final Payment Date.
(b) Thirty (30) days prior to the Final Payment Date, or the Second Payment
Date if there is no Final Payment Date, Parent shall provide a person designated
by the former Board of Directors of the Company (the "Board Designee") with its
tentative determination of the Tax Liability (as defined in Section
2.1(b)(iv)(B)). Parent agrees to utilize the following items of deduction or
loss to reduce first the Tax Liability prior to the utilization of any Parent
net operating losses: (w) any compensation expense deduction resulting from the
payment of the Employee Stock Bonus contemplated by Section 4.21 hereof, (x)
deductible transaction expenses arising in connection with the Merger, (y) any
Company operating expenses (less any accrued interest attributable to the
Convertible Note) from the Closing Date through December 31, 1997 and (z)
Company net operating loss carryovers. In addition, to the extent possible,
Parent shall utilize its net operating losses (calculated without regard to the
items set forth in (w), (x) and (y) above) to reduce the Tax Liability created
by the Contingent Payments. Parent shall, however, use its commercially
reasonable best efforts, within the purview of the applicable tax laws and
regulations, to minimize the Tax Liability, unless taking such action would not,
in Parent's reasonable business judgment, be in the best interests of Parent for
reasons not principally related to tax or principally related to reducing the
Merger Consideration. Appropriate adjustments will be made to prevent the
double counting of any income, deduction or losses. The Board Designee may
object to Parent's determination of the Tax Liability within fifteen (15) days
of the receipt of Parent's determination of the Tax Liability, in which case the
Tax Liability shall be determined in accordance with this paragraph by Parent's
independent auditors.
SECTION 4.16 Parent Shareholders' Meeting; Payment of Additional Shares.
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Parent, in accordance with its Certificate of Incorporation and By-Laws and the
applicable requirements of the New Jersey Business Corporation Act, the federal
securities laws and the applicable requirements of The Nasdaq Stock Market,
shall, if necessary to comply with said requirements
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within sixty (60) days of the Closing Date use its commercially reasonable best
efforts to (i) present to its shareholders for approval at a special or annual
meeting of shareholders, a resolution (the "Additional Stock Resolution")
approving the potential additional issuance of Parent Common Shares as
Additional Shares described in Section 2.1, along with the recommendation of the
Board of Directors of Parent that such resolution be approved, and (ii) solicit
from each of its shareholders a proxy in favor of the approval of the Additional
Stock Resolution.
SECTION 4.17 FIRPTA Matters. At the Closing, (a) the Company shall
--------------
deliver to Parent a statement (in such form as may be reasonably requested by
counsel to Parent) conforming to the requirements of Section 1.897-2(h)(1)(i) of
the United States Treasury Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Section 1.897-2(h)(2)
of the United States Treasury Regulations.
SECTION 4.18 Expenses. Except as otherwise specifically provided in this
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Agreement, whether or not the Merger is consummated, all fees and expenses
incurred in connection with the Merger including, without limitation, all legal,
accounting, financial advisory, consulting and all other fees and expenses of
third parties incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby, shall be the obligation of the respective party incurring
such fees and expenses.
SECTION 4.19 NMS Listing. Parent shall authorize for listing on The
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Nasdaq Stock Market the shares of Parent Common Shares issuable, and those
required to be reserved for issuance, in connection with the Merger, upon
official notice of issuance.
SECTION 4.20 Blue Sky Laws. Parent shall take such steps as may be
-------------
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Parent Common Shares pursuant
hereto. The Company shall use its best efforts to assist Parent as may be
necessary to comply with the securities and blue sky laws of all jurisdiction
which are applicable in connection with the issuance of Parent Common Shares
pursuant hereto.
SECTION 4.21 Employee Stock Bonus.
--------------------
(a) At the Initial Placement Date, Parent will issue 250,000 shares
(the "Employee Shares") of Parent Common Shares to certain employees of the
Company in accordance with the schedule to be delivered by the Company to Parent
(the "Company Employees") within 10 days after the date of this Agreement. The
Company Employees shall be required to include their Employee Shares in the
Initial Placement. If the Initial Placement Date does not occur by December 31,
1997, the Employee Shares will be issued on the first business day of 1998.
(b) Each Company Employee shall be required to remit to Parent, either
in cash, by certified or bank check made payable to Parent, or out of the gross
proceeds received
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by such Company Employee from the sale of his or her Employee Shares in the
Initial Placement (the "Employee Share Amount"), an amount sufficient to satisfy
any federal, state or local tax withholding requirements prior to the
distribution of the Employee Share Amount. If the Initial Placement Date does
not occur by December 31, 1997, Parent will cooperate with the Company Employees
in the sale through brokers of sufficient Employee Shares to provide funds for
tax withholding.
(c) In addition, on the Second Payment Date (as defined herein) Parent
will deliver to those Company Employees, who remain employees until December 31,
1997 or such earlier time as Parent agrees, such number of additional Employee
Shares having a Fair Market Value as of the Second Payment Date equal to
3.65315% of the Merger Consideration, as adjusted, less (1) the aggregate
Employee Share Amount and (2) the number of Employee Shares having an aggregate
Fair Market Value as of the Second Payment Date equal to an amount sufficient to
satisfy any federal, state or local tax withholding requirements. Such
additional Employee Shares shall be distributed to Company Employees in the same
proportion as the Employee Shares in subsection 4.21(a) above.
SECTION 4.22 Shareholder Agreements. The Company covenants and agrees
----------------------
that prior to the date the Consent Solicitation/Prospectus is first mailed to
the Company's shareholders, the Company will obtain from all shareholders of the
Company who are directors of the Company or investment funds represented on the
Board of Directors (the "Designated Shareholders") a Shareholder Agreement which
provides that the Designated Shareholders will vote the shares of Company
Preferred Stock and Company Common Stock held by them in favor of the adoption
and approval of the Merger and the Required Amendments (as defined herein) to
the Company's Articles of Incorporation.
ARTICLE V
CONDITIONS OF MERGER
SECTION 5.1 Conditions to Obligation of Each Party to Effect the Merger.
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The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Shareholder Approval. The Merger and this Agreement shall have been
approved and adopted by the holders of the outstanding shares of Company Common
Stock and Company Preferred Stock entitled to vote thereon each voting as a
single class by the requisite vote under applicable law and the Company's
Articles of Incorporation. In addition, the Company's shareholders shall have
approved any and all amendments to the Company's Articles of Incorporation
necessary to eliminate any conflicts with this Agreement described in Section
3.1(d) of the Disclosure Schedule (the "Required Amendments").
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(b) Other Approvals. Other than the filings contemplated by Section 1.3,
all consents, approvals, authorizations or permits of, actions by, or filings
with or notifications to, and all expirations of waiting periods imposed by, any
Governmental Entity or any third party (all the foregoing, "Consents") which are
necessary for the consummation of the Merger, other than immaterial Consents the
failure to obtain which would have no material adverse effect on the
consummation of the Merger or the business of the Surviving Corporation, shall
have been filed, occurred or been obtained (all such permits, approvals, filings
and consents and the lapse of all such waiting periods being referred to as the
"Requisite Regulatory Approvals"), all conditions, if any, to such Requisite
Regulatory Approvals shall have been satisfied and all such Requisite Regulatory
Approvals shall be in full force and effect.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding by any
Governmental Entity seeking any of the foregoing be pending. There shall not be
any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger, which makes the consummation of the
Merger illegal.
(d) Nasdaq Listing. The shares of Parent Common Shares issuable to
shareholders of the Company pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on The Nasdaq Stock Market upon official notice of
issuance.
SECTION 5.2 Conditions to Obligations of Parent and Merger Sub. The
--------------------------------------------------
obligations of Parent and Merger Sub to effect the Merger are subject to the
satisfaction of the following conditions unless waived by Parent and Merger Sub:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct as of the date
of this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except to the extent such representations and warranties speak as
of an earlier date, with such exceptions as, either individually or in the
aggregate, do not have, and would not reasonably be expected to have, a Material
Adverse Effect on the Company, and Parent shall have received a certificate
signed on behalf of the Company by the Chief Executive Officer of the Company to
such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing Date with such exceptions as, either individually or in
the aggregate, do not have, and would not reasonably be expected to have, a
Material Adverse Effect on the Company, and Parent shall have received a
certificate signed on behalf of the Company by the Chief Executive Officer of
the Company to such effect.
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(c) Legal Opinion. Parent shall have received from Wilson Sonsini
Goodrich & Rosati, Professional Corporation, counsel for Company, an opinion in
form and substance satisfactory to Parent and its counsel dated the Effective
Time to the effect that:
(i) the Company has been duly incorporated and is validly existing and
in good standing under the laws of the jurisdiction of its incorporation,
has all requisite corporate power and authority to own its properties and
carry on its business as conducted at the Effective Time and is duly
qualified to do business as a foreign corporation and in good standing in
each state of the United States and such other jurisdictions in which the
failure to be so qualified would have a Material Adverse Effect on the
Company.
(ii) this Agreement constitutes the valid and legally binding
obligation of Company enforceable in accordance with its terms, subject as
to enforcement to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to
general equity principles.
(iii) except as may be set forth in Section 3.1(j) of the Disclosure
Schedule hereof, to such counsel's knowledge, there is no litigation, legal
action, arbitration, administrative proceeding, demand, claim or
investigation pending, overtly threatened, against or relating to the
Company or its properties or assets.
(iv) all consents and approvals of federal Governmental Entities and
Governmental Entities in the state of California which are required by the
Company in connection with the execution and the consummation by the
Company of this Agreement and the transactions contemplated herein have
been obtained.
(v) immediately prior to the Effective Time of the Merger, the
authorized capital stock of the Company is as set forth in Section 3.1(c)
of this Agreement, and that, based on the stock records of the Company
maintained by such firm, the issued and outstanding capital stock is as set
forth on Section 3.1(c) of this Agreement. Each of the Company Common
Stock and the Company Preferred Stock is validly issued, fully paid and
non-assessable and was issued in compliance with the registration,
qualification and notification provisions of applicable state and federal
securities laws. The Company's capital stock is not subject to preemptive
rights created by statute, the Company Articles of Incorporation or Company
By-Laws or any agreement to which the Company is a party or by which it is
bound. To such counsel's knowledge and except as disclosed in Section
3.1(c) of this Agreement or in the Disclosure Schedule, there are no
options, warrants, calls, rights, commitments or agreements or any
character, written or oral, to which the Company is a party or by which it
is bound obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed,
any shares of the capital stock of the Company, or obligating the Company
to grant, extend, accelerate the vesting of, change the price of, otherwise
amend or enter into any such option, warrant, call, right, commitment or
agreement.
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(vi) The Company has all requisite corporate power and authority to enter
into this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement, the performance by the Company of its obligations hereunder and
the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of the
Company and have been approved by the Board of Directors and shareholders
of the Company. No other corporate proceeding on the part of the Company
is necessary to authorize the execution and delivery of this Agreement by
the Company or the performance of the Company's obligations hereunder or
the consummation of the transactions contemplated hereby. This Agreement
has been duly and validly authorized, executed and delivered by the Company
and constitutes a valid and binding agreement of the Company enforceable
against the Company in accordance with its terms, except as enforcement may
be limited by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws affecting creditors' rights,
and subject to general equity principles and to limitations on availability
of equitable relief, including specific performance.
(vii) The execution and delivery by the Company of this Agreement do
not, and the consummation of the transactions contemplated thereby will
not: (a) violate any provision of the Company's Articles of Incorporation
or Company By-Laws, (b) violate (i) any governmental statute, rule or
regulation of the State of California applicable to the Company or (ii) any
order, writ, judgment, injunction, decree, determination or award which has
been entered against the Company and of which we are aware, the violation
of which would materially and adversely affect the Company; or (c)
constitute a material default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or to loss of a material benefit
under, or result in the creation of a lien or encumbrance on any of the
properties or assets of the Company or give to others any interest or right
in any of the properties or other assets of the Company pursuant to any
Specified Contract.
(viii) This Agreement has been duly approved and adopted by the
affirmative vote of a number of outstanding shares of Company Common Stock
and Company Preferred Stock, each voting separately as a single class that
equals or exceeds the number of such shares required to approve this
Agreement under the California General Corporation Law and the Company's
Articles of Incorporation.
(ix) The execution and delivery by the Company of the Agreement do
not, and the consummation of the transactions contemplated thereby by the
Company and the change of control that will result from the Merger will
not, require the consent of any third party to any agreement, contract,
license or other instrument or obligation set forth in Section 3.1(e) (i),
(ii), and (iii) of the Disclosure Schedule and will not result in the
termination or cancellation of any obligations of Cell Genesys, Inc. under
its $15,000,000 Convertible Subordinated Promissory Note dated March 26,
1997 payable to the order of the Company.
44
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(d) Officers Certificate. Company shall have delivered to Parent a
certificate of its corporate Secretary certifying:
(i) resolutions of its stockholders and Board of Directors authorizing
execution of this Agreement and the execution, performance and delivery of
all agreement, documents and transactions contemplated hereby; and
(ii) the incumbency of its officers executing this Agreement and all
agreements and documents contemplated hereby.
(e) Consents. All consents required to be delivered by or on the part of
the Company pursuant to this Agreement shall have been obtained by the Company
and delivered to Parent and Sub on or before the Effective Time.
(f) Dissenters' Rights. Holders of more than 400,000 shares of the
outstanding shares of the Company's Common Stock shall not have exercised, nor
shall they have any continued right to exercise, appraisal, dissenters' or
similar rights under applicable law with respect to their shares by virtue of
the Merger.
SECTION 5.3 Conditions to Obligations of the Company. The obligation of
----------------------------------------
the Company to effect the Merger is subject to the satisfaction of the following
unless waived by the Company:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub set forth in this Agreement shall be true and correct as
of the date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date, except to the extent such representations and warranties
speak as of an earlier date, with such exceptions as, either individually or in
the aggregate, do not have, and would not reasonably be expected to have, a
Material Adverse Effect on Parent, and the Company shall have received a
certificate signed on behalf of the Parent by the Chief Executive Officer and
the Chief Financial Officer of Parent to such effect.
(b) Performance of Obligations of Parent and Merger Sub. Parent and
Merger Sub shall have performed all obligations required to be performed by them
under this Agreement at or prior to the Closing Date, with such exceptions as,
either individually or in the aggregate, do not have, and would not reasonably
be expected to have, a Material Adverse Effect on Parent, and the Company shall
have received a certificate signed on behalf of Parent by the Chief Executive
Officer and the Chief Financial Officer of Parent to such effect.
(c) Officer's Certificate. Parent shall have delivered to Company:
(a) A certificate of its corporate Secretary certifying:
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(i) resolutions of its Board of Directors authorizing execution
of this Agreement and the execution, performance and delivery by
Parent of all agreement, documents and transactions contemplated
hereby and, on behalf of Parent as sole stockholder of Merger Sub
approving the execution of this Agreement and the consummation of the
Merger by Merger Sub; and
(ii) the incumbency of its officers executing this Agreement and
all agreements and documents contemplated hereby.
(b) a certificate of Merger Sub's corporate Secretary certifying:
(i) resolutions of its Board of Directors authorizing execution
of this Agreement and the performance of all obligations of
Merger Sub provided herein or therein; and
(ii) the incumbency of its officers executing this Agreement and
all agreements and documents contemplated hereby.
(d) Tax Opinion. The opinion, based on appropriate representations of the
Company, Parent and others, of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel to the Company, to the effect that except for certain
actions which may be required or permitted under the terms of the Agreement, the
Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, dated on or about the date of
and referred to in the Consent Solicitation/Prospectus as first mailed to the
shareholders of the Company, shall not have been withdrawn or modified in any
material respect.
(e) The Company has received from Satterlee Stephens Burke & Burke LLP,
counsel for Parent and Merger Sub, an opinion in form and substance satisfactory
to the Company's counsel dated the Effective Time to the effect that:
(i) each of Parent and Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation and has corporate power and authority to consummate the
transactions contemplated by this Agreement;
(ii) this Agreement has been duly authorized, executed and delivered
by Parent and Merger Sub and, except as enforceability of the terms hereof
may be limited by applicable bankruptcy or other laws affecting the rights
of creditors generally and general principles of equity, and as rights to
indemnification hereunder may be subject to limitations of public policy,
this Agreement is the valid and binding obligation of Parent and Merger Sub
enforceable in accordance with its terms and all corporate action by Parent
and Merger Sub required in order to effect the transactions contemplated
hereby has been taken:
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(iii) this Agreement has been duly authorized, executed and delivered
by Merger Sub and, except as enforceability may be limited by applicable
bankruptcy or other laws affecting the rights of creditors generally are
the valid and binding obligation of Merger Sub, enforceable in accordance
with their respective terms, and all corporate action by Parent and Merger
Sub required in order to effect the transaction contemplated hereby or
thereby has been taken;
(iv) the Parent Common Shares to be issued in accordance with Section
2.1 have been duly authorized, reserved, and, upon issuance in accordance
with this Agreement and the Merger Agreement, will be validly issued, fully
paid and nonassessable and duly and properly listed on The Nasdaq Stock
Market; and
(v) the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby and thereby will not
violate any provision of the corporate charter or bylaws of Parent or
Merger Sub or to the best knowledge of such counsel after due inquiry,
conflict with, result in the breach of any provision of or termination of,
or constitute a default under any of the instruments, agreements or
commitments to which Parent or any of its subsidiaries is a party or by
which any of their respective assets is bound, or constitute a violation of
any order, judgment or decree to which Parent or any of its subsidiaries is
a party or by which any of their respective assets or properties is or may
be bound.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.1 Termination. This Agreement may be terminated and the Merger
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contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the Company:
(a) by mutual written consent of Parent and the Company; or
(b) by Parent, upon any breach of any representation, warranty, covenant
or agreement of the Company set forth in this Agreement that, either
individually or in the aggregate, would constitute grounds for Parent to elect
not to consummate the Merger pursuant to Section 5.2(a) or (b), if either (i)
such breach cannot be cured prior to the Closing Date, or (ii) has not been
cured within 45 days after the date on which written notice of such breach is
given by Parent to the Company, specifying in reasonable detail the nature of
such breach;
(c) by the Company, upon any breach of any representation, warranty,
covenant or agreement of Parent set forth in this Agreement that, either
individually or in the aggregate, would constitute grounds for the Company to
elect not to consummate the Merger pursuant to Section 5.3(a) or (b), if either
(i) such breach cannot be cured prior to the Closing Date, or (ii)
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has not been cured within 45 days after the date on which written notice of such
breach is given by the Company to Parent, specifying in reasonable detail the
nature of such breach;
(d) by either Parent or the Company, if any permanent injunction or action
by any Governmental Entity preventing the consummation of the Merger shall have
become final and nonappealable; provided that such right of termination shall
not be available to any party if such party shall have failed to make reasonable
efforts to prevent or contest the imposition of such injunction or action and
such failure materially contributed to such imposition;
(e) by either Parent or the Company if (other than due to the willful
failure of the party seeking to terminate this Agreement to perform its
obligations hereunder which are required to be performed at or prior to the
Effective Time) the Merger shall not have been consummated on or prior to
October 31, 1997.
(f) by either Parent or the Company, if the approval of the stockholders
of the Company of this Agreement and the Merger required for the consummation of
the Merger shall not have been obtained by October 31, 1997;
(g) by either Parent or the Company, if (A) the Board of Directors of the
Company shall have approved or have recommended to the shareholders of the
Company a Transaction Proposal or shall have resolved to do the foregoing; or
(B) a tender offer or exchange offer for not less than a majority of the
outstanding Voting Stock (as defined herein) of the Company (a "Takeover
Proposal") is commenced (other than by Parent or any of its subsidiaries or
affiliates), and the Board of Directors of the Company recommends that the
shareholders of the Company tender their shares in such Takeover Proposal or
otherwise fails to recommend that such shareholders reject such Takeover
Proposal within ten business days of the commencement thereof; provided,
however, that in each case this Agreement may only be terminated by the Company
if, and only to the extent that, the Board of Directors of the Company, after
advice of independent legal counsel, determines in good faith that failure to
take such action could reasonably be deemed to constitute a breach of the
Board's fiduciary duties under applicable law;
(h) by Parent in the event of a material adverse change in the business,
prospects or financial condition of the Company;
(i) by the Company in the event of a material adverse change in the
business, prospects or financial condition of Parent; or
(j) by either Parent or the Company after August 31, 1997, if the Form S-4
has not been declared effective by the SEC; provided that such right of
termination shall not be available to a party if such party shall have
materially breached its obligation under Section 4.14 of this Agreement.
SECTION 6.2 Effect of Termination. In the event of the termination of
---------------------
this Agreement pursuant to Section 6.1, this Agreement shall forthwith become
void and there shall be no
48
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liability on the part of any party hereto except as set forth in Section 4.4(b),
Section 6.3, if applicable, and Section 8.1; provided, however, that nothing
herein shall relieve any party from liability for any willful and material
breach hereof; provided further, however, that the recommendation of another
transaction by the Company's Board of Directors in accordance with Section 4.7
shall not constitute a willful and material breach of this Agreement by the
Company.
SECTION 6.3 Breakup Fee. (a) The Company agrees that if this Agreement
-----------
shall be terminated pursuant to:
(i) Section 6.1(f) because the Agreement, the Merger and the Required
Amendments shall fail to receive the requisite vote for approval and
adoption by the shareholders of the Company (unless, prior to such
termination, either Parent or the Company shall have had another valid
basis for terminating this Agreement and shall have given notice of
termination pursuant to any paragraph of Section 6.1, except in the case of
the Company, paragraph (f) or (g)); or
(ii) Section 6.1(g);
then in either such case, the Company shall pay to Parent $3,500,000.
(b) In the event of a termination by Parent in accordance with Section
6.3(a), and the Company shall consummate a Business Combination within 18 months
from the date of this Agreement, then in any such case, the Company shall pay to
Parent an additional $5,000,000.
(c) Any cash payment required to be made pursuant to subsection 6.1(a)
above shall be made upon the date which is 30 days after (i) the date of the
shareholders meeting in the case the Agreement is terminated pursuant to
subsection 6.1(a)(i) above or (ii) the date the Board of Directors of the
Company shall have approved or recommended a Transaction Proposal to the
Company's shareholders or recommend that the Company's shareholders tender their
shares pursuant to a Takeover Proposal or otherwise fails to recommend that the
Company's shareholders reject a Takeover Proposal, in the case this Agreement is
terminated pursuant to subsection 6.1(a)(ii) above. Any such payment shall be
made by wire transfer of immediately available funds to an account designated by
Parent and terminations of the Company's obligations in subsection 6.3(a) shall
not occur until such payment shall have been made pursuant hereto.
(d) Any cash payment required to be made pursuant to Section 6.3(b) shall
be made upon the date which is 60 days after the date the Company enters into a
definitive agreement with respect to such Business Combination, by wire transfer
of immediately available funds to an account designated by Parent, and
termination of the Company's obligations under Section 6.3(b) shall not occur
until such payment shall have been made pursuant hereto. The Company covenants
and agrees that it will not enter into a definitive agreement relating to a
Transaction Proposal that would, if consummated, require the payment of any
amounts by the Company pursuant to Section 6.3(b) unless the other party or
parties thereto agree unconditionally in
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writing (a copy of which shall be furnished to Parent as soon as practicable
after the public announcement of such proposed Transaction Proposal) to assume,
undertake and perform all of the Company's payment obligations under this
Section 6.3, and to pay any legal expenses incurred by Parent in connection with
the enforcement thereof.
(e) For purposes of this Agreement:
(i) the term "Business Combination" shall mean (A) the acquisition by
any person (other than Parent or any of its subsidiaries) of beneficial
ownership (as such term is defined in Rule 13d-3 promulgated under the
Exchange Act) of, or the right to acquire beneficial ownership of, or the
formation of any group (as such term is defined for purposes of Rule 13d-5
under the Exchange Act) which beneficially owns or has the right to acquire
beneficial ownership of, 50% or more of the total voting power of all then
outstanding Voting Stock of the Company; (B) the consolidation or merger of
the Company with or into any person (other that Parent or any of its
subsidiaries) in a transaction in which the Company shall not be the
surviving or continuing corporation; (C) the merger or consolidation of any
person (other than Parent or any of its subsidiaries) with or into the
Company in a transaction in which the Company is the surviving or
continuing corporation but in which the shares of Voting Stock outstanding
immediately prior to such transaction shall represent less than 50% of the
total voting power of all Voting Stock of the surviving or continuing
corporation outstanding immediately after such merger or consolidation; or
(D) any sale or other transfer (including by way of dividend or
distribution of assets to the Company's stockholders), in one transaction
or in a series of related transactions, of all or substantial portion of
the Company's consolidated assets or business to any person (other than
Parent or any of its subsidiaries) or group; and
(ii) the term "Voting Stock" means all outstanding stock and other
securities of the Company entitled (without regard to the occurrence of any
contingency) to vote in the election of directors of the Company.
(f) Except as specifically provided in Section 6.2 and this Section 6.3,
each party shall bear its own expenses in connection with this Agreement and the
transactions contemplated hereby.
SECTION 6.4 Amendment. This Agreement may be amended by the parties
---------
hereto by action taken by or on behalf of Parent and the respective Boards of
Directors of Merger Sub and the Company at any time prior to the Effective Time;
provided, however, that, after approval of the Merger by the shareholders of the
Company, no amendment may be made which would reduce the amount or change the
type of consideration the Company's shareholders are to receive upon
consummation of the Merger. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
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SECTION 6.5 Waiver. At any time prior to the Effective Time, any party
------
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid and
set forth in an instrument in writing signed by the party or parties to be bound
thereby.
ARTICLE VII
REGISTRATION OF SECURITIES; LIMITATION ON
SALE OF PARENT COMMON SHARES
SECTION 7.1 Registration of Shares. Parent shall take all such action as
----------------------
may be reasonably required in order to register or qualify the Initial Shares
and, to the extent required, the Employee Shares under the Securities Act and
applicable state securities laws so as to permit or facilitate the sale or
distribution of such shares by the Company's shareholders. No shares except
Initial Shares and Employee Shares shall be included in the registration or the
Initial Placement.
SECTION 7.2 Restrictions on Transfer of Parent Common Shares. (a) Lock-Up
------------------------------------------------
Period. Except as provided in subsection 7.2(b) below, for the period (the
"Lock-Up Period") following the Closing Date and ending on the Second Payment
Date, as the case may be, a Company shareholder shall not engage in any Sale (as
defined below) of Initial Shares without the prior written consent of Parent.
For the purposes of this Section 7.2 a "Sale" shall mean any sale, exchange,
transfer, assignment, hypothecation, pledge, distribution, redemption or
reduction in any way of shareholder's risk of ownership (by short sale, gift or
otherwise), or any other disposition, directly or indirectly, of any beneficial
interest in any Initial Shares; provided, however, that any shareholder
organized as a partnership, limited liability company or closely held
corporation may distribute Initial Shares to their partners, members or
shareholders, as the case may be, so long as such partners, members or
shareholders agree to be bound by the restrictions of this Section 7.2. In
order to ensure compliance with the restrictions on transfer set forth in
Section 7.2(a), Parent will cause the legend set forth in subsection 7.2(c)
hereof to be placed on each certificate of Initial Shares issued in connection
with the Merger.
(b) (i) On or before the Initial Placement Date, Parent will use its best
efforts to cause the Employee Shares and the Initial Shares to be offered and
sold in the Initial Placement. Notwithstanding the foregoing, the number of
Initial Shares which may be sold in the Initial Placement shall not exceed the
number determined by dividing the Preference Amount by the price at which such
Initial Shares are to be sold in the Initial Placement. Parent shall give
written notice (a "Placement Notice") by registered or certified mail, at least
thirty (30) days prior to the date of the commencement of the Initial Placement,
to the registered holders of the Parent Common Shares issued in the Merger of
its intention to cause the Initial Placement to occur. If a holder of the
Parent Common Shares notifies Parent within twenty (20) days after
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receipt of the Placement Notice of its or his desire to include Parent Common
Shares in the Initial Placement, Parent shall afford such holder the opportunity
to participate in the Initial Placement. In the event that fewer than all the
Initial Shares and Employee Shares offered can be sold, priority shall be given
to the sale of all the Employee Shares.
(ii) Holders of Employee Shares, Company Preferred Stock and Company
Common Stock, as the case may be, who participated in the Initial Placement (the
"Initial Placement Participants") shall be entitled to receive on the Second
Payment Date (as defined herein) as reimbursement for one-half ( 1/2) of any fee
paid to the Placement Agent in connection with the Initial Placement (the
"Placement Agent Fee Amount"), Additional Shares with a Fair Market Value as of
the Second Payment Date equal to said Placement Agent Fee Amount. The number of
shares of Parent Common Shares which an Initial Placement Participant shall be
entitled to receive shall be equal to an amount determined by multiplying (1)
the quotient obtained by dividing the number of Parent Common Shares sold in the
Initial Placement by such Initial Placement Participant by the total number of
Parent Common Shares sold in the Initial Placement, by (2) the quotient obtained
by dividing the Placement Agent Fee Amount by the Fair Market Value of a Parent
Common Share on the Second Payment Date.
(iii) Parent shall pay any and all costs, fees and expenses (except as
otherwise stated herein) incurred in connection with the Initial Placement
and/or any registration statement required under subsection 7.2(a) above
including, but not limited to, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for Parent,
blue sky fees and expenses, the expense of any special audits required to effect
the Initial Placement and/or any registration; provided, however, that such
expenses shall not include (A) sale discounts, placement agents' and/or
underwriters' fees and commissions, and transfer taxes, if any, relating to the
sale or disposition of Parent Common Shares by the Company's shareholders and
Company Employees pursuant to this Agreement; or (B) any fees or expenses of any
counsel, accountants or other persons retained or engaged by the Company's
shareholders and Company Employees in connection with any such sale or
disposition.
(iv) A pricing committee (the "Pricing Committee"), composed of one
member chosen by Parent and one member chosen by the directors of the Company
holding office immediately prior to the Effective Time shall, in consultation
with the Placement Agent, determine the number of Parent Common Shares to be
sold in the Initial Placement and the price at which such shares are to be sold
and the Placement Agent fee. If the Pricing Committee is unable to agree on the
number of shares, then the number of shares which shall be sold in the Initial
Placement shall be the greatest number of shares that the Placement Agent
determines can be sold in the Initial Placement provided that the selling price
is at least $5.00.
(v) Notwithstanding the provisions of subsection 7.2(b)(i) above,
Parent shall have the right at any time after it has given the Placement Notice
to elect to postpone a proposed Placement for a period of up to sixty (60) days
but in no event later than December 31, 1997, if, in the opinion of the
Placement Agent, the Initial Placement would adversely affect Parent or the
market for Parent Common Shares.
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(vi) In the event a holder of Parent Common Shares elects not to
participate in the Initial Placement such holder may not engage in any Sale of
Parent Common Shares until the expiration of the applicable Lock-Up Period
without the prior written consent of Parent.
(vii) Notwithstanding the provisions of subsection 7.2(a) above, in
the event that less than 66 2/3% of the total number of Initial Shares offered
for sale in the Initial Placement are sold, then the Lock-Up Period and the
restrictions on transfer with respect to those shares of Initial Shares offered
for sale but not sold in the Initial Placement shall automatically terminate
after the Initial Placement Date. If more than 66 2/3% of the Initial Shares
offered for sale in the Initial Placement are sold then the Lock-Up Period with
respect to the offered but unsold Initial Shares shall be reduced to six months
from the Initial Placement Date. For purposes of this paragraph (vii) an Initial
Share shall be considered to have been offered if the holder requested that it
be included in the Initial Placement in accordance with subsection 7.2(b)(i).
(c) Legend. Parent may issue stock transfer restrictions to the Parent's
transfer agent with respect to the Parent Common Shares subject to the transfer
restrictions set forth in Subsection 7.2(a) above. In addition, Parent may
require that each certificate representing Parent Common Shares to which such
transfer restrictions apply bear a legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER PURSUANT TO AN AGREEMENT AND
PLAN OF REORGANIZATION DATED MAY 5, 1997 (THE "MERGER AGREEMENT")
A COPY OF WHICH IS AVAILABLE FROM THE SECRETARY OF THE COMPANY,
AND MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE PROVISIONS OF
SUCH AGREEMENT. UNLESS EARLIER TERMINATED PURSUANT TO THE TERMS
OF THE MERGER AGREEMENT, THE RESTRICTIONS ON TRANSFER PURSUANT TO
SUCH AGREEMENT WILL LAPSE ON DECEMBER 31, 1998."
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Non-Survival of Representations, Warranties and Agreements.
----------------------------------------------------------
The representations, warranties and agreements in this Agreement shall terminate
at the Effective Time or upon the termination of this Agreement pursuant to
Section 6.1, except that those set forth in Sections 2.1 (with respect to
payments of the Merger Consideration occurring after the Effective Time), 2.2,
2.3, Section 4.4(b), Section 4.7, Section 4.8, Section 4.9, Section 4.12,
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Section 4.13, Section 4.15, Section 4.16, Section 6.3, Article VII, and this
Article VIII shall survive indefinitely (or to such earlier date as shall be
specified by the terms of such provisions).
SECTION 8.2 Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy,
or by registered or certified mail (postage prepaid, return receipt requested)
to the respective parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
if to Parent or Merger Sub:
Medarex, Inc.
1545 Route 22 East
Annandale, New Jersey 08801-0953
Attention: Donald L. Drakeman - President
Phone: 609-713-6001
Fax: 609-713-6002
with a copy to:
Satterlee Stephens Burke & Burke LLP
230 Park Avenue
New York, New York 10169
Attention: Dwight Kinsey, Esq.
Phone: 212-818-9200
Fax: 212-818-9606 or 9607
if to the Company:
GenPharm International, Inc.
855 California Avenue, Suite C
Palo Alto, California 94304
Attention: Jonathan MacQuitty - Chief Executive Officer
Phone: 415-842-6441
Fax: 415-813-0464
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with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Robert Jack, Esq.
Phone: 415-493-9300
Fax: 415-493-6811
SECTION 8.3 Certain Definitions. For purpose of this Agreement, the term:
-------------------
(a) "affiliate" of a person means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person;
(b) "beneficial owner" with respect to any shares of Company Common Stock
or Company Preferred Stock means a person who shall be deemed to be the
beneficial owner of such shares of Company Common Stock or Company Preferred
Stock (i) which such person or any of its affiliates or associates beneficially
owns, directly or indirectly, (ii) which such person or any of its affiliates or
associates (as such term is defined in Rule 12b-2 of the Exchange Act) has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of consideration
rights, exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding or (iii) which are
beneficially owned, directly or indirectly, by any other persons with whom such
person or any of its affiliates or person with whom such person or any of its
affiliates or associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares;
(c) "business day" means any day other than a Saturday, Sunday or other
day on which commercial banks in New York, New York or Palo Alto, California are
required or permitted to be closed or the New York Stock Exchange is closed for
trading the entire day;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "knowledge" means actual knowledge of, in the case of the Company, any
Vice President or more senior officer, and in the case of Parent, any Senior
Vice President or more senior officer, based upon reasonable inquiry in those
circumstances which such person reasonably should recognize as having a need for
such inquiry;
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(f) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d)(3) of the Exchange Act); and
(g) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, Parent or such other person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or indirectly,
50% or more of the stock or other equity interests the holder of which is
generally entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
SECTION 8.4 Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
SECTION 8.5 Entire Agreement; Assignment. This Agreement constitutes the
----------------------------
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof other
than the Confidentiality Agreement, which shall remain in full force and effect.
This Agreement shall not be assigned by operation of law or otherwise, except
that Parent and Merger Sub may assign all or any of their respective rights and
obligations hereunder to any other direct subsidiary or subsidiaries of Parent,
provided that no such assignment shall relieve the assigning party of its
obligations hereunder if such assignee does not perform such obligations.
SECTION 8.6 Parties in Interest. This Agreement shall be binding upon and
-------------------
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 8.7 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of California, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 8.8 Consent to Jurisdiction. Each of the parties hereto by
-----------------------
execution hereof (i) hereby irrevocably submits to the jurisdiction of the
federal and state courts of the State of California for the purpose of any
action, suit or proceeding arising out of or based upon this
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Agreement or the subject matter hereof and (ii) hereby waives to the extent not
prohibited by applicable law, and agrees not to assert, by way of motion, as a
defense or otherwise, in any such action, suit or proceeding, any claim that it
is not subject personally to the jurisdiction of the above-named courts, that it
is immune from extraterritorial injunctive relief or other injunctive relief,
that its property is exempt or immune from attachment or execution, that any
such action, suit or proceeding may not be brought or maintained in one of the
above-named courts, that any such action, suit or proceeding brought or
maintained in one of the above-named courts should be dismissed on grounds of
forum non conveniens, should be transferred to any court other than one of the
above-named courts should be stayed by virtue of the pendency of any other
action, suit or proceeding in any court other than one of the above-named
courts, or that this agreement or the subject matter hereof may not be enforced
in or by any of the above-named courts. Each of the parties hereto hereby
consents to service of process in any such suit, action or proceeding in any
manner permitted by the laws of the State of California, agrees that service of
process by registered or certified mail, return receipt requested, is reasonably
calculated to give actual notice and waives and agrees not to assert by way of
motion, as a defense or otherwise, in any such action, suit or proceeding, any
claim that service of process made in accordance with this Section 8.8 does not
constitute good and sufficient service of process. The provisions of this
Section 8.8 shall not restrict the ability of any party to enforce in any court
any judgment obtained in a federal or state court of the State of California.
SECTION 8.9 Headings. The descriptive headings contained in this
--------
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 8.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
all as of the date written above.
MEDAREX, INC.
By:_____________________________________
Name: Donald L. Drakeman
Title: President
MEDAREX ACQUISITION CORP.
By:_____________________________________
Name: Michael A. Appelbaum
Title: Vice President
GENPHARM INTERNATIONAL, INC.
By:_____________________________________
Name: Jonathan MacQuitty
Title: Chief Executive Officer
<PAGE>
EXHIBIT 4.6
TO AGREEMENT
Form of Company Affiliate Letter AND PLAN OF
REORGANIZATION
Gentlemen:
The undersigned, a holder of shares of common stock, without par
value, and/or preferred stock, without par value ("Company Stock"), of GenPharm
International, Inc., a California corporation (the "Company"), may be entitled
to receive in connection with the merger (the "Merger") of the Company with
Medarex Acquisition Corp., a California corporation, securities (the "Parent
Securities") of Medarex, Inc., a Delaware corporation. The undersigned
acknowledges that the undersigned may be deemed an "affiliate" of the Company
within the meaning of Rule 145 ("Rule 145") promulgated under the Securities Act
of 1933, as amended (the "Act"), although nothing contained herein should be
construed as an admission of such fact.
If in fact the undersigned were an affiliate under the Act, the
undersigned's ability to sell, assign or transfer any Parent Securities received
by the undersigned in exchange for any shares of Company Stock pursuant to the
Merger may be restricted unless such transaction is registered under the Act or
an exemption from such registration is available. The undersigned understands
that such exemptions are limited and the undersigned has obtained advice of
counsel as to the nature and conditions of such exemptions, including
information with respect to the applicability to the sale of such securities of
Rules 144 and 145(d) promulgated under the Act.
The undersigned hereby represents to and covenants with the Company
that the undersigned will not sell, assign or transfer any of the Parent
Securities that the undersigned receives in exchange for shares of Company Stock
pursuant to the Merger except (i) pursuant to an effective registration
statement under the Act, (ii) in conformity with the volume and other
limitations of Rule 145 or (ii) in a transaction which, in the opinion of
independent counsel reasonably satisfactory to Parent or as described in a "no-
action" or interpretive letter from the Staff of the Securities and Exchange
Commission (the "SEC"), is not required to be registered under the Act; provided
however, that if the undersigned is an investment partnership, no opinion of
counsel shall be required for the transfer by the undersigned of Parent
Securities to its partners on a pro rata basis consistent with their
distribution rights under the partnership agreement and without any further
consideration being paid by such partners in consideration with such
distribution, subject to the requirement that each distributee agrees in writing
prior to its receipt of the Parent Securities to be bound by the terms of this
letter (unless sales may be made by such distributee at such time without any
restrictions under Rule 145, in which case no such agreement to be bound by this
letter shall be required).
<PAGE>
In the event of a sale or other disposition by the undersigned of
Parent Securities pursuant to Rule 145, the undersigned will supply Parent with
evidence of compliance with such Rule, in the form of a letter in the form of
Annex I hereto. The undersigned understands that Parent may instruct its
transfer agent to withhold the transfer of any Parent Securities disposed of by
the undersigned, but that upon receipt of such evidence of compliance the
transfer agent shall effectuate the transfer of Parent Securities sold as
indicated in the letter.
The undersigned acknowledges and agrees that appropriate legends will
be placed on certificates representing Parent Securities received by the
undersigned in the Merger or held by a transferee thereof, which legends will be
removed by delivery of substitute certificates upon receipt of an opinion in
form and substance reasonably satisfactory to Parent from independent counsel
reasonably satisfactory to Parent to the effect that such legends are no longer
required for purposes of the Act; provided, however, that Parent will remove the
legends at such time as the undersigned or its transferee may sell the Parent
Securities under Rule 145.
The undersigned acknowledges that (i) the undersigned has carefully
read this letter and understands the requirements hereof and the limitations
imposed upon the distribution, sale, transfer or other disposition of Parent
Securities and (ii) the receipt by Parent of this letter is an inducement to
Parent's obligations to consummate the Merger.
Very truly yours,
<PAGE>
ANNEX I
TO EXHIBIT 4.6
[Name] [Date]
On ________________ the undersigned sold the securities ("Securities")
of Medarex, Inc., a Delaware corporation (the "Company"), described below in the
space provided for that purpose (the "Securities"). The Securities were
received by the undersigned in connection with the reorganization of Medarex
Acquisition Corp., a California corporation, with and into GenPharm
International, Inc., a California corporation.
Based upon the most recent report or statement filed by the Company
with the Securities and Exchange Commission, the Securities sold by the
undersigned were within the prescribed limitations set forth in paragraph (e) of
Rule 144 promulgated under the Securities Act of 1933, as amended (the "Act").
The undersigned hereby represents that the Securities were sold in
"brokers' transactions" within the meaning of Section 4(4) of the Act or in
transactions directly with a "market maker" as that term is defined in Section
3(a)(38) of the Securities Exchange Act of 1934, as amended. The undersigned
further represents that the undersigned has not solicited or arranged for the
solicitation of orders to buy the Securities, and that the undersigned has not
made any payment in connection with the offer or sale of the Securities to any
person other than to the broker who executed the order in respect of such sale.
Very truly yours,
[Space to be provided for description of securities]
