<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 8, 1997
REGISTRATION STATEMENT NO. 333-29953
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________
MEDAREX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW JERSEY 8731 22-2822175
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1545 ROUTE 22 EAST
ANNANDALE, NEW JERSEY 08801
(908) 713-6001
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------------
DONALD L. DRAKEMAN
MEDAREX, INC.
1545 ROUTE 22 EAST
ANNANDALE, NEW JERSEY 08801
(908) 713-6001
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------------------
COPY TO:
<TABLE>
<S> <C>
DWIGHT A. KINSEY, ESQ. ROBERT JACK, ESQ.
SATTERLEE STEPHENS BURKE & BURKE LLP WILSON SONSINI GOODRICH & ROSATI
230 PARK AVENUE A PROFESSIONAL CORPORATION
NEW YORK, NEW YORK 10169 650 PAGE MILL ROAD
(212) 818-9200 PALO ALTO, CALIFORNIA 94304-1050
(415) 493-9300
</TABLE>
______________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------
If the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box [X].
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
<PAGE>
GENPHARM INTERNATIONAL, INC.
855 California Avenue, Suite C
Palo Alto, California 94304
Dear Shareholder:
The Board of Directors of GenPharm International, Inc. ("GenPharm") has approved
the merger (the "Merger") of GenPharm with a subsidiary of Medarex, Inc.
("Medarex"). If the Merger is approved by the shareholders of GenPharm and
consummated, GenPharm will become a wholly owned subsidiary of Medarex. The
terms of the Merger provide for the GenPharm shareholders and option holders to
receive shares of Medarex Common Stock having a maximum aggregate market value
of $62,725,000 (the "Purchase Price"). The Purchase Price will be reduced if
and to the extent that GenPharm does not receive after the Merger certain
license fees and promissory note payments from third parties and under other
circumstances described in the accompanying Prospectus/Consent Solicitation
Statement.
The Medarex shares will be issued at various times in 1997 and 1998, and
possibly 1999. The shares will be issued first to the holders of GenPharm
Preferred Stock to the extent of their aggregate $40,378,646 "liquidation
preference" and then pro rata to holders of GenPharm Common Stock and GenPharm
Preferred Stock (on an as-converted basis). A total of 3,250,000 of the Medarex
shares will be issued to the holders of GenPharm Preferred Stock in 1997 in
partial satisfaction of the liquidation preference. In the event the market
value of the Medarex shares to be delivered in 1997 is less than $12.42 per
share, the value of the shares will not be sufficient to satisfy the liquidation
preference. To the extent that the shares issued in 1997 to the holders of
GenPharm Preferred Stock have a market value less than the liquidation
preference, sufficient additional Medarex shares will be issued to the holders
of GenPharm Preferred Stock in 1998 to satisfy the balance of the liquidation
preference. The remainder of the Medarex shares (if any) constituting the
Purchase Price will be issued in 1998 (and possibly to some extent in 1999) pro
rata to the holders of GenPharm Common Stock and GenPharm Preferred Stock (on an
as-converted basis).
If the Purchase Price were to be reduced below the $40,378,646 liquidation
preference amount, the holders of GenPharm Preferred Stock would not recover
their entire liquidation preference, and the holders of GenPharm Common Stock
would receive no consideration whatsoever for their shares in the Merger. In
the opinion of the Board of Directors of GenPharm, although this is a
possibility, it is believed to be highly unlikely. The number of shares of
Medarex Common Stock to be received by the holders of GenPharm Preferred Stock
would, however, be significantly reduced if the Purchase Price were to be
substantially reduced, and the effect of such a reduction on the value per share
of GenPharm Common Stock would be much more significant. Therefore, the value
of the consideration to be received by holders of GenPharm Common Stock in the
merger is highly dependent on the extent to which the Purchase Price may be
reduced. The terms of the Merger and related information are described in the
accompanying Prospectus/Consent Solicitation Statement, which you are urged to
read carefully.
In the material accompanying this letter you will find a Written Consent to
approve the Merger and certain related amendments to the GenPharm Articles of
Incorporation described in the Prospectus/Consent Solicitation Statement as well
as the approval of certain stock bonus payments to the Chief Executive Officer
of GenPharm. Please complete, sign, date and return your Written Consent in the
enclosed envelope as soon as possible so that the Merger can be completed
without delay.
THE GENPHARM BOARD OF DIRECTORS HAS APPROVED THE MERGER, THE RELATED AMENDMENTS
TO THE ARTICLES AND THE STOCK BONUS AND RECOMMENDS THAT THEY BE APPROVED BY THE
SHAREHOLDERS.
Sincerely,
Jonathan J. MacQuitty
Chief Executive Officer
<PAGE>
MEDAREX, INC.
GENPHARM INTERNATIONAL, INC.
PROSPECTUS/CONSENT SOLICITATION STATEMENT
This Prospectus/Consent Solicitation Statement is being furnished to
shareholders of GenPharm International, Inc., a California corporation
("GenPharm"), in connection with the proposed acquisition of GenPharm by
Medarex, Inc., a New Jersey corporation ("Medarex" or the "Company"), by means
of the merger of Medarex Acquisition Corp., a California corporation wholly-
owned by Medarex ("Merger Sub"), into GenPharm with GenPharm being the surviving
corporation and resulting in GenPharm becoming a wholly-owned subsidiary of
Medarex (the "Merger"), pursuant to the terms set forth in the Amended and
Restated Agreement and Plan of Reorganization dated as of May 5, 1997 (the
"Merger Agreement"), among Medarex, Merger Sub and GenPharm. Upon consummation
of the Merger, Medarex will issue shares of its Common Stock having a market
value equal to $62,725,000, subject to adjustment as described herein, in
exchange for all of the outstanding shares of GenPharm Preferred Stock. Based on
the closing sale price of Medarex Common Stock as reported on the Nasdaq
National Market on September __, 1997 of $__, a minimum of __ shares and a
maximum of __ shares could be issued in connection with the Merger. See "The
Merger Agreement--Manner and the Basis of Converting Shares.''
This Prospectus/Consent Solicitation Statement constitutes (a) the Consent
Solicitation Statement of GenPharm relating to the solicitation of written
consents from shareholders of GenPharm, and (b) the Prospectus of Medarex
constituting part of the Registration Statement on Form S-4 filed with the
Securities and Exchange Commission (the "Commission") relating to the shares of
Medarex Common Stock issuable to GenPharm shareholders in connection with the
Merger. All information herein with respect to GenPharm has been furnished by
GenPharm, and all information herein with respect to Medarex has been furnished
by Medarex. This Prospectus/Consent Solicitation Statement and the accompanying
form of written consent are first being mailed to shareholders of GenPharm on or
about __________________, 1997.
SEE "RISK FACTORS" COMMENCING ON PAGE [ ] FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED CAREFULLY BY GENPHARM SHAREHOLDERS IN EVALUATING THE
PROPOSALS TO BE VOTED ON BY WRITTEN CONSENT AND THE ACQUISITION OF THE MEDAREX
SECURITIES OFFERED HEREBY, INCLUDING THE RISK THAT THE ACTUAL NUMBER OF SHARES
OF MEDAREX COMMON STOCK TO BE RECEIVED BY GENPHARM SHAREHOLDERS IN THE MERGER
WILL NOT BE KNOWN AT THE TIME THEY DELIVER THEIR WRITTEN CONSENTS AND THE RISK
TO HOLDERS OF GENPHARM COMMON STOCK THAT REDUCTIONS IN THE MERGER CONSIDERATION
COULD SIGNIFICANTLY REDUCE OR POSSIBLY ELIMINATE THE CONSIDERATION THEY WOULD
RECEIVE FOR THEIR SHARES, IN WHICH CASE ALL OF THE MEDAREX SHARES OFFERED HEREBY
WOULD BE ISSUED TO THE HOLDERS OF GENPHARM PREFERRED STOCK. NEITHER THIS
TRANSACTION NOR THE SECURITIES OF MEDAREX OFFERED HEREBY HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/CONSENT SOLICITATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus/Consent Solicitation Statement is _________________,
1997.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THESE MATTERS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY MEDAREX OR GENPHARM. THIS PROSPECTUS/CONSENT
SOLICITATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SECURITIES OFFERED BY THIS PROSPECTUS/CONSENT SOLICITATION
STATEMENT WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS/CONSENT SOLICITATION STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS/CONSENT SOLICITATION
STATEMENT RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE DATE
HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY....................................................................... 4
RISK FACTORS.................................................................. 17
Risks Related to the Merger Agreement and the Merger..................... 17
Risks Related to Medarex................................................. 20
Risks Related to GenPharm................................................ 26
SOLICITATION OF WRITTEN CONSENT OF GENPHARM SHAREHOLDERS...................... 32
General.................................................................. 32
Matters to be Approved by Written Consent................................ 32
Record Date; Shares Entitled to Vote; Vote Required...................... 33
THE MERGER.................................................................... 34
General Description of the Merger........................................ 34
Background of the Merger................................................. 35
GenPharm's Reasons for the Merger; Recommendation of the GenPharm Board.. 37
Medarex's Reasons for the Merger......................................... 39
Certain Federal Income Tax Considerations................................ 40
Accounting Treatment..................................................... 43
Federal Securities Law Matters........................................... 43
Interest of GenPharm Management in the Merger............................ 44
THE MERGER AGREEMENT.......................................................... 45
Effective Time; Closing.................................................. 45
Manner and Basis of Converting Shares.................................... 45
Assumption of Options and Warrants....................................... 51
Exchange of Stock Certificates........................................... 51
No Fractional Shares..................................................... 52
Representations and Warranties........................................... 52
Certain Covenants........................................................ 52
Additional Agreements.................................................... 54
No Solicitations of Other Transactions................................... 54
Insurance; Indemnification............................................... 55
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Conditions of the Merger................................................. 56
Termination.............................................................. 56
Expenses and Termination Fee............................................. 57
Amendment and Waiver..................................................... 58
Restrictions on Transfer of Medarex Common Stock......................... 58
Rights of Dissenting GenPharm Shareholders............................... 60
Governmental and Regulatory Approvals.................................... 61
THE REQUIRED AMENDMENTS....................................................... 61
APPROVAL OF STOCK BONUS TO GENPHARM'S CHIEF EXECUTIVE OFFICER................. 62
General.................................................................. 62
Vote required for approval............................................... 63
STOCK PRICE AND DIVIDEND INFORMATION.......................................... 65
MEDAREX AND GENPHARM UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS......................................................... 66
SELECTED INFORMATION CONCERNING MEDAREX....................................... 73
Description of Medarex Capital Stock..................................... 74
Shares Eligible for Future Sale.......................................... 75
SELECTED INFORMATION CONCERNING GENPHARM...................................... 77
General.................................................................. 77
GENPHARM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................................... 80
Overview................................................................. 80
Results of Operations.................................................... 80
Liquidity and Capital Resources.......................................... 82
BENEFICIAL OWNERSHIP OF GENPHARM STOCK........................................ 84
COMPARISON OF SHAREHOLDER RIGHTS.............................................. 86
LEGAL MATTERS................................................................. 91
EXPERTS....................................................................... 92
AVAILABLE INFORMATION......................................................... 93
INCORPORATION BY REFERENCE.................................................... 93
INDEX TO GENPHARM FINANCIAL STATEMENTS........................................ F-1
</TABLE>
ANNEX A - AMENDED AND RESTATED PLAN OF REORGANIZATION
ANNEX B - AGREEMENT AND PLAN OF MERGER
ANNEX C - SECTION 1300 OF THE CALIFORNIA GENERAL CORPORATION LAW
3
<PAGE>
SUMMARY
The following contains a summary of certain information contained elsewhere in
this Prospectus/Consent Solicitation Statement. This summary does not contain a
complete statement of all provisions of the proposals to be voted on and is
qualified in its entirety by the more detailed information appearing elsewhere
in this Prospectus/Consent Solicitation Statement and in the information and
documents annexed hereto.
MEDAREX Medarex, Inc. ("Medarex" or the "Company") is a
biotechnology company developing therapeutic products for
cancer, AIDS and other life-threatening diseases based on
proprietary technology in the field of immunology.
Medarex's products are designed either to enhance and direct
a specific immune response or to block or diminish an
undesirable immunological activity. Medarex's broad
technology platform has led to several products now in
clinical trials and to four strategic alliances and has the
potential to provide the foundation for new products and new
strategic alliances in various therapeutic areas. At
present, Medarex has seven products in thirteen human
clinical trials for the treatment of breast cancer, prostate
cancer, kidney cancer, head and neck cancer and a variety of
other solid tumor cancers, leukemia, AIDS and certain
autoimmune conditions as well as for the prevention of
secondary cataracts. Medarex is developing four of its
products through strategic alliances with Novartis, Inc. of
Basel, Switzerland ("Novartis"), Merck KGaA of Darmstadt,
Germany ("E. Merck"), Centeon, L.L.C. of King of Prussia,
Pennsylvania ("Centeon") and Santen Pharmaceuticals Co.,
Ltd. of Osaka, Japan ("Santen"). As of the date of this
Prospectus/Consent Solicitation Statement, Medarex does not
have any products in Phase III clinical trials and none of
the products under development by Medarex has been approved
by the United States Food and Drug Administration ("FDA")
for sale. See "Selected Information Concerning Medarex" and
"Incorporation by Reference."
GENPHARM GenPharm International, Inc. ("GenPharm"), is engaged
in the application of transgenic animal technology to the
development of human antibody products for therapeutic uses.
Transgenic animals are animals into which new genetic
material has been introduced at an early embryonic stage.
GenPharm has developed proprietary transgenic mice designed
to generate therapeutic human sequence antibodies ("HuMAbs")
to various antigens, particularly human antigens. GenPharm
believes that these HuMAbs will be less likely to cause
allergic or similar reactions and will remain effective
longer in patients than most monoclonal antibody products
under development, which contain mouse protein. GenPharm is
developing HuMAbs which it believes may be useful for the
treatment of certain autoimmune disorders such as rheumatoid
arthritis and psoriasis, and for organ transplant rejection.
MERGER SUB Merger Sub, a wholly-owned subsidiary of Medarex,
was formed to facilitate the Merger and has engaged in no
activities other than activities incidental to the Merger.
4
<PAGE>
SOLICITATION OF WRITTEN CONSENTS
OF SHAREHOLDERS OF
GENPHARM A Written Consent of Shareholders of
GenPharm (the "Written Consent") accompanies this
Prospectus/Consent Solicitation Statement. The purpose of
the Written Consent is to approve the Merger Agreement and
to approve certain amendments to GenPharm's Articles of
Incorporation necessary to eliminate any conflict with the
Merger Agreement (the "Required Amendments"). The Written
Consent also provides for the approval of certain stock
bonus payments to Jonathan J. MacQuitty, the Chief Executive
Officer of GenPharm (the "Stock Bonus").
RECORD DATE AND Only GenPharm shareholders of record at the
VOTE REQUIRED close of business on ______________, 1997 (the "Record
Date") are entitled to give their Written Consent. On the
Record Date, there were outstanding an aggregate of
1,893,413 shares of GenPharm Common Stock held by 114
holders of record and 14,433,568 shares of GenPharm
Preferred Stock (convertible into 8,113,783 shares of
GenPharm Common Stock) held by 80 holders of record.
Approval of the Merger Agreement, the Merger and the
Required Amendments requires the affirmative consent of
holders of a majority of the outstanding shares of GenPharm
common stock (the "GenPharm Common Stock") and GenPharm
preferred stock ("GenPharm Preferred Stock") each voting as
a separate class. The Required Amendments also require the
separate approval of a majority of the outstanding shares of
Series I Preferred Stock. Thirteen affiliates of GenPharm,
holding an aggregate of 625,198 shares of GenPharm Common
Stock (33.0%) and 4,016,398 shares of GenPharm Preferred
Stock (27.8%) (including 114,537 or 41.65% of the shares of
Series I Preferred Stock), have agreed to give their
affirmative consent to the Merger Agreement, the Merger and
the Required Amendments. Approval of the Stock Bonus
requires the affirmative consent of holders of 75% of the
shares outstanding immediately prior to the Effective Time
(excluding shares held by Dr. MacQuitty).
TERMS OF THE MERGER Upon consummation of the Merger (the
"Effective Time"), Merger Sub will be merged into GenPharm
which will then become a wholly-owned subsidiary of Medarex.
Assuming all conditions to the Merger are met or waived, it
is anticipated that the Effective Time will occur on or
about ______________, 1997.
The market value (determined as described herein) of
the Medarex shares to be issued in the Merger (the "Purchase
Price") in exchange for the acquisition of all shares of
GenPharm Common Stock and GenPharm Preferred Stock
outstanding as of the Effective Time is $62,725,000, before
reservation of a portion of those shares for issuance upon
exercise of GenPharm stock options being assumed by Medarex
and subject to adjustment as described herein. Medarex has
the option to pay all or a portion of the Purchase Price in
cash at any time but only in the event that either (i) the
Medarex shareholders shall have failed to approve the
issuance of the Additional Shares (as defined herein) or
(ii) the fair market value of Medarex Common Stock is $5.00
or less. In such event, Medarex will notify the GenPharm
shareholders in writing of its intention to pay all or a
portion of the Purchase Price in cash as well as the amount
of such payment and shall make such payment on the date the
GenPharm shareholders would otherwise have been entitled to
receive shares of Medarex Common Stock. See "The Merger
Agreement--Manner and Basis of Converting Shares."
5
<PAGE>
At the Effective Time of the Merger, the outstanding shares
of GenPharm Common Stock and GenPharm Preferred Stock, other
than shares, if any,constituting "Dissenters' Shares" (as
defined herein) will be converted into the right to receive
shares of Medarex Common Stock, issuable as described below.
During 1997, Medarex will issue up to 3,250,000 shares of
Medarex Common Stock (the "Initial Shares") to holders of
GenPharm Preferred Stock. Additional shares (the
"Additional Shares") will be issued on or before December
31, 1998 representing the balance of the Purchase Price, but
only if, and to the extent, that GenPharm has received from
certain third parties certain patent license fees and
promissory note payments (the "Third Party Payments"). In
the event any of the Third Party Payments have not been
received by December 15, 1998, a final issuance of shares of
Medarex Common Stock will occur not later than the earlier
of (i) 30 days following the receipt of the last Third Party
Payment and (ii) December 31, 1999. The Additional Shares
will be issued first to the holders of GenPharm Preferred
Stock to the extent of the balance of their aggregate
preference amount of $40,378,646 (the "Preference Amount")
remaining after the issuance of the Initial Shares, and then
to holders of GenPharm Common Stock and GenPharm Preferred
Stock (on an as-converted basis). The number of Additional
Shares deliverable in respect of shares of GenPharm Common
Stock and GenPharm Preferred Stock will be determined based
on certain exchange ratios calculated using average trading
prices of Medarex Common Stock over specified periods. See
"The Merger Agreement--Manner and Basis of Converting
Shares." In addition, outstanding stock options for the
purchase of GenPharm Common Stock will be assumed by Medarex
and will become options to purchase Medarex Common
Stock.
The Purchase Price of $62,725,000 will be reduced by
$100,000 as a result of a fee to be paid to GenPharm's
financial advisor and may be further reduced on a dollar-
for-dollar basis to the extent that certain amounts
specified in the Merger Agreement, including primarily the
amount of Third Party Payments received by GenPharm after
the Effective Time (net of income tax liability attributable
to receipt of the Third Party Payments), total less than
$33,000,000. In addition, even if all of the Third Party
Payments are received, the Purchase Price will still be
reduced if the gross proceeds per share from the sale of
Initial Shares by the holders of GenPharm Preferred Stock in
the Initial Placement (as defined herein) are below $5.71,
and will be increased if such gross proceeds per share are
higher than $8.57, with the adjustment in each case being
pursuant to a formula set forth in the Merger Agreement. If
the Purchase Price were to be reduced below the $40,378,646
liquidation preference amount, the holders of GenPharm
Preferred Stock would not recover their entire liquidation
preference, and the holders of GenPharm Common Stock would
receive no consideration whatsoever for their shares in the
Merger. In the opinion of the Board of Directors of
6
<PAGE>
GenPharm, although this is a possibility, it is believed to
be highly unlikely. See "Risk Factors--Uncertainty of Amount
or Value of Medarex Shares to be Issued in the Merger;
Disproportionate Effect on GenPharm Common Stock From Any
Reduction in Purchase Price." The number of shares of
Medarex Common Stock to be received by the holders of
GenPharm Preferred Stock would, however, be significantly
reduced if the Purchase Price were to be substantially
reduced, and the effect of such a reduction on the value per
share of GenPharm Common Stock would be much more
significant. Therefore, the value of the consideration to be
received by holders of GenPharm Common Stock in the Merger
is highly dependent on the extent to which the Purchase
Price may be reduced.
Assuming the Purchase Price, as adjusted, were $62,625,000,
it is estimated that the holders of GenPharm Common Stock
would receive on December 31, 1998, for each share of
GenPharm Common Stock held, a fraction of a share of Medarex
Common Stock having a market value (based on a ten-day
trading period preceding the distribution) of approximately
$2.08, assuming 2,013,413 shares of GenPharm Common Stock to
be outstanding at the Effective Time. Based on these
assumptions, if the market price of Medarex Common Stock at
such time were $__________ (the closing price on the Nasdaq
National Market on August __, 1997), the exchange ratio for
shares of GenPharm Common Stock would be _______. Holders
of GenPharm Preferred Stock would receive (on various dates)
shares of Medarex Common Stock having a market value equal
to the per share liquidation preference of the particular
series of GenPharm Preferred Stock plus approximately $2.08
for each share of GenPharm Common Stock into which that
series is convertible as of the Effective Time. The
foregoing example makes certain assumptions, most
importantly that there will be no more than a $100,000
reduction in the Purchase Price. The actual facts may
differ materially and could result in the consideration for
the shares of GenPharm Common Stock being substantially
lower than in the example (or possibly being zero). See
"The Merger Agreement--Manner and Basis of Converting
Shares" and "--Assumption of Options and Warrants."
CONDITIONS TO THE MERGER;
TERMINATION; TERMINATION
FEE; AMENDMENT Consummation of the Merger is subject to the
satisfaction of various conditions. Approval of the
Parachute Payments by the GenPharm shareholders is not a
condition to the consummation of the Merger. See "The
Merger Agreement--Conditions of the Merger." The Merger
Agreement may be terminated under certain circumstances,
including (a) by mutual written consent of Medarex and
GenPharm; (b) by either party if the other party is in
breach of any representation, warranty or covenant contained
in the Merger Agreement which has not been cured within 45
days after delivery of a notice of a breach and such breach
would have a material adverse effect on the business,
assets, financial condition or results of operations of the
breaching party; (c) by either party if there is any
permanent injunction or action by any Governmental Entity
(as
7
<PAGE>
defined in the Merger Agreement) prohibiting the
consummation of the Merger; (d) by either party if the
Merger is not consummated on or before October 31, 1997; (e)
by either party if the approval of the holders of GenPharm
Common Stock and GenPharm Preferred Stock shall not have
been obtained by October 31, 1997; (f) by either party if
(i) the Board of Directors of GenPharm shall have approved
or have recommended to the shareholders of GenPharm a
Transaction Proposal (as defined herein) or (ii) a Takeover
Proposal (as defined herein) shall have been commenced and
the Board of Directors recommends that the shareholders of
GenPharm tender their shares in such Takeover Proposal or
otherwise fails to recommend that such shareholders reject
such Takeover Proposal; (g) by Medarex in the event of a
material adverse change in the business or financial
condition of GenPharm; and (h) by GenPharm in the event of a
material adverse change in the business or financial
condition of Medarex.
In the event the Merger Agreement is terminated pursuant to
clauses (e) or (f) above, then, in either case, GenPharm
shall pay $3.5 million to Medarex. In the event of a
termination by Medarex in accordance with clauses (e) or (f)
above, and GenPharm consummates a Business Combination (as
defined herein) on or before October 5, 1998, then GenPharm
shall pay Medarex an additional $5 million. The Merger
Agreement may be amended only with the consent of GenPharm
and Medarex, at any time before or after the approval of the
Merger Agreement by the GenPharm shareholders, provided that
after any such shareholder approval has been obtained no
amendment of any of the agreements executed in connection
with the Merger may be made which by law requires the
further approval of the shareholders, without obtaining
further approval. It is not currently anticipated that any
of the agreements executed in connection with the Merger
will be amended in any way. See "The Merger Agreement--
Conditions of the Merger," "--Termination," "Amendment," and
"Expenses and Termination Fee."
RESALES OF MEDAREX The shares of Medarex Common Stock to be
COMMON STOCK issued pursuant to the Merger Agreement have been registered
under the Securities Act, and therefore may be resold
without restriction imposed by the Securities Act by persons
who are not deemed to be Affiliates (as such term is defined
herein) of GenPharm. However, the Merger Agreement provides
that the shares of Medarex Common Stock issued in 1997 will
not be transferable until after December 31, 1998, unless
they are sold during 1997 through a placement agent (the
"Placement Agent") selected by Medarex ( "Initial
Placement"). If no more than specified limited volumes of
shares can be sold in the Initial Placement, these
restrictions on transfer will cease to apply to those shares
that could not be sold in the Initial Placement. The shares
issued in 1998 (and, if applicable, 1999) will be free of
any restriction on transfer imposed by the Merger Agreement.
See "The Merger Agreement--Restrictions on Transfer of
Medarex Common Stock."
8
<PAGE>
LISTING OF MEDAREX COMMON STOCK;
MARKET PRICE DATA At the Effective Time, the shares of Medarex
Common Stock to be issued pursuant to the Merger Agreement
will be approved for listing on The Nasdaq National Market
under the trading symbol "MEDX." The Medarex Common Stock
has been traded on The Nasdaq National Market under the
symbol "MEDX" since Medarex's initial public offering in
June 1991. No established trading market exists for
GenPharm Common Stock or GenPharm Preferred Stock.
The closing sale price per share of Medarex Common Stock as
reported on The Nasdaq National Market on May 5, 1997, the
trading day and the date of execution of the Merger
Agreement, and on _____________, 1997, the last trading day
before the date of this Prospectus/Consent Solicitation
Statement, were $8.50 and _____ per share, respectively.
See "Stock Price and Dividend Information."
REASONS FOR THE MERGER;
RECOMMENDATION OF GENPHARM'S
BOARD OF DIRECTORS Medarex's Board of Directors voted
unanimously to approve the Merger because of a number of
potential benefits that will further the Company's research
and product development initiatives. See "The Merger--
Medarex's Reasons for the Merger." The Board of Directors
of GenPharm believes that, in addition to providing a source
of future liquidity for GenPharm shareholders, the Merger
will also provide them with an opportunity to participate in
an enterprise with a broader technology portfolio and
greater financial strength, and that without the Merger or a
similar strategic transaction, GenPharm would lack the
critical mass, financial strength and other characteristics
to maximize its potential. See "The Merger--GenPharm's
Reasons for the Merger."
The Board of Directors of GenPharm has unanimously approved
the Merger Agreement and UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
See "The Merger--Background of the Merger" and "--GenPharm's
Reasons for the Merger; Recommendation of the GenPharm
Board."
EXCHANGE OF GENPHARM
STOCK CERTIFICATES As soon as practicable after the Effective Time,
Medarex, acting through an exchange agent (the "Exchange
Agent"), will deliver to each GenPharm shareholder of record
a letter of transmittal with instructions to be used by such
shareholder in surrendering certificates, which, prior to
the Merger, represented shares of GenPharm Common Stock and
GenPharm Preferred Stock. CERTIFICATES SHOULD NOT BE
SURRENDERED BY THE HOLDERS OF GENPHARM STOCK UNTIL SUCH
HOLDERS RECEIVE THE LETTER OF TRANSMITTAL FROM THE EXCHANGE
AGENT. See "The Merger--Exchange of Stock Certificates."
9
<PAGE>
CERTAIN INCOME TAX Subject to the qualifications discussed
CONSIDERATIONS below, the Merger is intended to qualify as a reorganization
under Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "Code"). If the Merger does so qualify (i)
none of Medarex, GenPharm or Merger Sub will recognize gain
or loss as a result of the Merger; and (ii) holders of
GenPharm capital stock that exchange their shares for
Medarex Common Stock will not recognize gain in the Merger.
However, it is possible that the Internal Revenue Service
may assert that the Merger does not qualify as a tax-free
reorganization. See "Risk Factors--Tax Treatment."
Medarex has the right under certain circumstances to pay all
or a portion of the Merger consideration in cash in lieu of
Medarex shares. If the Merger fails to qualify as a
reorganization as a result of the payment of cash in lieu of
Medarex shares, each GenPharm shareholder will be required
to recognize gain or loss on the disposition of GenPharm
shares pursuant to the Merger. In addition, a portion of
any Additional Shares received may be characterized as
interest for federal income tax purposes. All GenPharm
stockholders should consult their own tax advisors with
regard to the tax consequences of the Merger. See "The
Merger--Certain Federal Income Tax Considerations."
ACCOUNTING
TREATMENT The Merger will be accounted for as a purchase in
accordance with generally accepted accounting principles.
Accordingly, from and after the Effective Time, GenPharm's
results of operations will be included in Medarex's
consolidated results of operations. See "The Merger--
Accounting Treatment."
INTEREST OF GENPHARM
MANAGEMENT IN
THE MERGER The Chief Executive Officer of GenPharm,
Jonathan J. MacQuitty, will, as a result of the Merger,
receive certain benefits. A stock bonus, payable in Medarex
shares will be paid to the employees of GenPharm pursuant to
a grant made by the GenPharm Board of Directors. Dr.
MacQuitty's stock bonus (the "Stock Bonus"), is valued at
$1,363,045 (determined as of a measuring period immediately
preceding the Stock Bonus), assuming that he does not
voluntarily terminate his employment with GenPharm prior to
December 31, 1997. In addition, all stock options held by
GenPharm's employees (including Dr. MacQuitty) and by
GenPharm's directors will become fully exercisable shortly
prior to the Effective Time, and, if not exercised prior to
the Merger, will be assumed by Medarex pursuant to the terms
of the Merger Agreement. See "The Merger--Interest of
GenPharm Management in the Merger" and "Approval of Stock
Bonus to GenPharm Chief Executive Officer."
DISSENTERS' RIGHTS Holders of GenPharm Common Stock who do not give
their Written Consent to approve the Merger and who follow
certain procedures prescribed by Section 1300 of the
California General Corporation Law (the "CGCL") will have a
right to receive payment in cash for the fair market value
of their shares of GenPharm Common Stock. The Merger
Agreement provides that the obligation of Medarex to
consummate the Merger is subject to the condition that the
holders of no more than 400,000 shares of GenPharm Common
Stock shall have exercised, or shall have any continued
right to exercise, appraisal, dissenters' or similar rights.
See
10
<PAGE>
"The Merger Agreement--Conditions of the Merger." See "The
Merger Agreement--Rights of Dissenting GenPharm
Shareholders."
RISK FACTORS Shareholders of GenPharm should consider
carefully the factors discussed elsewhere in this
Prospectus/Consent Solicitation Statement under the caption
"Risk Factors," which include risks related to the failure
of the shareholders to approve the Merger Agreement and the
Merger and Medarex's ability to operate the combined
companies. See "Risk Factors--Termination Fee if GenPharm
Shareholders do not Approve the Merger."
PRINCIPAL EXECUTIVE
OFFICES GenPharm was incorporated in California in
December 1988. GenPharm's principal executive offices are
located at 855 California Avenue, Suite C, Palo Alto,
California 94304. GenPharm's telephone number is (415) 813-
9350. Medarex was incorporated in New Jersey in July 1987.
Medarex's principal executive offices are located at 1545
Route 22 East, Annandale, New Jersey 08801. Medarex's
telephone number is (908) 713-6001.
Market Value of Medarex Shares to be Issued Per Share of GenPharm/(1)/
The following table sets forth the market value of Medarex shares to be
issued per share of GenPharm Common Stock and per share of each series of
GenPharm Preferred stock in the event of certain Third Party Payment Adjustments
and Initial Placement Floor Adjustments or Initial Placement Ceiling Adjustments
(as those terms are defined herein). The Initial Placement Floor Adjustments
will occur if the Per Share Placement Amount (as defined herein) is $5.71 or
below. However, the amount of any Initial Placement Floor Adjustment is credited
against any Third Party Payment Adjustment, which results in the per share
amounts in the table showing no variation at Per Share Placement amounts below
$5.71, except where there is no Third Party Adjustment against which to apply
the credit. The Initial Placement Ceiling Adjustment will occur if the Per Share
Placement Amount is $8.75 or higher. The table takes into account the $100,000
reduction in the Purchase Price resulting from the payment to GenPharm's
financial advisor and makes the same assumptions as in the example on page
[ ] of the number of GenPharm shares outstanding or subject to GenPharm Common
Stock options and warrants at the Effective Time. The closing sale price of
Medarex Common Stock on September __, 1997, the last trading day prior to the
date of this Prospectus/Consent Solicitation Statement, was $___ per share. The
applicable exchange ratio to be used in determining the number of shares of
Medarex Common Stock to be delivered in exchange for each share of GenPharm
Common Stock and GenPharm Preferred Stock (on an as-converted basis) is
calculated by dividing the market valuation set forth in the table below by the
market price of the Medarex shares at the time of the distribution of such
shares.
<TABLE>
<CAPTION>
Common/(2)/ Preferred Series /(3)/
----------- --------------------------------------------------------------------
A B C D E F G H I
- - - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Third Party Payment Adjustment:
None
----
Placement @ $9.00 2.15 1.45 1.45 2.58 2.83 4.58 11.37 12.37 9.15 9.15
Placement @ $5.71-$8.57 2.08 1.41 1.41 2.54 2.79 4.54 11.29 12.29 9.08 9.08
Placement @ $5.00 1.96 1.36 1.36 2.48 2.73 4.48 11.16 12.16 8.96 8.96
Placement @ $4.00 1.80 1.27 1.27 2.40 2.65 4.40 10.98 11.98 8.80 8.80
$7.5 Million
------------
Placement @ $9.00 1.45 1.10 1.10 2.22 2.47 4.22 10.60 11.59 8.45 8.45
Placement @ $5.71-$8.57 1.38 1.06 1.06 2.19 2.44 4.19 10.52 11.52 8.38 8.38
Placement @ $5.00 1.38 1.06 1.06 2.19 2.44 4.19 10.52 11.52 8.38 8.38
Placement @ $4.00 1.38 1.06 1.06 2.19 2.44 4.19 10.52 11.52 8.38 8.38
$15 Million
-----------
Placement @ $9.00 0.75 0.75 0.75 1.87 2.12 3.87 9.82 10.82 7.75 7.75
Placement @ $5.71-$8.57 0.68 0.71 0.71 1.84 2.09 3.84 9.75 10.75 7.68 7.68
Placement @ $5.00 0.68 0.71 0.71 1.84 2.09 3.84 9.75 10.75 7.68 7.68
Placement @ $4.00 0.68 0.71 0.71 1.84 2.09 3.84 9.75 10.75 7.68 7.68
$30 Million
-----------
Placement @ $9.00 0 0.31 0.31 1.24 1.45 2.89 7.44 8.27 5.79 5.79
Placement @ $5.71-$8.57 0 0.30 0.30 1.21 1.41 2.83 7.27 8.08 5.66 5.66
Placement @ $5.00 0 0.30 0.30 1.21 1.41 2.83 7.27 8.08 5.66 5.66
Placement @ $4.00 0 0.30 0.30 1.21 1.41 2.83 7.27 8.08 5.66 5.66
</TABLE>
- ---------------
(1) Represents the value of all Medarex shares to be issued in 1997 and 1998 to
the holders of GenPharm Common Stock and each series of GenPharm Preferred
Stock based on the assumed adjustments to the Purchase Price and the
assumptions set forth above.
(2) Represents the market value of Medarex shares, if any, to be issued to the
holders of GenPharm Common Stock on December 31, 1998.
(3) The market value of Medarex shares shown for each series of GenPharm
Preferred Stock includes the proportionate value of the 3,250,000 Medarex
shares to be issued in 1997 and the Additional Shares, if any, to be issued
on December 31, 1998. Holders of GenPharm Preferred Stock will not receive
any Additional Shares if the market value of the Medarex shares exceeds
$12.42 per share and will not recoup their liquidation preferences if less
than $9,253,646 of Third Party Payments are received.
11
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
The summary historical financial data of Medarex and GenPharm presented below
is derived from the historical audited financial statements of Medarex and
GenPharm, except for the data presented below for the six months ended June 30,
1997 and 1996, which are derived from the unaudited financial statements which,
in the opinion of management of Medarex and GenPharm, as applicable, reflect all
adjustments, consisting of only normal, recurring adjustments, necessary for the
fair presentation of such information. The unaudited selected pro forma
combined financial data is derived from the Medarex and GenPharm Unaudited Pro
Forma Combined Condensed Financial Statements and notes thereto included
elsewhere in this Prospectus/Consent Solicitation Statement, which gives effect
to the Merger as a purchase, and should be read in conjunction with such Medarex
and GenPharm Unaudited Pro Forma Combined Condensed Financial Statements and
notes thereto. The unaudited selected pro forma combined statement of
operations data combines Medarex's consolidated results of operations data for
the year ended December 31, 1996 and for the six month periods ended June 30,
1997 and 1996 with GenPharm's results of operations data for the same periods,
giving effect to the Merger as if it had occurred on January 1, 1996. The
unaudited selected pro forma combined balance sheet data combines Medarex's
consolidated balance sheet data as of June 30, 1997 with GenPharm's balance
sheet data as of that date, giving effect to the Merger as if it had occurred as
of June 30, 1997. The selected pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the consolidated
operating results or financial position that would have occurred had the Merger
been consummated at the beginning of the periods presented, nor is it
necessarily indicative of future operating results or financial position. See
"Medarex and GenPharm Unaudited Pro Forma Combined Condensed Financial
Statements."
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF GENPHARM
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
---------------------- -----------------------------------------------------
1997/(2)/ 1996 1996 1995 1994 1993 1992
----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(unaudited)
STATEMENT OF OPERATIONS DATA:
Revenues $ 1,760 $ 2,981 $ 6,141 $ 2,660 $ 4,728 $ 5,248 $ 432
Expenses:
Research and development 1,003 924 2,373 3,794 7,281 6,438 3,594
Marketing, general and administrative 839 356 634 984 1,879 1,756 2,357
Litigation and restructuring 4,727 512 611 5,728 880 --- ---
---------- -------- -------- -------- -------- -------- --------
Total operating expenses 6,569 1,792 3,618 10,506 10,040 8,194 5,951
---------- -------- -------- -------- -------- -------- --------
Other income (expense), net 22,809 33 (87) 768 (261) (9) 537
Provision for income taxes 400 20 45 --- --- --- ---
---------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations 17,600 1,202 2,391 (7,078) (5,573) (2,955) (4,982)
Discontinued operations/(1)/ --- --- --- (2,723) (4,313) (4,094) (2,309)
---------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 17,600 $ 1,202 $ 2,391 $ (9,801) $ (9,886) $ (7,049) $ (7,291)
========== ======== ======== ======== ======== ======== ========
Per share data:
Income (loss) from continuing
operations $1.70 $0.12 $0.24 $ (6.40) $ (5.27) $ (2.89) $ (5.07)
Loss from discontinued operations --- --- --- (2.46) (4.07) (4.00) (2.35)
---------- -------- -------- -------- -------- -------- --------
Net income (loss) $1.70 $0.12 $0.24 $ (8.86) $ (9.34) $ (6.89) $ (7.42)
========== ======== ======== ======== ======== ======== ========
Weighted average common shares
and equivalents used in per share data 10,353 10,131 10,137 1,106 1,059 1,024 983
BALANCE SHEET DATA:
Cash and cash equivalents $ 4,441 $ 1,623 $ 1,971 $ 459 $ 5,208 $ 5,435 $ 5,787
Working capital 2,751 (1,235) 66 (2,575) 941 4,820 11,177
Total assets 19,997 2,495 2,363 1,427 14,284 16,711 21,640
Long term debt and capital lease
obligations --- 327 --- 354 1,466 3,355 4,244
Accumulated deficit (22,213) (41,002) (39,813) (42,204) (32,403) (22,517) (15,468)
Total shareholders equity (net capital 17,914 (927) 266 (2,139) 6,734 8,662 13,563
deficiency)
- ----------------------------
</TABLE>
(1) Results of Gene Pharming Europe B.V.
(2) Includes $22.5 million of other income which is comprised of a $15 million
note from Cell Genesys, Inc. and an aggregate $7.5 million received from
Xenotech L.P. and Japan Tobacco Inc. per agreement of March 26, 1997 as
well as associated accrued legal costs.
12
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF MEDAREX
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
-------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(unaudited)
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales...................................... $ 106 $ 129 $ 255 $ 312 $ 378 $ 406 $ 365
Contract and license revenues.............. 822 1,476 1,626 1,467 200 --- ---
-------- -------- -------- -------- -------- -------- -------
Total revenues............................. $ 928 $ 1,606 $ 1,881 $ 1,778 $ 578 $ 406 $ 365
Costs and Expenses:
Cost of sales.............................. $ 78 $ 63 $ 132 $ 123 $ 91 $ 82 $ 66
Research and development................... 5,646 3,561 7,596 6,442 5,905 3,798 2,531
General and administrative................. 1,692 1,202 2,558 2,275 2,154 2,361 2,165
Acquisition of in-process
technology/(1)/........................... 10,750 --- --- --- --- --- ---
-------- -------- -------- -------- -------- -------- -------
Operating loss............................ $(17,238) $ (3,221) $ (8,405) $ (7,062) $ (7,573) $ (5,834) $(4,396)
Interest and dividend income................ 806 582 1,537 553 337 419 399
-------- -------- -------- -------- -------- -------- -------
Net loss.................................... $(16,433) $ (2,638) $ (6,868) $ (6,509) $ (7,236) $ (5,415) $(3,997)
======== ======== ======== ======== ======== ======== =======
Net loss per share.......................... $(0.90) $(0.20) $(0.45) $(0.69) $(1.00) $(0.86) $(0.79)
Weighted average common shares outstanding..
18,313 13,216 15,289 9,457 7,269 6,304 5,049
BALANCE SHEET DATA:
Cash, cash equivalents and
marketable securities...................... $ 24,478 $ 36,176 $ 31,463 $ 15,729 $ 9,434 $ 9,687 $15,938
Working capital............................. 23,271 35,097 31,259 14,549 8,017 8,330 15,918
Total assets................................ 28,822 40,805 36,044 19,240 13,017 12,640 16,943
Long term obligations....................... 86 29 110 40 60 78 ---
Accumulated deficit......................... (47,924) (27,261) (31,491) (24,623) (18,113) (10,877) (5,462)
Total stockholders' equity.................. 26,592 38,500 34,648 17,375 11,097 10,943 16,603
</TABLE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Year Ended
Ended June 30, 1997 December 31, 1996
-------------------- ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA/(2)/:
Revenues:.............................. $ 2,688 $ 9,343
Costs and Expenses..................... 24,736 16,287
Net income (loss)...................... 1,567 (5,477)
Net income (loss) per share............ $0.07 $ (0.30)
Shares used in computation of
net income (loss) per share........... 21,303 18,315
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities............................ $ 28,919
Working capital........................ 19,392
Total assets........................... 48,819
Long term obligations.................. 29,530
Accumulated deficit.................... (76,948)
Total stockholders' equity............. 7,144
- -------------------------
</TABLE>
(1) Represents charge to operations for in-process technology associated with
the acquisition of Houston Biotechnology Incorporated which was completed
on February 28, 1997.
(2) Excludes write-off of acquired in-process technology of $29,023,804. See
notes to Medarex and GenPharm Unaudited Pro Forma Combined Condensed
Financial Statements.
(3) Includes Houston Biotechnology Incorporated ("HBI") historical combined
condensed statement of operations as Medarex completed its acquisition
of HBI on February 28, 1997.
13
<PAGE>
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA
COMBINED PER SHARE DATA
The following table sets forth (1) historical net income (loss) per share
and historical book value per share data of Medarex; (2) historical net income
(loss) per share and historical book value per share data of GenPharm; (3)
unaudited pro forma combined net income (loss) per share and unaudited pro forma
combined book value per share data of Medarex after giving effect to the Merger
on a purchase basis; and (4) unaudited equivalent pro forma combined net income
(loss) per share and unaudited equivalent pro forma combined book value per
share data of GenPharm calculated as set forth in Note 1 below as if the Merger
had occurred prior to the respective dates shown in the table. See "The Merger-
- -Manner and Basis of Converting Shares." The information in the table should be
read in conjunction with the audited consolidated financial statements and the
unaudited interim condensed consolidated financial statements of Medarex and
GenPharm and the notes thereto incorporated by reference herein or included
elsewhere in this Prospectus/Consent Solicitation Statement. The unaudited pro
forma combined per share data is not necessarily indicative of the net income
(loss) per share or book value per share that would have been achieved had the
Merger been consummated as of the beginning of the periods presented and should
not be construed as representative of such amounts for any future dates or
periods. The calculations of pro forma and pro forma equivalent per share data
as presented assume the non-receipt of $15.0 million of Third Party Payments and
a corresponding reduction of the Purchase Price.
<TABLE>
<CAPTION>
HISTORICAL AND PRO FORMA PER SHARE DATA/(1)(2)/
Six months ended Year ended
June 30, 1997 December 31, 1996
----------------- ------------------
<S> <C> <C>
Medarex Common Stock
Net income (loss) per common share:
Historical................................... $ (0.90) $ (0.45)
Pro forma.................................... 0.07 (0.30)
Book value per common share at period end:
Historical................................... 1.43 1.97
Pro forma.................................... 0.25 ---
GenPharm Common Stock
Net income (loss) per common share:
Historical................................... 1.70 0.24
Pro forma equivalent......................... 0.01 (0.05)
Book value per common share at period end:
Historical................................... (11.86) (29.49)
Pro forma equivalent......................... 0.04 ---
</TABLE>
14
<PAGE>
- -----------------------------------
(1) Historical book value per share is computed by dividing stockholders'
equity, after reduction for preferred liquidation preferences, if any, by
the number of shares of common stock outstanding at the end of each period.
Medarex pro forma book value per share is computed by dividing pro forma
shareholders' equity, including the effect of pro forma adjustments, by the
pro forma number of shares of Medarex Common Stock which would have been
outstanding had the Merger been consummated as of June 30, 1997.
(2) The calculations of pro forma and pro forma equivalent per share data as
presented assume the non-receipt of $15.0 million of Third Party Payments
and a corresponding reduction of the Purchase Price. The equivalent per
share information for GenPharm assumes an exchange ratio of .15 shares of
Medarex Common Stock for each share of GenPharm Common Stock and GenPharm
Preferred Stock (on an as-converted basis). This ratio has been calculated
by dividing (i) 1,588,401 shares of Medarex Common Stock assumed to be
issued to the holders of GenPharm Common Stock, GenPharm Preferred Stock
(on an as-converted basis) and GenPharm Common Stock options and warrants,
after the distribution of 8,730,518 shares of Medarex Common Stock to the
holders of GenPharm Preferred Stock as payment of the Preference Amount of
the GenPharm Preferred Stock, (based upon the assumptions set forth in Note
1 to the section herein entitled "Medarex and GenPharm Pro Forma Combined
Condensed Financial Statements" included elsewhere in this
Prospectus/Consent Solicitation Statement) by (ii) 10,703,445, representing
all outstanding shares of GenPharm Common Stock, GenPharm Preferred Stock
(on an as-converted basis) and GenPharm options and warrants at June 30,
1997. See "The Merger Agreement--Manner and Basis of Converting Shares."
If the Third Party Payments are received GenPharm shareholders will receive
Additional Shares determined at future dates through calculations based on
exchange ratios computed in similar manner to that described above. The
effect of such potential Additional Shares would be to increase the
GenPharm equivalent per share amounts.
To calculate the equivalent per share amount for one share of a given
series of GenPharm Preferred Stock, the equivalent amounts shown in the
table above should be multiplied by the conversion rate for such series.
See "The Merger Agreement--Manner and Basis of Converting Shares."
(3) Assumes the issuance of 10,318,919 shares of Medarex Common Stock
representing a Purchase Price of $47,725,000 (as adjusted to reflect the
non-receipt of $15,000,000 of Third Party Payments) and based on the
closing price of Medarex Common Stock as reported on The Nasdaq National
Market of $4.625 on September 2, 1997.
15
<PAGE>
RISK FACTORS
This Prospectus/Consent Solicitation Statement contains forward-looking
statements within the meaning of section 27A of the Securities Exchange Act and
section 21E of the Exchange Act, including statements regarding Medarex's
(including, with respect to periods after the Effective Time, Medarex and its
subsidiaries, including GenPharm) and GenPharm's expectations, beliefs,
intentions or strategies regarding the future. Forward-looking statements
include, without limitation, statements in "Summary," "Risk Factors," "Selected
Information Concerning Medarex," "Selected Information Concerning GenPharm,"
"GenPharm Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this Prospectus/Consent Solicitation
Statement regarding, among other things, uncertainties regarding the exchange
ratios; uncertainties regarding the value of Medarex Common Stock; uncertainties
relating to the technological approach of Medarex and GenPharm; history of
operating losses and anticipation of future losses; uncertainty of product
development; need for additional capital and uncertainty of additional funding;
dependence on collaborators and licensees; intense competition and rapid
technological change; uncertainty of patent and proprietary rights; risks
associated with the acquisition of GenPharm; uncertainties related to the
receipt of the Third Party Payments by GenPharm; management of growth, and risks
of acquiring new technologies; uncertainties related to clinical trials;
government regulation and uncertainty of obtaining regulatory approval;
dependence on key personnel; dependence on research collaborators and scientific
advisors; uncertainty of health care reform measures and third-party
reimbursement and risk of product liability. All forward-looking statements
included in this Prospectus/Consent Solicitation Statement are based on
information available to Medarex or GenPharm, as the case may be, as of the date
hereof, and neither Medarex nor GenPharm assumes any obligation to update any
such forward-looking statements. It is important to note that Medarex's and
GenPharm's actual results may differ materially from the results discussed in
the forward-looking statements. Among the factors that could cause actual
results to differ materially are the factors detailed in "Risk Factors" below.
Accordingly, in addition to the other information in this Prospectus/Consent
Solicitation Statement, the following factors should be considered carefully in
evaluating the proposals to be voted on by Written Consents and the acquisition
of the securities offered hereby. For periods following the Merger, references
to the products, business, financial results or financial condition of Medarex
should be considered to refer to Medarex and its subsidiaries, including
GenPharm, unless the context otherwise requires.
RISKS RELATED TO THE MERGER AGREEMENT AND THE MERGER
UNCERTAINTY OF AMOUNT OR VALUE OF MEDAREX SHARES TO BE ISSUED IN THE
MERGER; DISPROPORTIONATE EFFECT ON GENPHARM COMMON STOCK FROM ANY REDUCTION IN
PURCHASE PRICE. The $62,725,000 Purchase Price is subject to a risk of
substantial reduction. A portion, or possibly all, of the Third Party Payments
aggregating $31.6 million might not be received by GenPharm from third parties
after the Effective Time, which would result in a corresponding dollar-for-
dollar reduction in the Purchase Price. Even if all the Third Party Payments
are received, there could be income tax liabilities, which might not be fully
covered by credits or net operating losses, resulting in corresponding
reductions in the Purchase Price. In addition, pursuant to the provisions of
GenPharm's Articles of Incorporation, the Purchase Price must first be allocated
to the payment of the aggregate of $40,378,646 of GenPharm Preferred Stock
"liquidation preferences" (the "Preference Amount"), therefore, any significant
reduction in the Purchase Price would have a disproportionately greater negative
effect on the value received in the Merger per share of GenPharm Common Stock.
If less than $9,253,646 of the Third Party Payments were received, there would
be no issuance of Medarex shares in respect of GenPharm Common Stock.
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Although the management of GenPharm believes that it is highly likely that at
least $16.6 million of the Third Party Payments will be received and likely that
both of the $7.5 million license fee payments will also be received, there is a
risk that unforeseen factors will result in non-receipt of some or possibly all
of the Third Party Payments.
In addition, there has been significant volatility in the market prices of
securities of biotechnology companies, including Medarex. The market value of
the Medarex shares may change significantly during the time period between the
delivery of the Written Consents and the issuance of Medarex shares to GenPharm
shareholders. A significant decrease in the market value would result in a
reduction in the Purchase Price as well as an increase in the number of Medarex
shares to be issued in the Merger. Similarly, a significant increase in the
market value would result in an increase in the Purchase Price as well as a
decrease in the number of Medarex shares to be issued in the Merger. See "The
Merger Agreement--Manner and Basis of Converting Shares."
DELAY IN RECEIPT OF MEDAREX SHARES; NONTRANSFERABILITY OF SHARES ISSUED IN
1997. Only a portion of the Medarex shares constituting the Purchase Price, not
exceeding 3.25 million shares of Medarex Common Stock, will be issued in 1997.
The remainder of the Medarex shares constituting the Purchase Price will not be
issued until December 31, 1998. The shares issued in 1997 will be subject to
contractual restrictions on transfer, except pursuant to the Initial Placement.
Unless the market value of the 3.25 million Medarex shares to be issued in 1997
exceeds the Preference Amount, all shares issued by Medarex in 1997 will be
issued to holders of GenPharm Preferred Stock and holders of GenPharm Common
Stock will not receive Medarex shares, if any, until December 31, 1998.
TERMINATION FEE IF GENPHARM SHAREHOLDERS DO NOT APPROVE THE MERGER. If the
Merger Agreement is terminated because of the failure to receive the requisite
approval by GenPharm shareholders or because of actions taken by the GenPharm
Board with regard to any proposed acquisition of GenPharm by another company,
GenPharm is required by the Merger Agreement to pay Medarex a termination fee of
$3,500,000. If this occurs and GenPharm consummates a business combination with
another company prior to October 5, 1998, GenPharm would have to pay Medarex an
additional fee of $5,000,000.
TAX RISKS. It is possible that the Internal Revenue Service ("IRS") may
assert that the Merger does not qualify as a tax-free reorganization because of
a failure to meet the "continuity of interest" requirement applicable to
reorganizations. The law relating to the continuity of interest requirement and
the effect of post-Merger sales of Medarex Common Stock, if any, by former
GenPharm shareholders is not clear. A successful challenge by the IRS to the
reorganization status of the Merger would generally result in a GenPharm
shareholder recognizing gain equal to the difference between the shareholder's
basis in his or her GenPharm capital stock and the fair-market value of the
Medarex Common Stock received in exchange therefor. In addition,
notwithstanding the qualification of the Merger as a reorganization, a portion
of the Additional Shares, if any, received pursuant to the Merger will be
characterized as interest income and will be taxable to the GenPharm
shareholders as ordinary income when received. See "The Merger--Certain Federal
Income Tax Considerations."
Upon the occurrence of certain contingencies, Medarex has the option to pay
all or a portion of the Purchase Price in cash. In the event this option is
exercised, the Merger may fail to qualify as a tax-free reorganization in which
event each GenPharm shareholder would be required to recognize gain or loss on
the disposition of the GenPharm shares pursuant to the Merger. In the event the
Merger continued to qualify as a reorganization, the receipt of cash by GenPharm
shareholders in exchange for GenPharm capital stock would generally result in
the recognition of gain equal to the lesser of the amount of such cash or the
shareholders gain on the exchange.
ADDITIONAL FINANCING REQUIREMENTS AND ACCESS TO CAPITAL FUNDING. The
operation of Medarex's business, including GenPharm, requires substantial
capital resources. It is anticipated that Medarex's current sources of
liquidity will be sufficient to meet the capital requirements of Medarex for a
period of at least 24 months from the date of this Prospectus/Consent
Solicitation Statement, including the anticipated additional expenses related to
GenPharm's operations. The acceleration of the development of Medarex's
products will result in an increase in the rate at which Medarex uses capital
and in Medarex's rate of losses. Medarex will continue to spend substantial
funds to complete research and development of its products for which Medarex is
likely to require additional funds. Medarex has
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no established bank lines of credit or other arrangements to obtain financing.
No assurance can be given that funds from operations or additional funds will be
available for Medarex to finance its development on acceptable terms, if at all,
in which case Medarex's business will be materially adversely affected.
APPROVAL BY MEDAREX SHAREHOLDERS. Under the rules and regulations of the
NASD, Medarex must obtain the approval of its shareholders to issue shares of
Medarex Common Stock in excess of 20% (approximately 3.5 million shares) of its
outstanding shares immediately prior to the date the Merger Agreement was
executed. Medarex intends to seek approval of the issuance of the Additional
Shares by its shareholders at a Special Meeting to be held within sixty days of
the Effective Time. Additional Shares will be issued if the market value of the
Medarex shares is less than $12.42 per share. Depending on the market value of
the Medarex shares, the number of Additional Shares which could be issued could
be substantial. Based on the closing sale price of Medarex Common Stock as
reported on The Nasdaq National Market of $_____ on September__, 1997, the last
trading day prior to the date of this Prospectus/Consent Solicitation Statement,
_____ Additional Shares would have to be issued in order to satisfy the
Preference Amount. Under the terms of the Merger Agreement, in the event Medarex
is unable to obtain the approval of its shareholders Medarex is required to pay
the balance of the Purchase Price in cash. No assurance can be given that
Medarex will be able to obtain the approval of its shareholders. Payment of the
balance of the Purchase Price in cash would have a material adverse effect on
Medarex's financial position.
CHALLENGES OF OPERATING COMBINED COMPANIES. Medarex's management will face
a number of challenges in combining the business of GenPharm with Medarex with
no assurance that such combination can be made successfully. Medarex management
has not determined the extent to which it will be able to make any
consolidation, and there can be no assurance that any such consolidation will
significantly reduce costs and expenses. Any combination of GenPharm's and
Medarex's businesses is not anticipated to significantly reduce competition.
The Merger involves the integration of two companies that have previously
operated independently at different locations with separate work forces. No
assurance can be given that difficulties encountered in integrating the
operations of GenPharm, including the addition of new research capabilities,
equipment and technologies, will be achieved or that any anticipated cost
savings will be realized. The acquisition of GenPharm also involves a number of
special risks, including assimilation of new operations and personnel; the
diversion of resources from Medarex's existing business, research capabilities,
equipment and technologies; coordination of geographically separated facilities
and work forces; management challenges associated with the integration of the
companies, in addition to the other requirements associated with growth of
Medarex's scientific infrastructure and research capabilities; and maintenance
of standards, controls, procedures and policies. The process of integrating
GenPharm's operation could cause interruption of, and loss of momentum in, the
activities of Medarex's business and operation, including those of the
businesses acquired.
In connection with the Merger, Medarex expects to incur a one-time charge
in the quarter ended September 30, 1997 which in the aggregate is currently
estimated to be approximately $25.2 million related to the purchase of in-
process research and development.
This amount is a preliminary estimate only and could be materially higher.
Factors that could increase such costs include unforeseen delays in addressing
duplicate facilities once the Merger has been completed and any additional fees
and charges to obtain consents, regulatory approvals or permits. In addition,
there can be no assurance that Medarex will not incur additional charges in
subsequent periods to reflect other costs associated with the Merger or from the
integration of operations after the Merger. There can be no assurance that the
Merger will not have a material adverse effect on the business, financial
condition and results of operations of Medarex or that Medarex will realize the
benefits and strategic objections sought through the Merger. Costs associated
with the Merger, or liabilities and
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expenses associated with the operations of GenPharm, that exceed the
expectations of Medarex, could have a material adverse effect on Medarex's
business, financial condition and results of operations.
POSSIBLE LIMITATION ON USE OF NET OPERATING LOSS CARRYFORWARDS AND CERTAIN
CAPITALIZED COSTS. The Internal Revenue Code of 1986, as amended (the "Code")
provides for a limitation on the use of net operating loss carryforwards and the
ability to deduct certain capitalized costs in the event of an ownership change.
The Merger will result in GenPharm undergoing an ownership change, and will
limit GenPharm's ability to utilize its net operating losses and to deduct
certain capitalized research and development costs. The full effect of these
limitations has not been determined. In addition, it is possible that the
Merger, when included with other stock transactions of Medarex during 1996 and
1997, will result in an ownership change for Medarex. Stock transactions in
1989 and 1992 previously resulted in limitations on Medarex's net operating loss
carryforwards. The potential effect of an ownership change as a result of the
Merger has not been determined.
ABSENCE OF FAIRNESS OPINION. To date, there has not been any public market
for GenPharm capital stock. The Purchase Price was determined by negotiations
between GenPharm and Medarex and may not result in a purchase price that is
indicative of the value of the GenPharm capital stock. GenPharm did not seek a
third party opinion as to the fairness of the Purchase Price. In determining
not to seek such an opinion, GenPharm considered that its executive officers and
directors possess sufficient business experience and acumen to negotiate the
terms and conditions of the Merger and assess the fairness of the Purchase Price
to GenPharm's shareholders from a financial perspective without a third party
opinion, as well as the cost of such an opinion.
RISKS RELATED TO MEDAREX
EARLY STAGE OF PRODUCT DEVELOPMENT. Medarex's therapeutic products are
under development and no revenues have been generated from the sale thereof. In
addition, Medarex has generated only minimal revenues from the sales or
licensing of its research products. As of the date of this Prospectus, Medarex
does not have any products in Phase III clinical trials and none of the products
under development by the Company has been approved by the United States Food and
Drug Administration ("FDA") for sale. If Medarex's products in preclinical
studies advance to the clinical stage, there can be no assurance that any
positive therapeutic effects of these products will be demonstrated in clinical
trials or that toxic side effects will not occur. With respect to those
products which Medarex currently has in various phases of clinical studies,
there can be no assurance that these products will prove to be effective or that
significant toxic side effects will not occur negating the therapeutic utility,
if any, of the product. Furthermore, any products which are successfully
developed will be subject to various FDA regulatory requirements including, but
not limited to, FDA approval prior to their commercial distribution. Such
approval may take two to four years or more following submission of the
requisite marketing application, if it is complete, and may never be obtained.
Generally, only a small percentage of new therapeutic products developed in the
laboratory are eventually approved by the FDA for commercial sale. No assurance
can be given that Medarex will succeed in the development and marketing of any
therapeutic products.
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT. Medarex has
experienced operating losses in each year since its inception and, as of June
30, 1997, had an accumulated deficit of $47,923,997. Medarex expects its
operating losses to increase at an accelerating rate over the next several years
as Medarex expands and accelerates its clinical trials and product development
efforts. In
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prior years, a significant portion of Medarex's revenues was generated from
collaborative development agreements. Medarex currently has four such revenue-
producing agreements, and its operating results may be adversely affected if it
does not meet certain milestones required by such agreements. No assurance can
be given that Medarex will be able to meet such milestones. Medarex's ability
to achieve a profitable level of operations is dependent in large part on
obtaining regulatory approvals for its products, entering into agreements for
product development and commercialization and making the transition to a
manufacturing and marketing company. There can be no assurance that Medarex
will ever achieve product approvals or a profitable level of operations.
DEPENDENCE ON STRATEGIC ALLIANCES. Medarex has entered into strategic
alliances relating to the research and development and sales, marketing and co-
promotion of several of Medarex's potential products. Under these arrangements,
Medarex has granted to its corporate partners license rights in and to certain
of Medarex's potential products in exchange for the payment of license fees and
commitments for additional funding in the form of additional equity purchases,
research and development payments and milestone fees. Most of these payments
are subject to Medarex's achievement of certain milestones to the satisfaction
of Medarex's collaborators with testing results of the related product. In
particular, Medarex has entered into strategic alliances with Novartis and E.
Merck to develop and market Medarex's MDX-210 and MDX-447 Bispecifics,
respectively. Medarex relies on the payments made under these strategic
alliances to further the development of these products and its operating results
may be adversely affected if it is unable to meet certain milestones required by
such agreements. Should these arrangements be terminated, Medarex may be
required to seek additional funding from other sources in order to develop and
market these products. If such funding is not available, its research and
product development efforts would be adversely affected. No assurance can be
given that additional funds will be available on acceptable terms, if at all.
If adequate funds are not available Medarex's business will be materially
adversely affected.
GOVERNMENT REGULATION. The research and development activities of Medarex
as well as the investigation, manufacture, labeling, distribution, marketing and
sale of therapeutic products are subject to extensive and rigorous regulation,
including pre-market approval, by the FDA and other state and foreign agencies.
The process of obtaining FDA approval is costly and time-consuming, and there
can be no assurance that any product that Medarex may develop will be deemed to
be safe and effective by the FDA and granted marketing approval. Even if
marketing approvals are obtained, a product and its manufacturer are subject to
continuing review, and later discovery of previously unknown problems with a
product or its manufacturer may result in the imposition of restrictions on or
sanctions against the product or its manufacturer, including withdrawal of
products from the market and other enforcement actions. Delays in obtaining
regulatory approvals may adversely affect the marketing of any products
developed by Medarex and the ability of Medarex to receive product revenues and
royalties. In light of the limited regulatory history of bispecific
therapeutics based on Medarex's technology, there can be no assurance that
regulatory approvals for Medarex's products will be obtained without lengthy
delays, if at all. In addition, Medarex cannot predict the extent to which
changes to existing governmental regulations might have an adverse effect on
Medarex. In 1990 and 1991, Medarex received orphan drug designations for MDX-22
and MDX-11, respectively, for the treatment of acute myeloid leukemia ("AML").
In October 1993, Medarex received an orphan drug designation for MDX-210 for the
treatment of ovarian cancer. There can be no assurance that Medarex will ever
receive FDA approval to market these products, or that Medarex will be the first
sponsor to receive FDA approval to market these products and thus receive orphan
drug marketing exclusivity or that its rights to market MDX-22, MDX-11, or MDX-
210 will not be preempted by orphan exclusivity held by another company.
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GOVERNMENTAL REFORMS. Health care reform is an area of increasing national
and international attention and a priority of many elected officials. Several
proposals to modify the current health care system in the United States to
improve access and control costs are currently being considered by both federal
and state governments. Any such reform measures could adversely affect the
amount of reimbursement available from governmental or private payors or could
affect the ability to set prices for newly approved therapeutic products.
Similar proposals are being considered by governmental officials in other
significant pharmaceutical markets, including Europe. It is uncertain what
proposals will be adopted or what actions governmental or private payors for
health care goods and services may take in response to proposed or actual
legislation in the United States or other important markets. Medarex cannot
predict the outcome of health care reform proposals or the effect any such
reforms may have on Medarex's business. Any such proposals, if adopted, could
have a material adverse effect on Medarex.
NO ASSURANCE OF ADEQUATE REIMBURSEMENT. The success of Medarex's products
in the United States and other significant markets will depend in part upon the
extent to which a consumer will be able to obtain reimbursement for the cost of
such products from government health administration authorities, private health
insurers and other organizations. Uncertainty exists as to the reimbursement
status of any newly approved therapeutic product. There also can be no
assurance that adequate third party reimbursement by private insurers will be
available for such products. Even if approved for marketing, there can be no
assurance that patients will have sufficient resources to pay for the therapy or
that governmental or private payors will provide reimbursement for such therapy.
There can be no assurance that Medarex's products will be considered cost-
effective, that reimbursement will be available or, if available, that the
payor's reimbursement policies will not adversely affect Medarex's ability to
sell its products on a profitable basis.
TECHNOLOGICAL CHANGE AND COMPETITION. The biotechnology industry is
subject to rapid and significant technological change. Competitors of Medarex
engaged in all areas of biotechnology in the United States and abroad are
numerous and include, among others, major pharmaceutical and chemical companies,
specialized biotechnology firms, universities and other research institutions.
There can be no assurance that Medarex's competitors will not succeed in
developing technologies and products that are more effective than any which are
being developed by Medarex or which would render Medarex's technology and
products obsolete or non-competitive. Many of these competitors have
substantially greater financial and technical resources and production and
marketing capabilities than Medarex. In addition, many of Medarex's competitors
have significantly greater experience than Medarex in undertaking preclinical
testing and clinical trials of new or improved therapeutic products and
obtaining FDA and other regulatory approvals of products for use in health care.
Accordingly, Medarex's competitors may succeed in obtaining FDA approval for
products more rapidly than Medarex.
PATENTS AND PROPRIETARY RIGHTS. Certain of the processes by which Medarex
is able to produce its products are proprietary; some of these technologies are
legally owned by Medarex and some are legally owned by others and licensed,
either on an exclusive or a non-exclusive basis, to Medarex. Medarex believes
that patent protection of materials or processes it develops and any products
that may result from Medarex's and licensors' research and development efforts
are important to the possible commercialization of Medarex's products. The
patent position of biotechnology firms generally is highly uncertain and
involves complex legal and factual questions. To date, no consistent policy has
emerged regarding the breadth of claims allowed in biotechnology patents.
Accordingly, there can be no assurance that patent applications relating to
Medarex's products or technology will result in patents being issued
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or that, if issued, the patents will afford protection against competitors with
similar technology. It is possible that patents issued to Medarex will be
successfully challenged. In addition, companies that obtain patents claiming
products or processes that are necessary for or useful to the development of
Medarex's products or otherwise covering aspects of Medarex's technology can
bring legal actions against Medarex claiming infringement. Litigations to
establish the validity of patents, to defend against infringement claims or to
assert infringement claims against others, if required, can be lengthy and
expensive. There can be no assurance that Medarex will have the financial
resources necessary to enforce any patent rights it may hold. Medarex may be
required to obtain licenses from others to develop, manufacture or market its
products. There can be no assurance that Medarex will be able to obtain such
licenses on commercially reasonable terms or that the patents underlying the
licenses will be valid and enforceable.
Medarex also relies upon unpatented proprietary technology, and no
assurance can be given that others will not independently develop substantially
equivalent proprietary information or techniques or otherwise gain access to
Medarex's proprietary technology or disclose such technology or that Medarex can
meaningfully protect its rights in such unpatented proprietary technology.
Medarex attempts and will continue to attempt to protect its proprietary
materials and processes by relying on trade secret laws and nondisclosure and
confidentiality agreements and exclusive licensing arrangements with its
employees and certain other persons who have access to its proprietary materials
or processes or who have licensing or research arrangements exclusive to
Medarex, including Medarex's Scientific Founders (as defined herein). Despite
these protections, no assurance can be given that others will not independently
develop or obtain access to such materials or processes or that Medarex's
competitive position will not be adversely affected thereby. Medarex does not
have confidentiality agreements with Medarex's Scientific Advisors (as defined
herein). To the extent members of Medarex's Scientific Advisory Board have
consulting arrangements with or are employed by a competitor of Medarex, Medarex
could be materially adversely affected by the disclosure of Medarex's
confidential information by such Scientific Advisors.
DILUTION. As of August 31, 1997, there were outstanding (a) 1,995,207
shares of Medarex Common Stock reserved for issuance pursuant to options and
warrants exercisable by 69 individuals who are present or former employees,
officers, directors and consultants of Medarex, at a weighted average exercise
price of $4.07 per share; (b) 109,200 shares of Medarex Common Stock issuable
upon the exercise of certain additional warrants at a weighted average exercise
price of $4.12 per share; and (c) 822,924 shares of Medarex Common Stock
issuable upon the exercise of certain Houston Warrants (as defined herein) at an
exercise price of $51.54 per share. Any exercise of such options and warrants
will take place at a time when Medarex would be able, in all likelihood, to
obtain funds from the sale of Medarex Common Stock at prices higher than the
exercise price thereof. As a result, investors in GenPharm may incur substantial
dilution of their holdings of Medarex Common Stock.
In addition, upon consummation of the Merger (i) all of the outstanding
shares of GenPharm's Common Stock and GenPharm Preferred Stock will be converted
for up to 3,250,000 shares of Medarex Common Stock plus the right to receive an
indeterminate number of Additional Shares, and (ii) the GenPharm options will be
converted into options to purchase shares of Medarex Common Stock in such number
and at such exercise prices (based on exchange ratios to be determined at future
dates) that cannot be determined at this time.
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The issuance of Additional Shares will be determined at future dates
through calculations based on future market prices of Medarex Common Stock. The
maximum number of Additional Shares to be issued cannot be determined at this
time, however, a significant decrease in the market price of the Medarex Common
Stock could result in a significant increase in the number of shares of Medarex
Common Stock that will be subject to trading on The Nasdaq National Market. In
addition, the exercise of all or a portion of the outstanding options and
warrants may result in a significant increase in the number of shares of Medarex
Common Stock that will be subject to trading on The Nasdaq National Market, and
the issuance and sale of the shares of Medarex Common Stock upon the exercise
thereof may have an adverse effect on the price of the Medarex Common Stock.
See "-Possible Volatility of Securities Prices," and "Selected Information
Concerning Medarex--Description of Medarex Capital Stock."
FUTURE SALES OF COMMON STOCK. Of the 18,659,475 shares of Common Stock
outstanding as of August 31, 1997, 3,130,263 are "restricted securities" as that
term is defined in Rule 144 under the Securities Act and under certain
circumstances may be sold without registration pursuant to such rule. Medarex
is unable to predict the effect that sales made under Rule 144 or otherwise may
have on the then prevailing market price of the Medarex Common Stock. The
issuance of a significant number of additional securities, or even the
possibility thereof, may depress the market price of such securities. See "--
Dilution," "-Possible Volatility of Securities Prices," and "Selected
Information Concerning Medarex."
Medarex has also filed registration statements on Form S-3 under the
Securities Act relating to 1,210,888 shares of Medarex Common Stock being
offered by certain selling security holders. Such shares of Medarex Common
Stock are freely tradeable without restriction or further registration under the
Securities Act, except for shares, if any, held by "affiliates" of Medarex which
shares will be subject to resale limitations of Rule 144.
Medarex has filed a registration statement on Form S-4 relating to the
822,924 shares of Medarex Common Stock issuable upon the exercise of certain
Houston Warrants. Shares of Medarex Common Stock issued upon exercise of such
warrants other than shares issued to affiliates of Medarex, will be freely
tradeable in the public market.
In addition, Medarex has filed registration statements on Form S-8 under
the Securities Act to register the shares of Medarex Common Stock issuable under
its Amended and Restated 1987 Stock Option Plan (282,450 shares), Amended and
Restated EMP Plan (451,500), Amended and Restated 1991 Stock Option Plan
(250,000), 1992 Stock Option Plan (250,000 Shares), 1994 Stock Option Plan
(300,000 shares), 1995 Stock Option Plan (350,000 shares), 1996 Stock Option
Plan (350,000 shares) and intends to file a registration statement on Form S-8
in connection with its 1997 Stock Option Plan (750,000 shares). In addition,
Medarex has filed a registration statement on Form S-8 to register the 193,500
shares of Medarex Common Stock issuable upon the exercise of certain additional
options. Shares issued under such plans other than shares issued to affiliates
of Medarex, will be freely tradeable in the public market.
POSSIBLE VOLATILITY OF SECURITIES PRICES. There has been significant
volatility in the market prices of securities of biotechnology companies,
including those of Medarex. See "Stock Price and Dividend Information."
Various factors and events, including announcements by Medarex or its
competitors concerning testing results, the achievement of or failure to achieve
certain milestones, patents, regulatory approvals, proprietary rights,
arrangements with collaborative partners, technological innovations or new
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commercial products, as well as public concern about the safety of biotechnology
in general, may have a significant impact on Medarex's business. The trading
prices of Medarex's securities are subject to wide fluctuations in response to
these factors, as well as to the sale or attempted sale of a large amount of
Common Stock into the market.
MANUFACTURING AND MARKETING. Medarex has not yet commercially introduced
any products, except for sales of research products to scientists. To be
successful, Medarex's therapeutic products must be manufactured in commercial
quantities in compliance with regulatory requirements and at acceptable costs.
While Medarex believes its current facilities are adequate for the production of
its proposed products for clinical trials, such facilities are not yet adequate
for the production of any products for commercial sale. In order to manufacture
its products for such purposes, Medarex will have to enhance its existing
facilities and obtain requisite consents or acquire new facilities, which will
require additional funds and approval by the FDA and other regulatory agencies.
Medarex has no experience in large-scale manufacturing, and no assurance can be
given that Medarex will be able to make the transition to commercial production
successfully or achieve profitability. Although Medarex intends to market
certain of its products through a direct sales force, if and when regulatory
approval is obtained, it currently has no marketing or sales staff. To the
extent that Medarex determines not to, or is unable to, arrange third party
distribution for its products, significant additional expenditures, management
resources and time will be required to develop a sales force. There can be no
assurance that Medarex will be able to establish such a sales force or be
successful in gaining market acceptance for its products.
PRODUCT LIABILITY. The clinical investigation, marketing and sale of human
health care products entail an inherent risk of allegations of product
liability, and there can be no assurance that product liability claims will not
be asserted against Medarex. Medarex currently has product liability insurance
coverage in the amount of $5,000,000 for use of its investigational products
during human clinical studies. Medarex expects to seek to obtain product
liability insurance if and when its products are commercialized; however, there
can be no assurance that adequate insurance coverage will be available at
acceptable costs, if at all, or that a product liability claim would not
materially adversely affect the business or financial condition of Medarex.
Some medical centers will not participate in FDA-approved clinical studies
unless a company has adequate product liability insurance.
DEPENDENCE ON KEY PERSONNEL AND ATTRACTION OF KEY EMPLOYEES AND
CONSULTANTS. Medarex's success is dependent on certain key management and
scientific personnel. Competition for qualified employees among biotechnology
companies is intense, and the loss of key personnel, or the inability to attract
and retain the additional highly skilled employees required for the expansion of
Medarex's activities, could adversely affect its business. In the near future,
Medarex will also need to hire additional personnel skilled in the clinical
testing and regulatory process as it develops products with commercial
potential. There can be no assurance that Medarex will be able to attract or
retain such personnel. Medarex has obtained insurance on the lives of each of
Donald L. Drakeman, President and Chief Executive Officer, and Michael A.
Appelbaum, Senior Vice President - Finance and Administration, Secretary,
Treasurer and Chief Financial Officer, of which Medarex is the sole beneficiary,
in the amount of $2,000,000 for Dr. Drakeman and $1,000,000 for Mr. Appelbaum.
Dr. Drakeman and Mr. Appelbaum are subject to certain restrictions set forth in
their respective employment agreements. Medarex has experienced and expects to
continue to experience a period of significant growth in the number of new
employees necessary to support Medarex's business operations. Medarex's need to
manage growth effectively will also require it to continue to implement and
improve its operational, financial and management information systems and to
train, motivate and manage its
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employees. Medarex's failure to manage growth effectively would have a material
adverse effect on Medarex's results of operations and its ability to execute its
business strategy.
CONFLICTS OF INTEREST. Medarex relies on members of its Scientific
Advisory Board (the "Scientific Advisors"), which include distinguished
scientists with a wide range of experience in the research and development of
biopharmaceutical products, to assist Medarex in formulating its research and
development strategy. All of the members of the Scientific Advisory Board are
employed other than by Medarex and may have commitments to or consulting or
advisory contracts with other entities that may limit their availability to
Medarex.
DIVIDENDS. Medarex has not paid any cash dividends, and it is unlikely
that Medarex will pay any dividends in the foreseeable future. Earnings, if
any, will be retained in the business for further development and expansion.
There can be no assurance that Medarex will ever be in the position to pay cash
dividends. See "Stock Price And Dividend Information."
RISKS RELATED TO GENPHARM
EARLY STAGE OF PRODUCT DEVELOPMENT; CONTINUING TECHNOLOGICAL AND COMMERCIAL
UNCERTAINTY. GenPharm is engaged in the application of transgenic animal
technology to the development of human antibody products for therapeutic uses.
Neither GenPharm nor, to GenPharm's knowledge, any other entity has completed
the development of any therapeutic product derived from transgenic animals, and
there can be no assurance that GenPharm will do so in the future. All of
GenPharm's potential therapeutic products will require significant additional
development, testing and regulatory approval, and additional capital will be
required prior to their commercialization. Development of products based on
transgenic animal technology is subject to a number of significant technological
risks, and the time period required for any such development is lengthy and
highly uncertain. Potential products that appear to be promising at an early
stage of development may not reach the market for many reasons. These include
the possibility that GenPharm will be unsuccessful in using transgenic animal
technology to develop its proposed products or that potential products will be
unsafe or ineffective, fail to receive necessary regulatory approvals and
clearances, be difficult to manufacture on a commercially viable scale, be
uneconomical to market, be precluded from commercialization by proprietary
rights of third parties or be rendered obsolete or less desirable by equivalent
or superior products developed and introduced by other parties.
In particular, with respect to GenPharm's proposed human monoclonal
antibody products, although GenPharm has produced transgenic mice that contain
human antibody genes, express those genes in a manner similar to their
expression in humans, and generate human sequence antibodies specific for human
antigens, however, there can be no assurance that GenPharm will be able to use
such mice to generate antibodies having therapeutic value. GenPharm's proposed
human monoclonal antibody products will require additional research, development
and testing before clinical studies can commence. GenPharm does not expect to
file an IND with the FDA for the commencement of clinical trials of any of its
human monoclonal antibody products until 1998. There can, however, be no
assurance that GenPharm will be able to file an IND by this date.
CONTINUING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. GenPharm incurred
losses since its inception in 1988 through 1995. As of June 30, 1997,
GenPharm's accumulated deficit was approximately $22.2 million. Losses have
resulted principally from expenses incurred in research and
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development activities, general and administrative expenses and litigation fees
and costs. These expenditures have exceeded GenPharm's revenues, which to date
have been generated solely from research agreements, research grants, limited
sales of human disease research models, sales and licenses of technology,
litigation and cross-license payments and interest income. GenPharm expects to
incur additional operating losses for a number of years and expects losses to
increase as GenPharm's research and development efforts expand. GenPharm's
ability to achieve profitable operations is dependent on its ability to develop
therapeutic products, to obtain regulatory approvals for its products, to enter
into agreements for product development and commercialization and to develop the
capacity to manufacture and sell its products. There can be no assurance that
GenPharm will be successful in these efforts or ever achieve profitable
operations.
PATENTS AND PROPRIETARY RIGHTS. GenPharm's success depends, in part, on
its ability to obtain patents, maintain trade secret protection and operate
without infringing the proprietary rights of others. GenPharm has six issued
United States patents, has applications pending for various United States
patents and corresponding foreign patents and has exclusive and nonexclusive
licenses to certain other patents and patent applications. There can be no
assurance that GenPharm's patent applications will result in patents being
issued or that any issued patents will provide protection against competitive
technologies or will be held valid if challenged. Others may independently
develop products similar to those of GenPharm or, if patents are issued to
GenPharm, design around such patents.
Biopharmaceutical and biotechnology patents involve complex legal and
factual questions and no consistent policy has emerged regarding the enforceable
breadth of claims in such patents. In 1987, the United States Patent and
Trademark Office announced that it would allow patents on animals, and in early
1988, it issued the first patent on an animal. In late 1991, the corresponding
patent was issued by the European Patent Office and is now in opposition. Since
1992, GenPharm has received several United States patents relating to transgenic
mice and several other animal patents have also issued in the United States to
various parties. However, there is currently uncertainty as to whether and to
what extent foreign jurisdictions will permit patents on animals and their uses.
Also, various bills modifying the enforceability of animal patents have been
introduced at various times in the United States Congress, although none have
passed.
GenPharm is aware that there are many pending United States and foreign
patent applications related to transgenic mice, their production, the human
sequence monoclonal antibodies generated by such animals, and other technologies
used by GenPharm. Certain of these patent applications have been filed by
competitors and potential competitors of GenPharm. Some of these applications
were filed before and may have invention dates earlier than applications filed
by or licensed to GenPharm and are directed to basic technologies strategic to
GenPharm's areas of business interest, including human sequence monoclonal
antibodies generated by transgenic mice. In addition, there can be no assurance
that there are not other pending applications directed to GenPharm's areas of
business interest. It is not possible to predict what patents, if any, will
issue as a result of such patent applications and the breadth of the claims that
will be allowed. There can be no assurance that GenPharm's products will not
infringe upon the proprietary rights of others.
GenPharm may need to license the foregoing patent applications or any
patents which may be issued from any of the foregoing or other applications;
however, there can be no assurance that such licenses will be made available at
all or on terms acceptable to GenPharm. If GenPharm does not obtain necessary
licenses, it could be subject to litigation and encounter delays in product
introductions while
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it attempts to design around such patents. Alternatively, the development,
manufacture or sale of GenPharm's products could be prevented. In addition,
potential conflicts between the patents or patent applications owned by or
licensed to GenPharm and the patents or patent applications of other parties may
result in protracted and expensive litigation or administrative proceedings
(including interferences in the United States Patent and Trademark Office to
determine the priority of and right to use the inventions). Litigation or
administrative proceedings will result in significant cost to GenPharm as well
as diversion of management time. The outcome of any such litigation or
administrative proceedings cannot be predicted with any assurance. Adverse
determinations in any such litigation or administrative proceedings could have a
material adverse effect on GenPharm's business, financial condition and results
of operations.
GenPharm also relies upon unpatented trade secrets, know-how and continuing
technological innovation to develop and maintain its competitive position.
GenPharm seeks to protect these trade secrets and know-how through
confidentiality agreements with employees, consultants and other parties. No
assurance can be given that such agreements will protect GenPharm's rights to
unpatented trade secrets in the event of unauthorized use of such information or
that others will not independently develop substantially equivalent proprietary
information and technology or otherwise gain access to GenPharm's trade secrets
or disclose such technology.
GOVERNMENT REGULATION; PRODUCT CLEARANCE AND APPROVAL. The FDA and its
state and foreign counterparts impose substantial requirements on the
introduction of pharmaceuticals through lengthy and detailed laboratory and
clinical testing procedures, sampling activities and other costly and time-
consuming procedures. The process of obtaining FDA and other governmental
approvals is lengthy, expensive and uncertain and may vary substantially
depending upon the type, complexity and novelty of the pharmaceutical product.
Furthermore, government regulation significantly impacts the manufacturing and
marketing of pharmaceutical products.
The manufacturer of pharmaceutical products developed using transgenic
animals is expected to present novel questions concerning the safety and
effectiveness of the products produced thereby and compliance with FDA-
prescribed cGMP regulations. Should regulatory compliance impose standards
significantly distinct from those currently employed or clinical testing beyond
that required for products produced through non-transgenic means, the ability of
GenPharm to introduce, market and sell its proposed products could be adversely
affected.
GenPharm does not expect to file an IND with the FDA for the commencement
of clinical trials of any of its human monoclonal antibody products until 1998.
There can, however, be no assurance that GenPharm will be able to file an IND by
this date. There can be no assurance that regulatory approvals to conduct such
testing will be obtained. In addition, there can be no assurance that GenPharm
will be permitted to undertake human clinical testing for any of its therapeutic
products under development or, if such testing is permitted, that such products
will be demonstrated to be safe and efficacious. Furthermore, GenPharm or the
FDA may suspend clinical trials at any time if it is felt that the participants
in such trials are being subjected to unacceptable risks.
The effect of government regulation may be to delay, for a considerable
period of time, or prevent marketing of GenPharm's products, if any are
developed and submitted for approval, and to impose costly procedures upon
GenPharm's activities. There can be no assurance that FDA or foreign regulatory
approvals for any products developed by GenPharm will be granted on a timely
basis or at all
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or without significant limitations. Delay in obtaining or failure to obtain
such approvals would adversely effect GenPharm's business, financial condition
and results of operations.
TECHNOLOGICAL CHANGE AND COMPETITION. GenPharm is engaged in industries
characterized by extensive research efforts, rapid technological progress and
intense competition. There are many companies, including well-known
pharmaceutical companies, chemical companies and specialized biotechnology
companies, as well as academic institutions and research organizations, engaged
in developing pharmaceutical products for human therapeutic applications. In
particular, GenPharm is aware of at least one other company that is using
transgenic mice for generating human monoclonal antibodies. Many of GenPharm's
competitors have substantially greater research budgets and financial, technical
and human resources than those of GenPharm. Competitors may succeed in
developing products that are more effective or less costly than any that may be
developed by GenPharm and may also be more successful than GenPharm in obtaining
regulatory approvals or in production and marketing. In addition, other
technologies are, or may in the future become, the basis for competitive
products. It is possible, for example, that future technological advances could
provide alternate, economically viable sources of human monoclonal antibodies.
There can be no assurance that GenPharm's competitors will not succeed in
developing technologies and products that would render GenPharm's technology and
potential products obsolete or noncompetitive.
LIMITED MANUFACTURING, CLINICAL TESTING, REGULATORY COMPLIANCE AND
MARKETING AND SALES CAPABILITY. GenPharm has not yet invested in the
development of manufacturing or sales capabilities for any of its proposed
therapeutic products. GenPharm currently lacks both the facilities and the
experience to manufacture its proposed therapeutic products in accordance with
FDA CGMP regulations or to produce an adequate supply of such products to meet
anticipated future requirements for clinical trials and other testing. Although
GenPharm's collaborative partners are primarily responsible for sponsoring
clinical trials and obtaining regulatory approvals, to the extent GenPharm seeks
to develop and introduce products which are not covered by collaborative
agreements, it will be necessary for GenPharm to sponsor the necessary testing
and clinical trials and obtain regulatory approvals. In this event, it would be
necessary for GenPharm to hire additional personnel skilled in clinical testing
and regulatory compliance. In addition, if GenPharm is unable to develop or
contract for adequate manufacturing capabilities on acceptable terms, GenPharm's
ability to sponsor preclinical and human clinical testing of therapeutic
products will be adversely affected, resulting in delays in the submission of
products for regulatory approval and delays in product development programs,
which in turn could materially impair GenPharm's competitive position and the
possibility of achieving profitability. GenPharm has no experience in marketing
its proposed therapeutic products. GenPharm will need to obtain or contract for
sales and marketing expertise for any products that it develops and seeks to
market without the assistance of a commercialization partner. There can be no
assurance that GenPharm will be able to develop, acquire, or establish third-
party relationships to provide any or all of these resources.
DEPENDENCE ON COLLABORATIVE PARTNERS. GenPharm's strategy for research,
development and commercialization is to rely in part upon collaborative
partners. GenPharm has entered into various collaborative arrangements in the
human monoclonal antibodies area. The collaborative partners have primary
responsibility for sponsoring clinical trials and obtaining regulatory
approvals. Each of GenPharm's collaborative partners has the right to terminate
its agreement with GenPharm upon specified notice without cause. There can be
no assurance that GenPharm will be able to negotiate additional acceptable
collaborative arrangements or that the collaborative arrangements entered into
by GenPharm will be completed or successful. In addition, the pharmaceutical
industry has experienced consolidation
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and many pharmaceutical companies have undergone restructurings and other
operational changes. GenPharm's current and future collaborations could be
impacted by changing industry conditions. GenPharm's inability to negotiate
additional collaborative relationships or to maintain its existing relationships
could have a material adverse effect on GenPharm's business, financial condition
and results of operations.
DEPENDENCE ON KEY PERSONNEL. GenPharm is dependent upon a limited number
of key management and scientific personnel. GenPharm's future success will also
depend in part upon its ability to attract and retain highly qualified
personnel. GenPharm competes for such personnel with other companies, academic
institutions, government entities and other organizations. GenPharm's
anticipated expansion into areas and activities requiring additional expertise,
such as clinical testing, regulatory compliance, manufacturing, marketing and
sales, is expected to require the hiring of additional personnel. There can be
no assurance that GenPharm will be successful in hiring or retaining qualified
personnel. Loss of key personnel or inability to hire or retain qualified
personnel could have a material adverse effect on GenPharm's business, financial
condition and results of operations.
PRODUCT LIABILITY AND RECALLS; PRODUCT LIABILITY INSURANCE. The testing,
marketing and sale of the therapeutic products being developed by GenPharm
entail an inherent risk of product liability and product recalls. GenPharm
currently has only limited product liability insurance coverage. GenPharm may
seek to obtain additional product liability insurance if and when it commences
human clinical trials; however, there can be no assurance that adequate
insurance coverage will be available on acceptable terms or at all. A product
liability claim or recall could have a material adverse effect on the business,
reputation, financial condition or results of operations of GenPharm.
THIRD PARTY REIMBURSEMENT FOR THERAPEUTIC PRODUCTS. Sales of therapeutic
products which may be developed by GenPharm will be dependent in part on the
availability of reimbursement from third party payors, such as government and
private insurance plans. There can be no assurance that such reimbursement will
be available. Third party payors are increasingly attempting to contain health
care costs by limiting both coverage and the level of reimbursement for new
therapeutic products and by refusing, in some cases, to provide coverage for use
of approved products for disease indications not covered by FDA marketing
approval. If adequate coverage and reimbursement levels are not provided by
third party payors, the market acceptance of GenPharm's therapeutic products
will be adversely affected, which could materially adversely affect GenPharm's
business and results of operations.
EFFECT OF HEALTH CARE REFORM PROPOSALS. The Clinton administration has
proposed, and various state governments have adopted or are considering,
programs to reform the health care system. These proposals are focused, in
large part, on controlling the continued escalation of health care expenditures.
It is anticipated that these initiatives will continue to be debated at the
federal and state levels. The adoption and implementation of health care reform
proposals could have an adverse impact on GenPharm's ability to market and sell
therapeutic products which it develops, on the availability of third party
reimbursement for such therapeutic products and on the price levels at which
GenPharm is able to sell such products.
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SOLICITATION OF WRITTEN CONSENT OF GENPHARM SHAREHOLDERS
GENERAL
This Prospectus/Consent Solicitation Statement is being furnished to
holders of GenPharm Common Stock and GenPharm Preferred Stock in connection with
the solicitation of written consents (the "Written Consents") by the GenPharm
Board of Directors. This Prospectus/Consent Solicitation Statement is first
being mailed to shareholders of GenPharm on or about _______________, 1997.
This Prospectus/Consent Solicitation Statement is also furnished by Medarex
to GenPharm shareholders in connection with the issuance by Medarex of shares of
Medarex Common Stock in connection with the Merger.
This Prospectus/Consent Solicitation Statement contains certain information
set forth more fully in the Merger Agreement, (along with the exhibits thereto)
attached hereto as Annex A and is qualified in its entirety by reference to the
Merger Agreement (including all exhibits thereto) which is hereby incorporated
herein by reference. The Merger Agreement should be read carefully by each
GenPharm shareholder in formulating a voting decision with respect to the
proposed Merger and other transactions contemplated by the Merger Agreement.
GenPharm and Medarex will share equally the expenses in connection with the
printing and mailing of this Prospectus/Consent Solicitation Statement. The
costs of solicitation of Written Consents will be borne by GenPharm. GenPharm
will reimburse brokers, fiduciaries, custodians and other nominees for
reasonable out of pocket expenses incurred in sending this Prospectus/Consent
Solicitation Statement and other proxy materials to, and obtaining instructions
relating to such materials from, beneficial owners of stock. In addition to
solicitation by mail, GenPharm shareholder Written Consents may be solicited by
directors of GenPharm, in person, by letter or by telephone or by telegram or by
electronic mail.
MATTERS TO BE APPROVED BY WRITTEN CONSENT
Shareholders of record of GenPharm as of the close of business on
_______________, 1997, are being asked to sign and return the Written Consents
to approve the Merger Agreement and the Merger and to approve certain amendments
to GenPharm's Articles of Incorporation necessary to eliminate any conflict with
the Merger Agreement (the "Required Amendments").
As a separate matter, the Written Consents also provide for approval of a
stock bonus to the Chief Executive Officer of GenPharm (the "Stock Bonus"). See
"Approval of Stock Bonus to GenPharm Chief Executive Officer." Approval of the
Stock Bonus is not a condition to the consummation of the Merger. See "The
Merger Agreement--Conditions of the Merger."
GenPharm shareholders are requested to complete, sign, date and return
promptly the enclosed Written Consent in the postage-prepaid envelope provided
for the purpose of voting "FOR" approval of the Merger Agreement, the Merger,
the Required Amendments and the Stock Bonus.
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RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED
The close of business on ________________, 1997 has been fixed as the
record date for determining the holders of GenPharm Common Stock and GenPharm
Preferred Stock who are entitled to vote by Written Consent (the "Record Date").
As of the Record Date, there were issued and outstanding (i) 1,893,413 shares of
GenPharm Common Stock and (ii) 800,000 shares of Series A Preferred Stock
(convertible into 400,000 shares of GenPharm Common Stock), 800,000 shares of
Series B Preferred Stock (convertible into 400,000 shares of GenPharm Common
Stock), 4,055,200 shares of Series C Preferred Stock (convertible into 2,027,600
shares of GenPharm Common Stock), 2,342,858 shares of Series D Preferred Stock
(convertible into 1,171,429 shares of GenPharm Common Stock), 4,675,700 shares
of Series E Preferred Stock (convertible into 2,337,850 shares of GenPharm
Common Stock), 111,112 shares of Series F Preferred Stock (convertible into
115,556 shares of GenPharm Common Stock), 230,000 shares of Series G Preferred
Stock (convertible into 242,650 shares of GenPharm Common Stock), 1,143,697
shares of Series H Preferred Stock (convertible into 1,143,697 shares of
GenPharm Common Stock), and 275,001 shares of Series I Preferred Stock
(convertible into 275,001 shares of GenPharm Common Stock). The holders of
record of shares of GenPharm Common Stock on the Record Date are entitled to one
vote per share of GenPharm Common Stock. The holders of record of GenPharm
Preferred Stock on the Record Date are entitled to one vote per share of
GenPharm Preferred Stock, except that with regard to the approval of the Stock
Bonus to the Chief Executive Officer of GenPharm, shares of GenPharm Preferred
Stock vote on an as-converted basis. Under the CGCL and GenPharm's Articles of
Incorporation, the affirmative vote of holders of shares representing a majority
of the outstanding voting power of the GenPharm Common Stock and GenPharm
Preferred Stock each voting separately as a single class are required for
approval of the Merger Agreement, the Merger and the Required Amendments. The
Required Amendments also require the separate approval of holders of a majority
of the outstanding shares of Series I Preferred Stock. Thirteen affiliates of
GenPharm, holding an aggregate of 625,198 shares of GenPharm Common Stock
(33.0%) and 4,016,398 shares of GenPharm Preferred Stock (27.8%) (including
114,537 or 41.65% of the shares of Series I Preferred Stock), have agreed to
vote in favor of the Merger Agreement, the Merger and the Required Amendments.
Approval of the Stock Bonus requires the approval of holders of 75% of the
outstanding shares (with the holders of GenPharm Preferred Stock voting on an
as-converted basis) at the Effective Time, excluding shares held by Dr.
MacQuitty. Approval of such Stock Bonus is not a condition to the consummation
of the Merger. See "The Merger--Conditions to the Merger."
An item of business will be deemed approved at such time as sufficient
unrevoked Written Consents to approve that item of business have been received
by GenPharm. GenPharm shareholders will be notified in writing of the approval
of an item of business. Written Consents approving any item of business may be
revoked at any time prior to the approval of that item by the requisite
percentage. Written Consents may be revoked by delivering to the corporate
Secretary of GenPharm either (i) a written notice of revocation clearly
identifying the Written Consent being revoked or (ii) a subsequently dated
Written Consent. Abstentions and broker non-votes will have the effect of voting
against the approval of the agenda items, each of which requires the approval by
a percentage of the outstanding shares of GenPharm, not merely those voting on
the matter.
FAILURE TO RETURN THE WRITTEN CONSENT WILL HAVE THE PRACTICAL EFFECT OF
VOTING AGAINST THE APPROVAL OF THE MERGER AGREEMENT AND THE MERGER SINCE THEY
REPRESENT ONE LESS VOTE FOR APPROVAL OF SUCH PROPOSAL.
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THE MERGER
GENERAL DESCRIPTION OF THE MERGER
Upon consummation of the Merger (the "Effective Time"), Merger Sub will be
merged into GenPharm which will then become a wholly-owned subsidiary of
Medarex. Assuming all conditions to the Merger are met or waived, it is
anticipated that the Effective Time will occur on or about ______________, 1997.
The market value (determined as described herein) of the Medarex shares to
be issued in the Merger (the "Purchase Price") in exchange for the acquisition
of all shares of GenPharm Common Stock and GenPharm Preferred Stock outstanding
as of the Effective Time is $62,725,000, before reservation of a portion of
those shares for issuance upon exercise of GenPharm stock options being assumed
by Medarex and subject to adjustment as described herein. Medarex has the
option to pay all or a portion of the Purchase Price in cash at any time but
only in the event that either (i) the Medarex shareholders shall have failed to
approve the issuance of the Additional Shares (as defined herein) or (ii) the
fair market value of Medarex Common Stock is $5.00 or less.
At the Effective Time of the Merger, the outstanding shares of GenPharm
Common Stock and GenPharm Preferred Stock, other than shares, if
any,constituting "Dissenters' Shares" (as defined herein) will be converted into
the right to receive shares of Medarex Common Stock, issuable as described
below.
During 1997, Medarex will issue up to 3,250,000 shares of Medarex Common
Stock (the "Initial Shares") to holders of GenPharm Preferred Stock. Additional
shares (the "Additional Shares") will be issued on or before December 31, 1998
representing the balance of the Purchase Price, but only if, and to the extent,
that GenPharm has received from certain third parties certain patent license
fees and promissory note payments (the "Third Party Payments"). In the event
any of the Third Party Payments have not been received by December 15, 1998, a
final issuance of shares of Medarex Common Stock will occur not later than the
earlier of (i) 30 days following the receipt of the last Third Party Payment and
(ii) December 31, 1999. The Additional Shares will be issued first to the
holders of GenPharm Preferred Stock to the extent of the balance of their
aggregate preference amount of $40,378,646 (the "Preference Amount") remaining
after the issuance of the Initial Shares, and then to holders of GenPharm Common
Stock and GenPharm Preferred Stock (on an as-converted basis). The number of
shares of Medarex Common Stock deliverable in respect of shares of GenPharm
Common Stock and GenPharm Preferred Stock will be determined based on certain
exchange ratios calculated using average trading prices of Medarex Common Stock
over specified periods. In addition, outstanding stock options for the purchase
of GenPharm Common Stock will be assumed by Medarex and will become options to
purchase Medarex Common Stock.
The Purchase Price of $62,725,000 will be reduced by $100,000 as a result
of a fee to be paid to GenPharm's financial advisor and may be further reduced
on a dollar-for-dollar basis to the extent that certain amounts specified in the
Merger Agreement, including primarily the amount of Third Party Payments
received by GenPharm after the Effective Time (net of income tax liability
attributable to receipt of the Third Party Payments), total less than
$33,000,000. In addition, even if all of the Third Party Payments are received,
the Purchase Price will still be reduced if the gross proceeds per share from
the sale of Initial Shares by GenPharm shareholders in the Initial Placement (as
defined herein) are below
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$5.71, and will be increased if such gross proceeds per share are higher than
$8.57, with the adjustment in each case being pursuant to a formula set forth in
the Merger Agreement. If the Purchase Price were to be reduced below the
$40,378,646 liquidation preference amount, the holders of GenPharm Preferred
Stock would not recover their entire liquidation preference, and the holders of
GenPharm Common Stock would receive no consideration whatsoever for their shares
in the Merger. In the opinion of the Board of Directors of GenPharm, although
this is a possibility, it is believed to be highly unlikely. The number of
shares of Medarex Common Stock to be received by the holders of GenPharm
Preferred Stock would, however, be significantly reduced if the Purchase Price
were to be substantially reduced, and the effect of such a reduction on the
value per share of GenPharm Common Stock would be much more significant.
Therefore, the value of the consideration to be received by holders of GenPharm
Common Stock in the Merger is highly dependent on the extent to which the
Purchase Price may be reduced.
Assuming the Purchase Price, as adjusted, were $62,625,000, it is estimated
that the holders of GenPharm Common Stock would receive on December 31, 1998,
for each share of GenPharm Common Stock held, a fraction of a share of Medarex
Common Stock having a market value (based on a ten-day trading period preceding
the distribution) of approximately $2.08, assuming 2,013,413 shares of GenPharm
Common Stock to be outstanding at the Effective Time. Based on these
assumptions, if the market price of Medarex Common Stock at such time were
$________ (the closing price on the Nasdaq National Market on August __, 1997),
the exchange ratio for shares of GenPharm Common Stock would be _________.
Holders of GenPharm Preferred Stock would receive (on various dates) shares of
Medarex Common Stock having a market value equal to the per share liquidation
preference of the particular series of GenPharm Preferred Stock plus
approximately $2.08 for each share of GenPharm Common Stock into which that
series is convertible as of the Effective Time. The foregoing example makes
certain assumptions, most importantly that there will be no more than a $100,000
reduction in the Purchase Price. The actual facts may differ materially and
could result in the consideration for the shares of GenPharm Common Stock being
substantially lower than in the example (or possibly being zero). See "The
Merger Agreement--Manner and Basis of Converting Shares" and "--Assumption of
Options and Warrants."
Medarex Common Stock is traded on The Nasdaq National Market under the
symbol "MEDX." See "Comparison of Shareholder Rights" for a description of
certain material differences between the rights of holders of Medarex Common
Stock and the rights of holders of GenPharm Common Stock. See "Selected
Information Concerning Medarex--Description of Medarex Capital Stock" for a
description of the rights, privileges and preferences of the Medarex Common
Stock.
BACKGROUND OF THE MERGER
In 1994, while GenPharm was about to make a initial public offering of its
shares, Cell Genesys, Inc. ("Cell Genesys") filed a lawsuit alleging, among
other things, that GenPharm had misappropriated Cell Genesys' trade secrets.
After GenPharm received Cell Genesys' complaint, the GenPharm Board of Directors
(the "GenPharm Board") decided not to proceed with the planned initial public
offering at that time.
During 1995 and 1996, GenPharm decreased the size and modified the nature
of its business. In April 1995, GenPharm transferred the ownership of its Dutch
subsidiary, Gene Pharming Europe B.V., to the shareholders of GenPharm. In July
1995, GenPharm sold its animal model business.
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Throughout 1995, GenPharm substantially reduced its number of employees, and in
1996, licensed to third parties some of its under-utilized technology.
In January 1997, Cell Genesys voluntarily dismissed its complaint against
GenPharm and on March 26, 1997, GenPharm entered into a Settlement and Cross-
License Agreement (the "Cross-License Agreement") with Cell Genesys, Abgenix,
Inc. ("Abgenix"), Xenotech, L.P. ("Xenotech") and Japan Tobacco Inc. ("Japan
Tobacco") that settled all related litigation and claims between the parties.
At its Board Meetings on January 10, January 23 and February 11, 1997 the
GenPharm Board considered what strategic options GenPharm had going forward,
including those that assumed that the Cross License Agreement would be
successfully negotiated and signed. After reviewing the possibility of
remaining an independent entity, the Board concluded that without the critical
mass, financial resources and development capabilities of a larger company
behind it, GenPharm would not be able to develop its pharmaceutical products to
the point of commercial viability. Furthermore, the Board concluded that by
merging into a larger company, especially a company with a public market for its
shares, GenPharm's shareholders would have the opportunity of nearer term
liquidity for their shares. At the January 10 Board meeting, the chief
executive officer of another biotechnology company gave a presentation to
GenPharm's Board describing his company and proposed in concept a merger between
his company and GenPharm. Following this presentation and at subsequent Board
meetings, GenPharm's Board analyzed the potential of such a merger and its
likely value to GenPharm shareholders. The Board concluded that this company
did not have sufficient critical mass, financial resources and development
capability to be of sufficient value to GenPharm in a merger. Accordingly the
Board directed management to pursue discussions toward the merger of GenPharm
with another larger company. In this connection, Dr. Jonathan J. MacQuitty,
GenPharm's Chief Executive Officer, engaged in discussions with representatives
of various other entities regarding their interest in acquiring GenPharm. From
January to April 1997, the GenPharm Board met eight times and engaged in
discussions regarding the sale or merger of GenPharm at several of these
meetings.
In February 1997, Dr. MacQuitty contacted representatives of an investment
banking firm which had an on-going relationship with Medarex, to inform them
that GenPharm was interested in being acquired by another entity and to ask if
they were available to facilitate introductions to possible acquirors. Due to
its on-going relationship with Medarex, the investment banking firm was not
retained by GenPharm. Shortly thereafter, representatives of the investment
banking firm contacted Dr. MacQuitty regarding Medarex's interest in a possible
merger with GenPharm and Dr. MacQuitty was contacted by Dr. Donald L. Drakeman,
President and Chief Executive Officer of Medarex, to discuss the possibility of
a merger. On February 27, 1997, GenPharm and Medarex signed a Mutual Non-
Disclosure Agreement to allow each company to freely engage in more detailed
discussions regarding a possible merger between the two companies. On February
28, 1997 Dr. Jan G.J. van de Winkel, a scientific consultant to Medarex and
Michael A. Appelbaum, Senior Vice President and Chief Financial Officer of
Medarex visited GenPharm's offices and conducted a confidential review of
GenPharm's technology and business meeting with Dr. Nils Lonberg, GenPharm's
Director of Molecular Biology, Dr. Dianne Fishwild, GenPharm's Director of
Hybridoma Development, Ms. Mimi Pauline, GenPharm's Assistant Controller, Dr.
MacQuitty, and Dr. Herbert Heyneker, a member of GenPharm's Board.
Throughout March 1997, representatives of GenPharm and Medarex continued
discussions on a confidential basis regarding a possible merger between the two
companies and on March 21, 1997 Dr. MacQuitty visited Medarex's offices to meet
with Dr. Drakeman, Mr. Appelbaum and Dr. Yashwant M.
34
<PAGE>
Deo, Senior Vice President - Operations, Research and Development and Regulatory
Compliance of Medarex, to conduct a review of Medarex's technology and business
operations. On March 28, 1997 Mr. Appelbaum visited GenPharm's offices again to
continue his review of GenPharm's operations. On April 8, 1997, Medarex made a
preliminary proposal to GenPharm regarding the possible terms and conditions of
the merger. The closing sale price of Medarex shares on that date was $6.625.
During the GenPharm Board meeting on April 15, 1997, the GenPharm Board reviewed
the status of the company's discussions with other parties. The closing sale
price of Medarex shares on that date was $6.875. GenPharm had received
expressions of interest from several other companies and had discussions in
which the range of values approximated Medarex's preliminary proposal but these
parties had not proposed written terms. GenPharm had received one written
proposal from a company other than Medarex. The financial terms of this proposal
were based on a combination of cash and stock but were a least $7.5 million less
favorable than Medarex's preliminary proposal. GenPharm's Board rejected the
proposal because of the lower financial terms as well as the fact that the
company had less cash and cash equivalents than Medarex and less manufacturing
and clinical capability for antibody products.
Having reviewed Medarex as a company and its April 8 proposal, GenPharm's
Board concluded that Medarex had the critical mass, financial resources and
development capabilities that GenPharm's business required. Furthermore Medarex
as a public company for more than five years could provide GenPharm's
shareholders with liquidity for their shares over time. The Board compared the
merger consideration offered by Medarex in its preliminary proposal with those
discussed with other parties and at its meeting held on April 15, 1997,
concluded that if the purchase price in Medarex's proposal was increased by 8%
in financial terms (approximately $5 million) it would be acceptable and would
then exceed those discussed with other parties, as well as, any other proposal,
written or otherwise.
On April 16, 1997, following GenPharm Board's review of Medarex's proposal,
Dr. MacQuitty, Samuel D. Colella, the Chairman of the Board of GenPharm, and
GenPharm's legal advisors discussed with Dr. Drakeman, Mr. Appelbaum and
Medarex's legal and financial advisors the basic terms of the proposed merger.
On April 28, 1997, Medarex delivered a revised version of its merger proposal
which met the terms outlined by GenPharm's Board and the parties began to
negotiate the terms and conditions of a definitive merger agreement. The closing
sales price of Medarex shares on that date was $6.875. On May 3, 1997,
GenPharm's Board approved the basic terms and conditions of the proposed merger
and on May 5, 1997, the parties entered into the Merger Agreement. The closing
sales price of Medarex shares on May 2, 1997, the last trading date prior to the
approval of the Merger by GenPharm's Board, was $8.125 and the closing sales
price of Medarex shares on May 5, 1997 was $8.50. The Merger Agreement was
subsequently amended to set forth certain non-material amendments to the Merger
Agreement.
GENPHARM'S REASONS FOR THE MERGER; RECOMMENDATION OF THE GENPHARM BOARD
The GenPharm Board believes that the terms of the Merger are fair to, and
in the best interest of, GenPharm and its shareholders. Accordingly, the
GenPharm Board has unanimously approved the Merger Agreement, the Merger, the
Required Amendments and the transactions contemplated thereby, and recommends
approval of the Merger Agreement, the Merger and the Required Amendments by
GenPharm shareholders, and the Stock Bonus to GenPharm's Chief Executive
Officer.
The GenPharm Board believes that, in addition to providing a source of
future liquidity for GenPharm shareholders the Merger also offers GenPharm
shareholders the opportunity to participate in an enterprise with a broader
technology portfolio and greater financial strength and that, without the Merger
or similar strategic transaction, GenPharm would lack the critical mass,
financial strength and other characteristics to maximize its potential.
In approving the Merger and the specifics of Medarex's proposal GenPharm's
Board considered the following positive factors:
1. Medarex's critical mass. Medarex had seven antibody products in
-----------------------
clinical trials providing a diversified portfolio of products.
35
<PAGE>
2. Medarex's financial resources. Medarex had approximately $30 million
-----------------------------
in cash and cash equivalents of its own, which together with
GenPharm's assets would be sufficient for commercial viability.
3. Medarex's development capability. Medarex had substantial
--------------------------------
manufacturing and clinical groups headed by experienced executives
which were responsible for producing Medarex's antibody products for
clinical trials and for supervising those trials.
4. Medarex's trading history as a public company. Medarex had been a
---------------------------------------------
listed public company since June, 1991, with an average of
approximately 80,000 shares trading per day for the first quarter of
1997.
5. The Purchase Price. The amount of the Purchase Price was comparable
------------------
to that for a public company of GenPharm's size and was in excess of
other proposals received or that in the GenPharm Board's opinion could
be reasonably anticipated.
The Board also considered the following negative factors:
1. Possible significant reduction to Purchase Price. The Purchase Price
------------------------------------------------
would be reduced to the extent that any of the Third Party Payments
were not received and any such reduction would disproportionately
affect holders of GenPharm Common Stock. Even if all the Third Party
Payments were received, the Purchase Price would be reduced to the
extent that Medarex's stock price in the Initial Placement was below
$5.71. The closing price of Medarex's Common Stock on May 5, 1997,
the date the Merger Agreement was finalized, was $8.50 per share.
2. Delayed issuance of Medarex shares. Except for the 3,250,000 Initial
----------------------------------
Shares to be issued to holders of GenPharm Preferred Stock in 1997,
GenPharm shareholders, would not receive any Medarex shares until the
end of 1998 or in 1999.
The other companies which expressed an interest in acquiring GenPharm had
indicated that they too would condition a substantial portion of the purchase
price on the receipt of the Third Party Payments, which are not expected to be
received until 1998. Therefore, the GenPharm Board did not consider the
possible reduction in the purchase price and the delayed issuance of a
significant portion of the Medarex shares to be negative factors compared with
other possible mergers. The GenPharm Board concluded that the positive factors
outweighed the negative factors.
GenPharm did not seek a third party opinion as to the fairness of the
Purchase Price. In determining not to seek such an opinion, GenPharm considered
that its chief executive officer and its directors possessed sufficient business
experience and acumen to negotiate the terms and conditions of the Merger and
assess the fairness of the Purchase Price to GenPharm's shareholders from a
financial perspective without a third party opinion. GenPharm also took into
account the substantial cost of such an opinion and the impact of such cost to
GenPharm's shareholders, particularly holders of GenPharm Common Stock.
36
<PAGE>
THE GENPHARM BOARD UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE MERGER,
THE REQUIRED AMENDMENTS AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS
THAT THE SHAREHOLDERS OF GENPHARM GIVE THEIR WRITTEN CONSENTS TO APPROVE THE
MERGER AGREEMENT AND THE MERGER, THE REQUIRED AMENDMENTS AND THE STOCK BONUS.
MEDAREX'S REASONS FOR THE MERGER
During the discussions leading to the Merger, Medarex identified a number
of potential benefits of combining the two companies including, but not limited
to, the following:
. the respective businesses, assets, operations, and prospects of
Medarex and GenPharm;
. the complementary technologies and therapeutic product development
opportunities including the opportunity to expand Medarex's technology
platform allowing Medarex to create new Bispecific and monoclonal
antibodies and new immunoconjugates;
. the respective prospects of Medarex and GenPharm for obtaining
additional financing for their proposed activities including expanding
Medarex's product potential beyond its current platform through the
acquisition of the existing GenPharm corporate partnerships with
Eisai, Centocor and LeukoSite;
. the respective intellectual property portfolios of Medarex and
GenPharm;
. the ability to leverage the development "infrastructure" of Medarex
through the addition of GenPharm's transgenic mice, as well as,
GenPharm's research and development, manufacturing, regulatory and
clinical expertise; and
. the creation of near-term cash flow potential through the receipt of
the up to $31.6 million in cash from the Third Party Payments over the
next two years as well as the possibility of approximately $70.0
million in additional corporate partnership milestone payments.
The Medarex Board of Directors considered these benefits as well as the
potentially negative factors which may result from the Merger, including, among
other things:
. the potential dilutive effect on the Medarex Common Stock of the
issuance of up to 7.6 million shares of Medarex Common Stock in the
Merger (including shares issued in connection with the payment of the
Stock Bonus and upon the exercise of the GenPharm Common Stock options
and warrants) based on the closing sales price of Medarex Common Stock
of $8.50 on May 5, 1997 the date the Merger Agreement was
finalized;
. the substantial charges estimated to be approximately $29.0 million
expected to be incurred, primarily in the quarter ending September 30,
1997, in connection with the Merger, including the costs of
integrating the business and transaction expenses arising from the
Merger;
37
<PAGE>
. the risk that the public market price of the Medarex Common Stock may
be adversely affected by announcement of the Merger and its potential
dilutive effect on Medarex;
. the risk that the other benefits mentioned above sought to be achieved
in the Merger would not be achieved; and
. other risks described herein under "Risk Factors--Risks related to the
Merger Agreement and the Merger."
As a general matter, the Board of Directors of Medarex believed that the
positive factors supported its decision to approve the Merger, and, taken as a
whole, outweighed the negative factors associated with the Merger.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations that are generally applicable to holders of GenPharm Common Stock
and GenPharm Preferred Stock receiving solely Medarex Common Stock pursuant to
the Merger. This discussion is based on currently existing provisions of the
Code, existing and proposed Treasury Regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change.
Any such change, which may or may not be retroactive, could alter the tax
consequences to Medarex, GenPharm or GenPharm's shareholders as described
herein.
GenPharm shareholders should be aware that this discussion does not deal
with all federal income tax considerations that may be relevant to particular
GenPharm shareholders in light of their particular circumstances, such as
shareholders who are dealers in securities, who are subject to the alternative
minimum tax provisions of the Code, who are foreign persons, who do not hold
their GenPharm Common Stock and GenPharm Preferred Stock as capital assets, who
exercise dissenter's rights or who acquired their shares in connection with
stock option or stock purchase plans or in other compensatory transactions. In
addition, the following discussion does not address the tax consequences of the
Merger under foreign, state or local tax laws, the tax consequences of
transactions effectuated prior or subsequent to, or concurrently with, the
Merger (whether or not any such transactions are undertaken in connection with
the Merger), including without limitation any transaction in which shares of
GenPharm Common Stock and GenPharm Preferred Stock are acquired or shares of
Medarex Common Stock are disposed of, or the tax consequences of the assumption
by Medarex of the GenPharm options and warrants. Accordingly, GENPHARM
SHAREHOLDERS AND HOLDERS OF GENPHARM OPTIONS AND WARRANTS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES.
38
<PAGE>
General
-------
Subject to the qualification discussed below, the Merger is intended to
constitute a reorganization. However, the parties are not requesting and will
not request a ruling from the Internal Revenue Service (the "IRS") in connection
with the Merger. GenPharm has received an opinion from Wilson, Sonsini,
Goodrich & Rosati, Professional Corporation, to the effect that, provided that
no part of the Merger consideration is paid in cash, other than cash paid in
lieu of the issuance of fractional shares, the Merger will constitute a
reorganization (the "Tax Opinion"). Provided that the Merger does so qualify as
a reorganization, then, subject to the limitations and qualifications referred
to herein, the Merger will result in the following federal income tax
consequences (which consequences assume that no portion of the Merger
consideration will be paid by Medarex in cash):
(a) No gain or loss will be recognized by holders of GenPharm Common Stock
and GenPharm Preferred Stock solely upon their receipt of Medarex Common Stock
in exchange for GenPharm Common Stock and GenPharm Preferred Stock in the Merger
(except as described below with respect to a portion of the Additional Shares
being characterized as interest under the Code and gain or loss being recognized
on cash received in lieu of a fractional share of Medarex Common Stock).
(b) The aggregate tax basis of the Medarex Common Stock received by
GenPharm shareholders in the Merger (other than Medarex Common Stock
characterized as interest under the Code), as reduced by any tax basis
attributable to fractional shares deemed to be disposed of will be the same as
the aggregate tax basis of the GenPharm Common Stock and GenPharm Preferred
Stock surrendered in exchange therefor.
(c) The holding period of the Medarex Common Stock received by each
GenPharm shareholder in the Merger, other than Medarex Common Stock
characterized as interest under the Code, will include the period for which the
GenPharm Common Stock and GenPharm Preferred Stock so surrendered is held as a
capital asset at the time of the Merger.
(d) Cash payments received by holders of GenPharm Common Stock and
GenPharm Preferred Stock in lieu of a fractional share will be treated as if
such fractional share of Medarex Common Stock had been issued in the Merger and
then redeemed by Medarex. A GenPharm shareholder receiving such cash will
recognize gain or loss, upon such payment, measured by the difference (if any)
between the amount of cash received and the basis in such fractional share.
(e) Neither Medarex nor GenPharm will recognize any gain solely as a
result of the Merger.
GenPharm shareholders should be aware that the Tax Opinion does not bind
the IRS and the IRS is therefore not precluded from successfully asserting a
contrary opinion. The Tax Opinion is subject to certain assumptions and
qualifications, including but not limited to the truth and accuracy of certain
representations made by Medarex, GenPharm and certain shareholders of GenPharm.
Of particular importance are certain representations relating to the so-called
"continuity of interest" requirement.
To satisfy the continuity of interest requirement under current law,
GenPharm shareholders must not, pursuant to a plan or intent existing at or
prior to the Merger, dispose of or transfer so much of either (i) their GenPharm
Common and GenPharm Preferred Stock in anticipation of the Merger or (ii) the
Medarex Common Stock to be received in the Merger (collectively, "Planned
Dispositions"), such
39
<PAGE>
that GenPharm shareholders, as a group, would no longer have a significant
equity interest in the GenPharm business being conducted after the Merger.
GenPharm shareholders will generally be regarded as having a significant equity
interest as long as the number of shares of Medarex Common Stock received in the
Merger less the number of shares subject to Planned Dispositions (if any)
represents, in the aggregate, a substantial portion of the entire consideration
received by the GenPharm shareholders in the Merger. No assurance can be made
that the IRS will not argue that post-Merger sales, including sales in the
Initial Placement (see "Merger Agreement--Manner and Basis of Converting
Shares), by former GenPharm shareholders could result in the Merger failing to
satisfy the "continuity of interest" requirement. If such requirement is not
satisfied, the Merger would not be treated as a tax-free reorganization. The
Tax Opinion relies in part on representations from Medarex, GenPharm and certain
shareholders of GenPharm relating to the "continuity of interest"
requirement.
The Tax Opinion also assumes that no part of the Merger Consideration will
be paid in cash. Medarex has the right under limited circumstances to pay cash
in lieu of all or a portion of the Additional Shares (see Merger Agreement--
Manner and Basis of Converting Shares). To the extent the payment of cash by
Medarex results in the Merger failing to qualify as a reorganization, each
GenPharm shareholder will be required to recognize gain or loss on the
disposition of the GenPharm shares pursuant to the Merger. If notwithstanding
the payment of cash by Medarex the Merger continues to qualify as a
reorganization, then each GenPharm shareholder receiving cash will be required
to recognize gain equal to the lesser of the amount of such cash or the
shareholder's gain on the exchange.
A successful IRS challenge to the reorganization status of the Merger (as a
result of a failure to satisfy the "continuity of interest" requirement or
otherwise) would result in GenPharm shareholders recognizing taxable gain or
loss with respect to each share of GenPharm Common Stock and GenPharm Preferred
Stock surrendered equal to the difference between the shareholder's basis in
such share and the fair market value, as of the Effective Time, of the Medarex
Common Stock received in exchange therefor. In such event, a shareholder's
aggregate basis in the Medarex Common Stock so received would equal its fair
market value, and the shareholder's holding period for such stock would begin
the day after the Merger.
Imputed Interest
----------------
Notwithstanding the intended qualification of the Merger as a
reorganization, a portion of any Additional Shares received more than six months
after the Effective Time will be characterized as interest for federal income
tax purposes under the imputed interest rules of the Code and in certain
circumstances, the original issue discount rule of the Code. Generally, under
these rules, a portion of the Additional Shares received more than six months
after the Effective Time equal to the present value of the Additional Shares
(using a discount rate equal to the appropriate AFR) as discounted from the date
of payment of the Additional Shares to the Effective Time will be treated as
merger consideration (and therefore subject to the rules discussed above). The
remainder of each such payment of Additional Shares will be treated as interest
for federal income tax purposes. The interest portion of the payment will be
includable in the gross income of the shareholder in the year in which the
amount of the payment is made. Also, in the event the right of payment of
Additional Shares becomes fixed more than six months before the payment is due,
the holder of the right to Additional Shares will recognize original issue
discount.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for using the purchase
method of accounting under generally accepted accounting principles. Under this
method, upon the Effective Time:
40
<PAGE>
(i) the fair market value of the Medarex Common Stock to be issued to the
holders of GenPharm's securities will be determined; (ii) the carrying value of
the GenPharm assets acquired and the GenPharm liabilities assumed by Medarex as
a result of the Merger will be adjusted to the fair value thereof at the
Effective Time using available market data, then prevailing interest rates and
the then anticipated maturity dates of such GenPharm assets and liabilities,
with any such adjustments being amortized over the expected lives of such assets
and liabilities; (iii) the value assigned to developed and in-process technology
has been determined pursuant to an independent valuation as required under
generally accepted accounting principles, such in-process technology will be
expensed at the Effective Time; (iv) Medarex will include GenPharm's results of
operations after the Effective Time in Medarex's consolidated statements of
operations; and (v) consideration for contingent payments will be accounted for
when and if payments are received by Medarex.
Reference is made to the pro forma combined condensed balance sheet of
Medarex following the Merger for an example of the purchase accounting
adjustments. See "Medarex and GenPharm Unaudited Pro Forma Combined Condensed
Financial Statements."
FEDERAL SECURITIES LAW MATTERS
The issuance of Medarex Common Stock pursuant to the Merger Agreement has
been registered under the Securities Act. Subject to certain contractual "Lock-
Up" provisions described herein, see "The Merger Agreement--Restrictions on
Transfer of Medarex Common Stock," the Medarex Common Stock will be eligible for
resale without restriction (i) immediately and without limitation, except for
shares issued to any person who may be deemed to be an "Affiliate" (as such term
is defined for purposes of Rule 145 under the Securities Act) of GenPharm at the
Effective Time and (ii) immediately after expiration of the Restricted Period
(as defined below) by the present holders of GenPharm Common Stock who are
Affiliates of GenPharm and who comply with the requirements of Rule 145(d)(1) in
effecting such resales. During the Restricted Period, Affiliates may resell
(subject to the Lock-Up) without registration pursuant to Rule 145(d)(1) so long
as they comply with the volume and manner of sale requirements of Rule 144. The
sale of shares of Medarex Common Stock by Affiliates of GenPharm in the Initial
Placement will be registered by Medarex under the Securities Act. Persons who
may be deemed to be Affiliates of GenPharm generally include individuals or
entities that control, are controlled by, or are under common control with,
GenPharm, and may include certain officers and directors of GenPharm as well as
beneficial holders of 10 percent or more of GenPharm Common Stock.
The "Restricted Period" for persons who may be deemed to be Affiliates of
GenPharm is generally one year from the Effective Time.
41
<PAGE>
INTEREST OF GENPHARM MANAGEMENT IN THE MERGER
The Chief Executive Officer of GenPharm, Jonathan J. MacQuitty, will, as a
result of the Merger, receive certain benefits. A stock bonus, payable in
Medarex shares, will be paid to the employees of GenPharm pursuant to a grant
made by the GenPharm Board of Directors. The Stock Bonus was granted
contingently by the Board of Directors in September 1996 and was modified in
April 1997. Dr. MacQuitty's Stock Bonus is valued at $1,363,045 (determined as
of a measuring period immediately preceding the Stock Bonus), assuming that he
does not voluntarily terminate his employment with GenPharm prior to December
31, 1997. In addition, all stock options held by GenPharm's employees
(including Dr. MacQuitty) and by GenPharm's directors will become fully
exercisable shortly prior to the Effective Time, and, if not exercised prior to
the Merger, will be assumed by Medarex pursuant to the terms of the Merger
Agreement. See "Approval of Stock Bonus to GenPharm Chief Executive Officer"
and "The Merger Agreement--Assumption of Options and Warrants."
42
<PAGE>
THE MERGER AGREEMENT
The following discussion summarizes the proposed Merger, the Merger
Agreement and related transactions. The following is not, however, a complete
statement of all provisions of the Merger Agreement and related agreements.
Detailed terms of and conditions to the Merger and certain related transactions
are contained in the Merger Agreement, a conformed copy of which (with exhibits)
is attached to this Prospectus/Consent Solicitation Statement as Annex A.
Statements made in this Prospectus/Consent Solicitation Statement with respect
to the terms of the Merger and such related transactions are qualified in their
respective entireties by reference to the more detailed information set forth in
the Merger Agreement.
EFFECTIVE TIME; CLOSING
The Merger Agreement provides that the Merger will become effective upon the
filing of the Agreement and Plan of Merger and certain other documents with the
Secretary of State of the State of California (the "Effective Time"). A copy of
the Agreement and Plan of Merger is attached to this Prospectus/Consent
Solicitation Statement as Annex B. The closing of the transactions contemplated
by the Merger Agreement will take place as promptly as practicable (and in any
event within two business days) following satisfaction or waiver of the
conditions to closing set forth in the Merger Agreement or at such other time as
Medarex and GenPharm mutually agree (the "Closing Date"). It is anticipated
that if the Merger Agreement is approved by written consent of the GenPharm
shareholders and all other conditions of the Merger have been fulfilled or
waived, the Effective Time will occur on or about __________________, 1997.
At the Effective Time, Merger Sub will be merged into GenPharm with GenPharm
being the surviving corporation. As a result of the conversion of shares
discussed below, GenPharm will become a wholly-owned subsidiary of Medarex.
MANNER AND BASIS OF CONVERTING SHARES
Payment of Purchase Price The aggregate purchase price (the "Purchase
-------------------------
Price") to be paid by Medarex in the form of Medarex Common Stock pursuant to
the terms of the Merger Agreement is $62,725,000, subject to adjustment as set
forth herein and before reservation of a portion of these shares for issuance
upon exercise of GenPharm options being assumed by Medarex. Each outstanding
share of GenPharm Preferred Stock and GenPharm Common Stock, other than
Dissenters' Shares (as defined herein), will be converted into the right to
receive shares of Medarex Common Stock as set forth below.
(i) GENPHARM PREFERRED STOCK. (A) In accordance with the terms of
GenPharm's Articles of Incorporation and the Merger Agreement, the outstanding
shares of GenPharm Preferred Stock will be entitled to receive a portion of the
Purchase Price with an aggregate value of $40,378,646 (the "Preference Amount")
before any payment in respect of the Purchase Price is to be made to holders of
GenPharm Common Stock. The Preference Amount is allocable among the nine series
of GenPharm Preferred Stock as set forth under the column "Sharing Percentages"
in the table below. The balance of the Purchase Price (assuming that cumulative
adjustments do not reduce the Purchase Price below the Preference Amount) is to
be shared by the holders of GenPharm Common Stock and each series of GenPharm
Preferred Stock pro rata based on a deemed conversion of the GenPharm Preferred
Stock into GenPharm Common Stock at the respective conversion rates ("Conversion
Rates") set forth in the table below:
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<PAGE>
<TABLE>
<CAPTION>
PREFERENCE AMOUNT
-----------------
NO. OF $ PER SHARING CONV. AS CONV.
SERIES SHARES SHARE AGGREGATE PERCENTAGES RATE SHS.
- ---------- --------- ------ ----------- ------------ ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Series A 800,000 .375 $ 300,000 .743% 0.5 400,000
Series B 800,000 .375 300,000 .743% 0.5 400,000
Series C 4,055,200 1.50 6,082,800 15.064% 0.5 2,027,600
Series D 2,342,858 1.75 4,100,002 10.154% 0.5 1,171,429
Series E 4,675,700 3.50 16,364,950 40.529% 0.5 2,337,850
Series F 111,112 9.00 1,000,008 2.476% 1.040 115,556
Series G 230,000 10.00 2,300,000 5.696% 1.055 242,650
Series H 1,143,697 7.00 8,005,879 19.828% 1.0 1,143,697
Series I 275,001 7.00 1,925,007 4.767% 1.0 275,001
----------- ------ ---------
TOTALS $40,378,646 100% 8,113,783
=========== ====== =========
</TABLE>
(B) Initial Shares. At the Closing Date, Medarex will issue 2,000,000
shares of Medarex Common Stock (the "Initial Payment Shares") to the holders
of GenPharm Preferred Stock. On the Initial Placement Date (as defined
below), Medarex will issue a number of additional shares of Medarex Common
Stock (the "Placement Date Shares") to the holders of GenPharm 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 Purchase Price, 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 as the "Initial Shares." If
the Per Share Placement Amount (as defined below) is $12.42 or lower, the
total number of Initial Shares will be 3,250,000 (assuming the Purchase
Price, as adjusted, exceeds the Preference Amount). The holders of the
Initial Shares will be entitled to participate in a sale of their Initial
Shares (the "Initial Placement") managed by a placement agent (the
"Placement Agent") chosen by Medarex. See "The Merger Agreement--
Restrictions on Transfer of Medarex Common Stock." The date of the closing
of the Initial Placement (the "Initial Placement Date") will occur, if at
all, during 1997. In the event the Initial Placement does not occur on or
prior to December 31, 1997, the Initial Placement Date will be deemed to be
December 31, 1997, and the Placement Date Shares will be issued on that
date. The principal benefit of participating in the Initial Placement is
that any Initial Shares that are not sold in the Initial Placement cannot be
sold without the consent of Medarex until 1999. See "--Restrictions on
Transfer of Medarex Common Stock." The principal detriment would be the
possibility that the sale of a large number of shares could depress the
price received in the Initial Placement and that the market value of the
Medarex Common Stock received in the Merger could rise substantially by
1999. No representation can be made regarding the price at which Initial
Shares may be sold in the Initial Placement.
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 on
or before December 31, 1997, the Per Share Placement Amount will be the Fair
Market Value of the Medarex Common Stock 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.
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The fractional share of Medarex Common Stock which the holder of each
outstanding share of each series of GenPharm Preferred Stock will be
entitled to receive as of the Effective Time (from the Initial Payment
Shares) will be equal to the quotient obtained by dividing (1) the product
obtained by multiplying (x) the 2,000,000 Initial Payment Shares by (y) the
applicable Sharing Percentage set forth in the table in paragraph (i)(A)
above for such series of GenPharm Preferred Stock, by (2) the total number
of shares of such series of GenPharm Preferred Stock outstanding immediately
prior to the Effective Time as set forth in the table in paragraph (i)(A)
above.
The fractional share of Medarex Common Stock which the holder of each
outstanding share of each series of GenPharm Preferred Stock will be
entitled to receive on the Initial Placement Date (from the Placement Date
Shares) will 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 set forth in the table in paragraph (i)(A)
above for such series of GenPharm Preferred Stock, by (2) the total number
of shares of such series of GenPharm Preferred Stock outstanding immediately
prior to the Effective Time as set forth in paragraph (i)(A) above.
(C) Additional Shares. Under the terms of the Merger Agreement,
"Additional Shares" is defined to mean any and all Medarex Common Stock
issued as payment of the Purchase Price that are not Initial Shares. In
addition to the Initial Shares to be distributed to the holders of GenPharm
Preferred Stock as described in paragraph(i)(B) above, on December 31, 1998
(the "Second Payment Date"), the holders of GenPharm Preferred Stock will be
entitled to receive Additional Shares having an aggregate Fair Market Value
as of the Second Payment Date equal to the Preference Amount, less the
Initial Placement Amount (the "Second Payment Amount"), up to but not
exceeding the balance of the Purchase Price, as adjusted.
The fractional share of Medarex Common Stock which the holder of each
outstanding share of each series of GenPharm Preferred Stock will be
entitled to receive on the Second Payment Date (in addition to any
fractional share of Medarex Common Stock issuable with respect thereto as
described in paragraph (ii) below) will be equal to the quotient obtained by
dividing (1) the product obtained by multiplying (x) the aggregate number of
shares of Medarex Common Stock to be issued on the Second Payment Date by
(y) the applicable Sharing Percentage set forth in the table in paragraph
(i)(A) above for such series of GenPharm Preferred Stock, by (2) the total
number of shares of such series of GenPharm Preferred Stock outstanding
immediately prior to the Effective Time as set forth in the table in
paragraph (i)(A) above.
(ii) COMMON STOCK AND DEEMED CONVERTED PREFERRED STOCK. Once the Initial
Placement Amount, plus any Additional Shares, having an aggregate value as
determined above equal to the full Preference Amount have been distributed to
the holders of GenPharm Preferred Stock, each series of GenPharm Preferred Stock
will, for purposes of determining any Additional Shares to be issued in respect
thereof, be deemed to be converted into shares of GenPharm Common Stock on the
basis of the Conversion Rates set forth in the table in paragraph (i)(A) above.
On the Second Payment Date each share of GenPharm Common Stock, including shares
of GenPharm Common Stock into which shares of GenPharm Preferred Stock are
deemed to have been converted, will share in the Purchase Price, as adjusted, to
be distributed, if any, in excess of the Preference Amount (the "Common Stock
Payment Amount"). The fractional share of Medarex Common Stock which the holder
of each share of GenPharm Common Stock
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outstanding or deemed to be outstanding at the Effective Time will be entitled
to receive (the "Common Exchange Ratio") will 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 Medarex Common Stock
on the Second Payment Date. "Fully Diluted Shares" means the sum of (1) the
number of issued and outstanding shares of GenPharm Common Stock, (2) the number
of shares of GenPharm Common Stock issuable upon the conversion of issued and
outstanding GenPharm Preferred Stock as set forth in the table in paragraph
(i)(A) above and (3) the number of shares of GenPharm Common Stock issuable upon
the exercise of the GenPharm Options (as defined herein) outstanding as of the
Effective Time. The effect of taking into account the shares of GenPharm Common
Stock issuable upon exercise of GenPharm Options in determining the Common
Exchange Ratio is to allocate a portion of the Purchase Price, as adjusted, to
the GenPharm Options.
The term "Fair Market Value" of the Medarex Common Stock means the average
closing sales price of the Medarex Common Stock 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.
(iii) FINAL PAYMENT. In the event that any of the Third Party Payments (as
defined below) has not been received by GenPharm by December 15, 1998 but is
received by December 15, 1999, the holders of GenPharm Preferred Stock and
GenPharm 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
Purchase Price, as adjusted, less the sum of (1) the Initial Placement Amount,
(2) the Second Payment Amount and (3) the Common Stock Payment Amount. "Final
Payment Date" means a date after the Second Payment Date selected by Medarex,
which will be not later than the earlier of (1) thirty days following the
receipt of the last Third Party Payment and (2) December 31, 1999.
"Third Party Payments" means the two $7.5 million license fee payments
contingently payable to GenPharm pursuant to the Cross-License Agreement and
also the $15 million in principal and approximately $1.6 million in interest
payments and other consideration receivable by GenPharm pursuant to the
Convertible Subordinated Promissory Note of Cell Genesys (the "Convertible
Note"). The Third Party Payments aggregate approximately $31.6 million.
If, prior to the Final Payment Date, the holders of GenPharm Preferred Stock
shall have received a portion of the Purchase Price at least equal to the
Preference Amount, the fractional share of Medarex Common Stock which the holder
of each outstanding share of GenPharm Common Stock, including shares of GenPharm
Preferred Stock deemed converted pursuant to paragraph (ii), will be entitled to
receive on the Final Payment Date will be determined in the same manner as in
paragraph (ii) above. If, prior to the Final Payment Date, the holders of
GenPharm Preferred Stock shall not have received a portion of the Purchase Price
at least equal to the Preference Amount, then the Final Payment Amount will be
paid as provided in paragraph (i)(B) above, but only up to an amount equal to
the excess of the Preference Amount over the portion of the Purchase Price
theretofore distributed to the holders of GenPharm Preferred Stock; and the
balance, if any, of the Final Payment Amount will be paid in accordance with
paragraph (ii) above.
(iv) EXAMPLE OF PAYOUT OF PURCHASE PRICE. The following example is to
provide shareholders with an illustration of the application of the foregoing
payment terms to a hypothetical set of facts. The
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actual facts may differ materially and could result in the Common Exchange Ratio
being substantially lower than in the example and even being zero.
Assuming (i) the Purchase Price, as adjusted, is $62,625,000, (ii) the Per
Share Placement Amount is $7.00, (iii) the last Third Party Payment is received
before December 15, 1998, (iv) there are 2,013,413 shares of GenPharm Common
Stock outstanding at the Effective Time (including 120,000 shares issued upon
the net exercise of outstanding warrants), (v) 568,749 shares of GenPharm Common
Stock issuable upon exercise of GenPharm Options outstanding as of the Effective
Time, and (vi) there are 14,433,568 shares of GenPharm Preferred Stock
outstanding at the Effective Time, convertible into 8,113,783 shares of GenPharm
Common Stock, the following issuances of Medarex Common Stock would occur:
(A) On the Closing Date (subject to exchange of stock certificates),
2,000,000 shares to the holders of GenPharm Preferred Stock.
(B) On the Initial Placement Date, 1,250,000 shares to the holders of
GenPharm Preferred Stock.
(C) On December 31, 1998:
1. Shares having an aggregate Fair Market Value of $17,628,646 to the
holders of GenPharm Preferred Stock (representing the balance of the
Preference Amount).
2. Shares having an aggregate Fair Market Value of $22,246,354 to the
holders of GenPharm Common Stock and GenPharm Options and to holders of
deemed converted GenPharm Preferred Stock, or $2.08 per share of GenPharm
Common Stock on an as converted basis.
(v) ADJUSTMENTS TO PURCHASE PRICE. (A) In the event the product obtained
by multiplying (x) 3,500,000 by (y) the Per-Share Placement Amount (the
"Adjusted Placement Amount") is less than $20,000,000 (the "Initial Placement
Floor"), the aggregate amount of the Purchase Price, as adjusted, will 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 exceeds $30,000,000 (the "Initial Placement Ceiling"),
the aggregate amount of the Purchase Price, as adjusted, will 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 (i.e., shares that are not Initial Shares) are sold
in the Initial Placement, then the Initial Placement Floor and the Initial
Placement Ceiling will be increased, respectively, by an amount equal to the
percentage increase in Additional Shares over Initial Shares.
(B) The aggregate amount of the Purchase Price will also be reduced on a
dollar-for-dollar basis to the extent that the following amounts total less than
$33 million (the "Third Party Payment Adjustment"): the amount of GenPharm's
cash and cash equivalents plus working capital (exclusive of cash and cash
----
equivalents and any Third Party Payments) and the amount by which the Purchase
Price is reduced pursuant to paragraph (iv)(C) below (unless paid by Medarex),
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 GenPharm
----
between the Closing Date and December 31, 1997,
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(2) a $750,000 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 Third Party Payments (net of the liability
for income taxes attributable to the Third Party Payments, including the receipt
of the Convertible Note, (the "Tax Liability") and legal and other expenses
related thereto) received by GenPharm after the Closing Date; provided, however,
that there shall be a credit against any such Third Party Payment Adjustment in
an amount equal to any Initial Placement Floor Adjustment made pursuant to
paragraph (iii)(A) above resulting from the sale of Initial Shares below the
Initial Placement Floor. On or before the Closing Date, Medarex and GenPharm
have agreed to use their best good faith efforts to agree upon the projected
income and expenses of GenPharm for the period between the Closing Date and
December 31, 1997.
(C) The aggregate amount of the Purchase Price will also be reduced, on a
dollar-for-dollar basis, in an amount equal to the lesser of (x) one-half of the
amount of any fee paid by GenPharm to any investment banking firm or financial
advisor engaged by GenPharm in connection with the Merger or (y) $100,000.
GenPharm has agreed to pay to its financial advisor a fee exceeding $200,000, so
that the $100,000 limitation will apply.
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Prepayment of Purchase Price. Medarex has the right at any time to prepay
----------------------------
all or a portion of the Purchase Price by delivering Additional Shares to the
holders of GenPharm Preferred Stock or GenPharm Common Stock, as the case may
be, in a manner consistent with the above provisions. Medarex will receive a
credit against the Purchase Price due equal to the Fair Market Value of such
Additional Shares on the date such Additional Shares are delivered to the
holders of GenPharm Preferred Stock or GenPharm 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.
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Payment of Purchase Price in Cash. Medarex has the option to pay all or a
---------------------------------
portion of the Purchase Price in cash at any time, in a manner consistent with
the above provisions, but only in the event that either (x) the shareholders of
Medarex shall not have approved the issuance of the Additional Shares, or (y)
the Fair Market Value per share of Medarex Common Stock at the date of such
payment is $5.00 or less.
Transferability. The right to receive Initial Shares or Additional Shares
---------------
may not be assigned or transferred in any manner except by operation of law, or
by will or by the laws of descent.
Adjustments. If between the date of the Merger Agreement and the date of
-----------
payment of any shares of Medarex Common Stock the outstanding shares of Medarex
Common Stock 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 the Merger Agreement will be
adjusted correspondingly.
Closing of GenPharm's Transfer Books. At the Effective Time, the stock
------------------------------------
transfer books of GenPharm shall be closed and no transfer of GenPharm Common
Stock or GenPharm Preferred Stock shall be made thereafter.
ASSUMPTION OF OPTIONS AND WARRANTS
As of the Effective Time, Medarex will assume each unexpired option to
purchase shares of GenPharm Common Stock ("GenPharm Options") outstanding at the
Effective Time under GenPharm's stock option plans (the "GenPharm Plans") and
each GenPharm Option will thereafter be exercisable for a number of shares of
Medarex Common Stock equal to the number of shares of GenPharm Common Stock
subject to such GenPharm Option immediately prior to the Effective Time
multiplied by the Common Exchange Ratio. The exercise price per share of
Medarex Common Stock for each GenPharm Option shall be the exercise price per
share under such GenPharm Option divided by the Common Exchange Ratio, rounded
up to the nearest $.01. Each assumed GenPharm Option shall be upon the same
terms and conditions as were applicable under the GenPharm Option except for the
adjustments in the number of shares issuable upon exercise and the exercise
price thereof contemplated above.
All outstanding warrants to purchase GenPharm Common Stock or GenPharm
Preferred Stock will by their terms expire at the Effective Time, except for
outstanding warrants (the "GenPharm Warrants") to purchase 50,000 shares of
GenPharm Series C Preferred Stock, which shall thereafter continue in effect on
the same terms except that (i) for each share of GenPharm Series C Preferred
Stock purchasable thereunder there shall be purchasable following the Effective
Time a fractional share of Medarex Common Stock equal to the same fractional
share that a holder of GenPharm Series C Preferred Stock will be entitled to
receive pursuant to the terms of the Merger Agreement (the "Series C Preferred
Exchange Ratio") and (ii) the exercise price of the GenPharm Warrants per share
of Medarex Common Stock shall be $3.00 divided by the Series C Preferred
Exchange Ratio.
EXCHANGE OF STOCK CERTIFICATES
As soon as reasonably practicable after the Effective Time, Continental
Stock Transfer & Trust Company, which has been designated as the exchange agent
(the "Exchange Agent") for the Merger, will mail transmittal instructions and a
letter of transmittal to each holder of GenPharm Common Stock and
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GenPharm Preferred Stock. The transmittal instructions and the letter of
transmittal will describe the procedures to exchange certificates that prior to
the Merger represented GenPharm Common Stock and GenPharm Preferred Stock (the
"Certificates") for Medarex Common Stock. GENPHARM SHAREHOLDERS SHOULD NOT
SUBMIT THEIR CERTIFICATES FOR EXCHANGE UNTIL THEY HAVE RECEIVED THEIR
TRANSMITTAL INSTRUCTIONS AND LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
When a GenPharm shareholder delivers his or her Certificates to the Exchange
Agent together with a properly executed letter of transmittal and any other
required documents, such Certificates will be canceled and the GenPharm
shareholder will receive Medarex Common Stock to which the GenPharm shareholder
is entitled under the Merger Agreement and payment in lieu of any fractional
shares of Medarex Common Stock. If any Medarex Common Stock is to be issued in
a name other than that in which the corresponding Certificate is registered, it
is a condition to the exchange of the Certificate that the GenPharm shareholder
comply with applicable transfer requirements set forth in such letter of
transmittal and pay any applicable transfer or other taxes.
GenPharm shareholders will not be entitled to receive any dividends or other
distributions on the Medarex Common Stock until the Merger has been consummated
and they have exchanged their Certificates for Medarex Common Stock. Subject to
applicable law, such dividends and distributions which have a record date after
the Effective Time, if any, will be accumulated and, at the time a GenPharm
shareholder surrenders his or her Certificates to the Exchange Agent, all
accrued and unpaid dividends and distributions, together with any cash payments
in lieu of fractional shares of Medarex Common Stock, will be paid without
interest. Medarex does not currently have any intention to make any dividend or
other distribution on the Medarex Common Stock.
NO FRACTIONAL SHARES
No fractional shares will be issued by Medarex in the Merger. Each GenPharm
shareholder 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 Medarex Common Stock on the Closing Date, the Initial
Placement Date, the Second Payment Date or the Final 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, the
fractional share interests of each GenPharm shareholder will be aggregated such
that no shareholder will receive, in any single distribution, cash in excess of
the Fair Market Value of one share of Medarex Common Stock.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties by each
of Medarex and GenPharm relating to, among other things (i) organization and
similar corporate matters, (ii) capital structure, (iii) the authorization,
execution, delivery, performance and enforceability of the Merger Agreement and
the transactions contemplated thereby, (iv) the absence of violations of or
conflicts with their respective charters and by-laws, any instruments or laws,
and any required consents or approvals, (v) compliance with all permits,
licenses, exemptions, orders and approvals of all governmental entities,
including the FDA, (vi) the documents and reports filed by Medarex with the
Securities and Exchange Commission (the "Commission") and the accuracy of the
information contained therein, (vii) the absence
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of certain events, changes or effects, (ix) litigation and (x) the use of
brokers. Medarex has made representations and warranties relating to the
operations of Merger Sub. GenPharm has also made representations and warranties
relating to (i) employee representation by labor unions or employee involvements
in any other organizational activity, (ii) retirement and other employee plans
and matters relating to the Employee Retirement Income Securities Act of 1974,
as amended, (iii) tax matters, (iv) intellectual property rights, (v) title to
properties, liens and encumbrances, and leases, (vi) compliance with
environmental laws, (vii) effectiveness of material contracts, (viii) affiliated
parties and transactions, (ix) conduct of preclinical trials in accordance with
protocols filed with appropriate regulatory authorities, and (x) its HuMab-
Mouse/TM/ technology.
CERTAIN COVENANTS
Pursuant to the Merger Agreement, during the period from the date of the
Merger Agreement until the Effective Time, GenPharm has agreed to (except as
permitted by the Merger Agreement or as consented to in writing by Medarex) (i)
conduct its business in the ordinary course and in a manner consistent with past
practice and in compliance with applicable laws, (ii) use its reasonable best
efforts to preserve intact the business organization of GenPharm, (iii) keep
available the services of present officers, employees and consultants and
preserve its present relationships with its customers, suppliers and other
persons with whom GenPharm has significant business relations, (iv) preserve and
maintain in effect all of GenPharm's intellectual property, (v) not declare, set
aside or pay any dividend or make other distributions in respect of, any of its
capital stock, or 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 GenPharm capital stock, or purchase, redeem or
otherwise acquire or agree to acquire any shares of capital stock of GenPharm or
any other securities convertible into shares of capital stock or any rights,
warrants or options to acquire any such shares or convertible securities, (vi)
not authorize for issuance, issue, deliver, sell or agree or commit to issue,
sell or deliver, pledge or otherwise encumber any shares of this 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, (vii)
except to the extent required by existing GenPharm employee benefit plans, not
increase the compensation or benefits of any of its directors, officers or
employees, except for increases in compensation which are made in the ordinary
course of business in accordance with past practice, or grant any severance or
termination pay not currently required to be paid under existing GenPharm
employee benefit plans, or establish, adopt, enter into or amend or terminate
any GenPharm employee benefit plan, or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any directors, officers or employees,
(viii) except as may be required by the Merger Agreement, not amend the GenPharm
Articles of Incorporation or the GenPharm By-Laws or alter through merger,
liquidation, reorganization, restructuring or in any other fashion the corporate
structure or ownership of GenPharm, (ix) except as allowed by the Merger
Agreement, not acquire or agree to acquire by means of merger or consolidation,
or by purchasing a substantial portion of the stock or assets of any business,
corporation, partnership, association or other business organization or division
thereof, other than in the ordinary course of business consistent with past
practice, (x) not 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,
(xi) not incur any indebtedness for borrowed money (or guarantees thereof),
issue or sell any debt securities or warrants or other rights to acquire any
debt securities of GenPharm, guarantee any debt securities of another or enter
into any "keep well" agreements to maintain the financial condition of any other
person, or make any loans, advances or capital contributions to, or investments
in, any other person, (xii) not expend, or
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commit to expend, funds for capital expenditures other than in accordance with
current GenPharm capital expenditure plans in excess of $10,000 in any one
transaction or series of related transactions, (xiii) not 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, (xiv) not recognize any labor union, (xv)
not change any of the accounting methods, practices or principles used by
GenPharm, (xvi) not make any tax election or settle or compromise any income tax
liability in excess of $10,000, except as permitted by the Merger Agreement,
(xvii) not commence any litigation (except litigation that might arise out of
the Merger Agreement) and not settle or compromise any litigation in which
GenPharm is a defendant or settle, pay or compromise any claims not required to
be paid, (xviii) not enter into any new line of business, (xix) not commence any
new preclinical or clinical trials or submit any data or other materials or
enter into any discussion with the FDA or any other governmental entity, (xx)
not 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, (xxi) not 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, (xxii) not 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), (xxiii) not enter into or modify any new or existing agreements
for the lease or purchase of real property, or (xxiv) not authorize any of, or
commit to agree to take any of, the foregoing actions or any other action which
would make any of the representations or warranties of GenPharm contained in the
Merger Agreement untrue and incorrect.
Pursuant to the Merger Agreement, during the period from the date of the
Merger Agreement until the Effective Time, the Merger Sub has agreed not to
engage in any activities of any nature except as provided in, or in connection
with, the transactions contemplated by the Merger Agreement.
ADDITIONAL AGREEMENTS
Pursuant to the Merger Agreement, Medarex and GenPharm have agreed that (i)
GenPharm will afford Medarex access to GenPharm's officers, properties, offices,
plants and information as Medarex may reasonably request, (ii) Medarex and
GenPharm will abide by the terms of the Confidentiality Agreement dated February
27, 1997 between Medarex and GenPharm, and (iii) GenPharm and Medarex will
comply with all legal requirements imposed on each other with respect to the
Merger and furnish information to the other party in connection with such legal
requirements. Medarex has agreed to maintain GenPharm's employee benefit plans
and compensation for GenPharm's employees in substantially similar fashion as
previously maintained by GenPharm. Medarex has also agreed to file and maintain
registration statements with the Commission after the Effective Time relating to
the issuance of shares of Medarex Common Stock upon the exercise of the GenPharm
Options.
In addition, Medarex has agreed that on the Initial Placement Date Medarex
will issue 250,000 shares of Medarex Common Stock (the "Employee Shares") to
certain employees of GenPharm as partial payment of a stock bonus granted by the
GenPharm Board to the employees of GenPharm prior to the date of the Merger
Agreement. Furthermore, on the Second Payment Date, Medarex will issue to those
GenPharm employees who remain employees until December 31, 1997 (or such earlier
time as Medarex agrees) a number of additional Employee Shares having a Fair
Market Value as of the Second Payment
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Date equal to 3.626943% of the Purchase Price as adjusted less (1) the gross
proceeds received by such GenPharm employees from the sale of their Employee
Shares in the Initial Placement and (2) a number of Employee Shares having a
Fair Market Value as of the Second Payment Date equal to the amount of any tax
withholding requirements with respect to such second bonus.
NO SOLICITATIONS OF OTHER TRANSACTIONS
The Merger Agreement provides that GenPharm shall not nor shall GenPharm
authorize or permit any of its officers, directors or employees, or any
investment banker, financial advisor, attorney, accountant or other
representative retained by GenPharm 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, a Transaction Proposal (as defined below) or
enter into or maintain or continue any discussion or negotiate with any person
in furtherance of such inquiries or to obtain a Transaction Proposal, or agree
to or endorse any Transaction Proposal. The GenPharm Board may, without
violating the terms of the Merger Agreement (i) furnish information to any
persons or entity who makes an unsolicited inquiry concerning a possible
Transaction Proposal, (ii) enter into any negotiations or discussions with any
person or entity that makes an unsolicited Transaction Proposal regarding that
Transaction Proposal, or (iii) enter into an unsolicited Transaction Proposal
if, in the case of clauses (ii) or (iii), the GenPharm Board determines in good
faith, after advice of counsel, that (a) the failure to do so could reasonably
be deemed to be a breach of its fiduciary duties under applicable law, or (b)
failing to make, withdrawing, modifying or changing a recommendation to
GenPharm's shareholders with respect to the approval and adoption of the Merger
Agreement if the GenPharm Board 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 GenPharm Board may, without violating the
Merger Agreement, take and disclose to GenPharm shareholders a position with
respect to any tender or exchange offer, or make such other disclosures to
GenPharm shareholders as, based upon the advice of counsel, may be required by
law. GenPharm must immediately notify Medarex of any negotiations, request for
information or discussion with respect to a Transaction Proposal, and keep
Medarex fully informed of the status and details of any such Transaction
Proposal or request, subject to the fiduciary duties of the GenPharm Board as
set forth above.
A "Transaction Proposal" means (i) any acquisition or purchase of
substantially all of the assets of, or any controlling interest in, or any debt
or equity offering of, GenPharm or any Business Combination, as defined below,
or (ii) any proposal, plan or agreement to do any of the foregoing.
A "Business Combination" means (i) the acquisition by any person (other than
Medarex or any of its subsidiaries) of beneficial ownership (as such term is
defined in Rule 13d-3 promulgated 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 them outstanding stock and other securities of
GenPharm entitled (without regard to the occurrence of any contingency) to vote
in the election of directors of GenPharm ("Voting Stock"); (ii) the
consolidation or merger of GenPharm with or into any person (other than Medarex
or any of its subsidiaries) in a transaction in which GenPharm shall not be the
surviving or continuing corporation; (iii) the merger or consolidation of any
person (other than Medarex or any of its subsidiaries) with or into GenPharm in
a transaction in which GenPharm 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
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outstanding immediately after such merger or consolidation; (iv) any sale or
other transfer (including by way of dividend or distribution of assets to
GenPharm's shareholders), in one transaction or in a series of related
transactions, of all or a substantial portion of GenPharm's consolidated assets
or business to any person (other than Medarex or any of its subsidiaries) or
group.
INSURANCE; INDEMNIFICATION
The Merger Agreement provides that Medarex will indemnify the present and
former officers, directors, employees and agents of GenPharm to the fullest
extent required or permitted by applicable law and that all rights to
indemnification existing in favor of such persons as provided in the GenPharm
Articles of Incorporation and the GenPharm By-Laws will survive the Merger and
continue in full force and effect without time limitation from and after the
Effective Time. Further, the charter and by-laws of the surviving corporation
of the Merger with respect to indemnification will not be amended, repealed or
otherwise modified for a period of six years after the Effective Time in any
manner that would adversely affect the rights of such individuals thereunder.
CONDITIONS OF THE MERGER
The respective obligations of Medarex and Genpharm to effect the Merger are
subject to a number of conditions, including among others (i) the Merger
Agreement shall have been approved and adopted by the affirmative vote of the
holders of majority of the outstanding shares of GenPharm Common Stock and
GenPharm Preferred Stock entitled to vote thereon each voting separately as a
single class, (ii) all amendments to GenPharm's Articles of Incorporation
necessary to eliminate any conflicts with the Merger Agreement (the "Required
Amendments") shall have been approved by the GenPharm shareholders, (iii) the
shares of Medarex Common Stock issuable in the Merger shall have been authorized
for listing on The Nasdaq Stock Market, upon official notice of issuance, (iv)
all consents, approvals, authorizations or permits or, actions by, or filings
with or notifications to any governmental entity or any third party, the failure
of which to obtain or file would have a material adverse effect on the
consummation of the Merger of the business of GenPharm, shall have been filed,
occurred or been obtained, and (v) no injunction or other order, legal restraint
or prohibition preventing the consummation of the Merger shall be in effect.
The obligation of Medarex and Merger Sub to effect the Merger are also
subject to the conditions that (i) the representations and warranties of
GenPharm set forth in the Merger Agreement shall be true and correct as of the
Closing Date except as does not have a Material Adverse Effect (as defined
below), (ii) GenPharm shall have performed and complied in all material respects
with all of its agreements and covenants set forth in the Merger Agreement to be
performed or complied with by GenPharm, (iii) Medarex shall have received the
opinion of counsel to GenPharm in the form set forth in the Merger Agreement,
(iv) all consents required to be delivered by GenPharm under the Merger
Agreement shall have been obtained and delivered to Medarex and (v) holders of
more than 400,000 shares of GenPharm Common Stock shall not have exercised, nor
shall they have any continued right to exercise, appraisal, dissenters' or
similar rights. The obligation of GenPharm to effect the Merger is also subject
to the conditions that (i) the representations and warranties of Medarex and
Merger Sub set forth in the Merger Agreement shall be true and correct as of the
Closing Date except as does not have a Material Adverse Effect (as defined
below), (ii) Medarex and Merger Sub shall have performed and complied in all
material respects with all of their agreements and covenants set forth in the
Merger Agreement to be preformed and complied with by Medarex or Merger Sub,
(iii) the opinion of counsel to GenPharm to the effect that
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the Merger will be treated for federal income tax purposes as a reorganization
under Section 368(a) of the Code referred to in this Prospectus/Consent
Solicitation Statement shall not have been withdrawn or modified in any material
respect and (iv) GenPharm shall have received an opinion of counsel to Medarex
in the form set forth in the Merger Agreement.
For the purposes of the Merger Agreement, the term "Material Adverse Effect"
means with respect to Medarex or GenPharm, as the case may be, a material
adverse change in or effect on (i) the business, prospects, results of
operations or condition (financial or other) of such party, or (ii) the ability
of such party to consummate any of the transactions contemplated by the Merger
Agreement. The consummation of the Merger is not conditioned upon the approval
of the Parachute Payments by the GenPharm shareholders.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the shareholders of GenPharm (i) by
mutual consent of Medarex and GenPharm, (ii) by Medarex, upon any breach of any
representation, warranty, covenant or agreement of GenPharm set forth in the
Merger Agreement that, either individually or in the aggregate, would constitute
grounds for Medarex to elect not to consummate the Merger due to a failure of
the conditions to Medarex's obligation to close specified above, if such breach
cannot be cured prior to the closing date of the Merger or has not been cured
within 45 days after the date on which written notice of such breach is given by
Medarex to GenPharm, (iii) by GenPharm, upon any breach of any representation,
warranty, covenant or agreement of Medarex set forth in the Merger Agreement
that, either individually or in the aggregate, would constitute grounds for
GenPharm to elect not to consummate the Merger due to a failure of the
conditions to GenPharm's obligation to close specified above, if such breach
cannot be cured prior to the closing date of the Merger or has not been cured
within 45 days after the date on which written notice of such breach is given by
GenPharm to Medarex, (iv) by either Medarex or GenPharm, if any permanent
injunction or action by any governmental entity shall have become final and
nonappealable, (v) by either Medarex or GenPharm, if (other than due to the
willful failure of the party seeking to terminate the Merger Agreement to
perform its obligations thereunder which are required to be performed at or
prior to the Effective Time) the Merger shall not have been consummated by
October 31, 1997, (vi) by either Medarex or GenPharm, if the approval of the
shareholders of GenPharm of the Merger Agreement and the Merger shall not have
been obtained by October 31, 1997, (vii) by either Medarex or GenPharm, if (a)
the GenPharm Board shall have approved or have recommended to the shareholders
of GenPharm a Transaction Proposal or shall have resolved to do the foregoing,
or (b) a Takeover Proposal is commenced (other than by Medarex of any of its
subsidiaries or affiliates) and the GenPharm Board recommends that the
shareholders of GenPharm 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 the Merger Agreement may only be terminated by GenPharm if and
only to the extent that the GenPharm Board, 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 GenPharm Board's fiduciary
duties under applicable law, (viii) by Medarex, in the event of a material
adverse change in the business, prospects or financial condition of GenPharm or
(ix) by GenPharm in the event of a material adverse change in the business,
prospects or financial condition of Medarex.
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In the event of termination of the Merger Agreement by either Medarex or
GenPharm as described above, the Merger Agreement shall become void and there
will be no liability or obligation on the part of either Medarex, GenPharm,
Merger Sub or their respective officers or directors pursuant to the Merger
Agreement, except as set forth below or unless such termination arises from a
willful and material breach of the Merger Agreement.
EXPENSES AND TERMINATION FEE
Except as set forth below, the Merger Agreement provides that all costs and
expenses incurred in connection with the Merger Agreement and the transactions
contemplated thereby shall be paid by the party incurring such expenses.
The Merger Agreement provides that if the Merger agreement is terminated
because (i) the Merger Agreement, the Merger and the Required Amendments fail to
receive the requisite vote for approval and adoption by the shareholders of
GenPharm (unless prior to such termination, either Medarex or GenPharm shall
have had another valid basis for terminating the Merger Agreement), or (ii) the
GenPharm Board approved or has recommended to the shareholders a Transaction
Proposal or has resolved to do the foregoing, or a Takeover Proposal is
commenced and the GenPharm Board recommends that the shareholders of GenPharm
tender their shares in such Takeover Proposal or has otherwise failed to
recommend that such shareholders reject such Takeover Proposal within ten
business days of the commencement thereof, then GenPharm shall pay to Medarex a
fee of $3,500,000. In addition, in the event of a termination by Medarex in
accordance with the provisions of (i) or (ii) above and GenPharm shall
consummate a Business Combination within 18 months from the date of the Merger
Agreement, GenPharm shall pay Medarex an additional $5,000,000. Any cash
payment required to be made in such circumstance shall be made within sixty days
after the date that GenPharm enters into a definitive agreement with respect to
such Transaction Proposal or the completion of any such Takeover Proposal.
Termination of GenPharm's obligations shall not occur until such payment has
been made. GenPharm further covenants and agrees that it will not enter into a
definitive agreement relating to a Transaction Proposal that would require
payment of such amounts unless the other party thereto unconditionally agrees
in writing to assume, undertake and perform all of GenPharm's payment
obligations under this provision and to pay any legal expense incurred by
Medarex in connection with the enforcement thereof.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by action taken by or on behalf of the
respective boards of directors of Medarex and GenPharm; provided that, after
approval of the Merger Agreement by the shareholders of Genpharm, no amendment
may be made that would reduce the amount or change the type of consideration
into which each share of GenPharm Common Stock and GenPharm Preferred Stock
shall be converted upon consummation of the Merger.
At any time prior to the Effective Time, either Medarex or GenPharm may (i)
extend the time for the performance of any of the obligations to be performed by
another party, (ii) waive any inaccuracies in the representations and warranties
by another party contained in the Merger Agreement or in any documents delivered
pursuant to the Merger Agreement, or (iii) waive compliance with any of the
agreements of another party or conditions contained in the Merger Agreement.
GenPharm does not expect to give any such waiver under circumstances in which,
in the opinion of its Board of Directors,
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the waiver would be material to the vote of its shareholders, unless a re-
solicitation of the shareholders' Written Consents occurs.
RESTRICTIONS ON TRANSFER OF MEDAREX COMMON STOCK
(a) Except as provided in paragraph (b) below, for the period (the "Lock-Up
Period") following the Closing Date and ending on the Second Payment Date, a
GenPharm shareholder shall not engage in any Sale (as defined below) of Initial
Shares without the prior written consent of Medarex. Under the terms of the
Merger Agreement 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 above
restrictions. In order to ensure compliance with the restrictions on transfer
set forth above, Medarex will cause a legend to be placed on each certificate of
Initial Shares issued in connection with the Merger.
(b) (i) On or before the Initial Placement Date, Medarex will use its best
efforts to cause the Initial Shares and the Employee 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. Medarex shall give
written notice (a "Placement Notice") by registered or certified mail, at least
thirty days prior to the date of the commencement of the Initial Placement, to
the registered holders of Medarex Common Stock issued in the Merger of its
intention to cause the Initial Placement to occur. If a holder of Medarex
Common Stock notifies Medarex within twenty days after receipt of the Placement
Notice of its or his desire to include Medarex Common Stock in the Initial
Placement, Medarex 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, GenPharm Preferred Stock and GenPharm
Common Stock, as the case may be, who participate 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 Medarex Common Stock 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 Medarex Common Stock sold in the
Initial Placement by such Initial Placement Participant by the total number of
Medarex Common Stock sold in the Initial Placement, by (2) the quotient obtained
by dividing the Placement Agent Fee Amount by the Fair Market Value of a Medarex
Common Stock on the Second Payment Date.
(iii) Medarex 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 paragraph (b)(i) above
including, but not limited to, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for Medarex,
blue sky fees and expenses, the
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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 Medarex Common
Stock by the GenPharm's shareholders and GenPharm employees; or (B) any fees or
expenses of any counsel, accountants or other persons retained or engaged by the
Company's shareholders and GenPharm employees in connection with any such sale
or disposition.
(iv) A pricing committee (the "Pricing Committee"), composed of one
member chosen by Medarex and one member chosen by the directors of GenPharm
holding office immediately prior to the Effective Time shall, in consultation
with the Placement Agent, determine the number of shares of Medarex Common Stock
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 per share.
(v) Notwithstanding the provisions of paragraph (b)(i) above, Medarex
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 Medarex or the market for
shares of Medarex Common Stock.
(vi) In the event a holder of Medarex Common Stock elects not to
participate in the Initial Placement such holder may not engage in any Sale of
shares of Medarex Common Stock until the expiration of the applicable Lock-Up
Period without the prior written consent of Medarex.
(vii) Notwithstanding the provisions of paragraph (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 paragraph (b)(i) above.
RIGHTS OF DISSENTING GENPHARM SHAREHOLDERS
The following is a brief summary of the rights of shareholders of GenPharm
who dissent from the Merger. It is qualified in its entirety by reference to
the applicable statutory provision of the California General Corporation Law
(the "CGCL") attached hereto as Annex C.
If holders of GenPharm Common Stock exercise dissenters' rights in
connection with the Merger under Sections 1300-1312 of the CGCL ("Section
1300"), any shares of GenPharm Common Stock as to which such dissenters' rights
are exercised (the "Dissenters' Shares") will not be converted into the right to
receive shares of Medarex Common Stock by virtue of the Merger but instead will
be converted into the right to receive such consideration as may be determined
to be due with respect to such
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Dissenters' Shares pursuant to the laws of the State of California. The
following summary of the provisions of Section 1300 is not intended to be a
complete statement of such provisions and is qualified in its entirety by
reference to the full text of Section 1300, a copy of which is attached hereto
as Annex C and is incorporated herein by reference. Only holders of record of
GenPharm Common Stock may exercise rights under Section 1300. Holders of
GenPharm Preferred Stock have no rights under Section 1300.
The Merger Agreement provides that the obligation of Medarex to consummate
the Merger is subject to the condition that the holders of no more than 400,000
shares of GenPharm Common Stock shall have exercised, or shall have any
continued right to exercise, appraisal, dissenters' or similar rights. See "The
Merger Agreement--Conditions of the Merger."
If the Merger is approved by the required vote of GenPharm's shareholders,
each holder of shares of GenPharm Common Stock who does not vote in favor of the
Merger (including a shareholder who fails to return a signed Written Consent)
and who follows the procedures set forth in Section 1300 will be entitled to
have such shares of GenPharm Common Stock purchased by GenPharm for cash at
their fair market value. The fair market value of shares of GenPharm Common
Stock will be determined as of the day before the first announcement of the
terms of the proposed Merger, excluding any appreciation or depreciation in
consequence of the proposed Merger and therefore valuing the shares of GenPharm
Common Stock as if the Merger had not occurred.
Within ten days after approval of the Merger by GenPharm's shareholders,
GenPharm must mail a notice of such approval (the "Approval Notice") to all
shareholders who have not voted in favor of the Merger, together with a
statement of the price determined by GenPharm to represent the fair market value
of the applicable Dissenters' Shares, a brief description of the procedures to
be followed in order for the shareholder to pursue dissenters' rights, and a
copy of Sections 1300-1304 of the CGCL. The statement of price by GenPharm
constitutes an offer by GenPharm to purchase all Dissenters' Shares at the
stated amount.
A shareholder of GenPharm electing to exercise dissenters' rights must,
within thirty days after the date on which the Approval Notice is mailed to such
shareholder, mail or deliver a written demand to GenPharm stating that such
holder is demanding purchase of his or her shares of GenPharm Common Stock,
stating the number of shares which GenPharm must purchase, what the shareholder
claims to be the fair market value of such shares and enclosing the share
certificates for the endorsement by GenPharm.
If GenPharm and the shareholder agree that the shares are Dissenters' Shares
and agree upon the price of the shares, GenPharm must pay the shareholder the
agreed upon price plus interest thereon at the legal rate from the date of the
agreement on Dissenters' Shares within thirty days from the later of (i) the
date of the agreement on Dissenters' Shares, or (ii) the date all contractual
conditions to the Merger are satisfied.
If GenPharm denies that the shares are Dissenters' Shares, or if GenPharm
and the shareholder fail to agree upon the fair market value of shares of
GenPharm Common Stock, then within six months after the date the Approval Notice
was mailed to shareholders, any shareholder who has made a valid written
purchase demand and who has not voted in favor of approval and adoption of the
Merger may file a complaint in California superior court requesting a
determination as to whether the shares are
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Dissenters' Shares or as to the fair market value of such holder's shares of
GenPharm Common Stock, or both.
GOVERNMENTAL AND REGULATORY APPROVALS
Medarex and GenPharm are aware of no governmental or regulatory approvals
required for consummation of the Merger, other than registration of the shares
of Medarex Common Stock that are issuable in the Merger pursuant to the
Securities Act and compliance with applicable securities and "blue sky" laws of
various states.
THE REQUIRED AMENDMENTS
The GenPharm Articles of Incorporation, as currently in effect (the
"Articles"), contain certain provisions that may conflict with the terms and
conditions of the Merger Agreement. The first conflict relates to the
liquidation preference of the GenPharm Preferred Stock. The Articles provide
that the holders of shares of Series I Preferred Stock are entitled to receive
in a merger a preferential payment of $7.00 per share before any preferential
payment is made to the holders of shares of the other series of GenPharm
Preferred Stock. The Merger Agreement provides that, with respect to the
payment of the Purchase Price to the holders of GenPharm Preferred Stock, each
series of GenPharm Preferred Stock is to be treated equally with respect to each
other series of GenPharm Preferred Stock. Therefore, the Articles are proposed
to be amended such that the holders of Series I Preferred Stock are treated
equally with the holders of the other series of GenPharm Preferred Stock. The
proposed amendment is limited to the Merger Agreement, so that if the Merger
were not to be consummated, the holders of Series I Preferred Stock would retain
their senior preferential right. The effect of the amendment on holders of
Series I Preferred Stock in the Merger is that if the Purchase Price, due to the
adjustments described herein, were to be reduced to an amount below the
aggregate Preference Amount of all series, having relinquished their senior
preferential status, the holders of Series I Preferred Stock would be entitled
to receive less than the full amount of the Series I preference amount.
The second conflict relates to the method for determining the value of
securities issued to holders of GenPharm Preferred Stock pursuant to a merger.
The Articles provide that securities issued to the holders of GenPharm Preferred
Stock shall be valued, for purposes of satisfying the preferential amount of
each series, based on the average of the closing prices over the 30-day period
ending three days prior to the closing of the Merger. The Merger Agreement
provides that the fair market value of the Medarex Common Stock to be issued to
the GenPharm shareholders pursuant to the Merger shall be equal to the average
closing sales price of the Medarex Common Stock as reported on the Nasdaq
National Market for the 10 trading days immediately preceding the date which is
five trading days prior to the date the fair market value is to be determined
for the purposes of making a distribution of Medarex Common Stock to the
GenPharm shareholders. Therefore, the Articles are proposed to be amended to
conform to the method for determining the fair market value of the shares of
Medarex Common Stock as set forth in the Merger Agreement. This amendment will
be effective only for determining the value of the Medarex Common Stock to be
issued pursuant to the Merger and not with respect to the method for determining
the value of any other securities issued to the holders of GenPharm Preferred
Stock pursuant to any other liquidating event.
The final conflict relates to GenPharm's notice obligations. The Articles
provide that prior to the occurrence of a merger of GenPharm with another
corporation, GenPharm must provide the holders of
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GenPharm Preferred Stock with at least 20 days written notice prior to the
record date fixed for determining which shareholders have the right to vote on
the merger and which shareholders are entitled to the consideration to be
exchanged pursuant to the merger. This requirement is not practicable for a
merger with a publicly traded company such as Medarex, because GenPharm could
not give such a notice without a substantial delay to the Merger schedule due to
the uncertainties of the timing for review of this Prospectus/Consent
Solicitation Statement by the Commission. Therefore the proposed amendment
deletes this notice provision. The amendment will be effective only as applied
to GenPharm's notice obligations in connection with the Merger.
APPROVAL OF STOCK BONUS TO GENPHARM'S CHIEF EXECUTIVE OFFICER
GENERAL
The shareholders of GenPharm are being asked to approve the payment of a
stock bonus described below (the "Stock Bonus") to Jonathan J. MacQuitty,
GenPharm's Chief Executive Officer. The Board of Directors of GenPharm has
approved the Stock Bonus, as well as stock bonuses to the other GenPharm
employees. Shareholder approval of the Stock Bonus is being solicited due to
the fact that, if not approved by the shareholders, the Stock Bonus would result
in adverse tax consequences to both GenPharm and Dr. MacQuitty under the
"parachute" provisions of the Code. Under those provisions of the Code,
compensation paid by a corporation to its officers and significant shareholders
that are contingent on a change in control of the corporation and that exceed
certain formula amounts may be characterized as "excess parachute payments." If
the Stock Bonus constitutes an excess parachute payment, it will be
nondeductible by GenPharm, and Dr. MacQuitty will be subject to a 20% excise tax
(in addition to regular income tax) with respect to the Stock Bonus. However,
an exception to the foregoing treatment applies if (i) the Stock Bonus is
approved by a vote of holders of more than 75% of the voting power of all
outstanding stock of GenPharm (excluding stock held by Dr. MacQuitty and certain
related persons) immediately prior to the Effective Time of the Merger, and (ii)
there is adequate disclosure to the shareholders of all material facts
concerning the Stock Bonus.
In the event that such shareholder approval is not obtained, Dr. MacQuitty
will forfeit all rights to the Stock Bonus. An additional consequence would be
that the tax deduction that would have been available to Medarex with respect to
the Stock Bonus (had it been approved by the GenPharm shareholders) and would
have reduced the tax liability associated with the Third Party Payments, will
not be available. The resulting increase in the tax liability might cause a
reduction in the Purchase Price. See the discussion of the Third Party Payment
Adjustment under "The Merger Agreement--Manner and Basis of Converting Shares,"
"--Payment of Purchase Price" and "--Adjustments to Purchase Price." It is not
possible at this time to determine whether a reduction in the Purchase Price
would actually occur or, if so, the amount of such reduction.
The Stock Bonus is payable to Dr. MacQuitty in conjunction with the Merger
under a stock bonus plan covering all employees of GenPharm. Bonus payments
under this plan will be payable in shares of Medarex Common Stock. The maximum
aggregate value of the shares of Medarex Common Stock that are reserved for
grant to the GenPharm employees is $2,275,000. Dr. MacQuitty is entitled under
the plan to receive shares of Medarex Common Stock equal to 59.914% of the
total, or a maximum of $1,363,045. Dr. MacQuitty will receive 149,785 of the
Stock Bonus shares in 1997 and the balance (up to the maximum value of
$1,363,045) at the end of 1998 if he does not voluntarily terminate his
employment prior to the end of 1997. The aggregate value of the Medarex shares
issuable to Dr.
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MacQuitty and to the other employees will be reduced from the maximum amounts
indicated above in proportion to any reduction to the Purchase Price.
Approval by GenPharm shareholders of the Stock Bonus will not reduce the
number of Medarex shares that GenPharm shareholders will receive upon
consummation of the Merger. Likewise, shareholder failure to approve the Stock
Bonus will not increase the number of Medarex shares issuable to GenPharm
shareholders upon consummation of the Merger, nor will it increase the number of
Medarex shares issued to any of the other GenPharm employees under the stock
bonus plan.
VOTE REQUIRED FOR APPROVAL
Approval of the Stock Bonus will require the affirmative Written Consents of
the holders of more than 75% of the outstanding shares of GenPharm Common Stock
and GenPharm Preferred Stock voting together as a single class (the Preferred
Stock voting on an as-converted basis) immediately before the Effective Time
(excluding Dr. MacQuitty and any person whose stock ownership would be
attributable to him under the Code).
The GenPharm Board approved the stock bonus plan in recognition of the
critically important contributions of the employees of GenPharm, especially Dr.
MacQuitty, in sustaining GenPharm during the period of litigation with Cell
Genesys and the downsizing and modification of GenPharm's business, the
negotiated settlement of the litigation and the negotiation of the Merger
Agreement with Medarex, thereby enabling the shareholders to realize the value
of their investment. THE GENPHARM BOARD OF DIRECTORS HAS APPROVED THE STOCK
BONUS AND RECOMMENDS THAT GENPHARM SHAREHOLDERS VOTE "FOR" APPROVAL OF THE STOCK
BONUS.
63
<PAGE>
STOCK PRICE AND DIVIDEND INFORMATION
Medarex Common Stock has been traded on The Nasdaq National Market under the
symbol "MEDX" since Medarex's initial public offering in June, 1991. Following
the Merger, Medarex Common Stock will continue to be traded on The Nasdaq
National Market under the symbol "MEDX." The following table sets forth the
range of high and low sales prices for the Medarex Common Stock as reported on
The Nasdaq National Market for the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year
- -----------
High Low
------ -----
<S> <C> <C>
1995
- ----
First Quarter $ 4.13 $2.38
Second Quarter $ 6.50 $2.75
Third Quarter $ 7.63 $5.13
Fourth Quarter $ 7.50 $5.38
1996
- ----
First Quarter $ 8.00 $5.75
Second Quarter $12.25 $6.25
Third Quarter $ 9.00 $5.38
Fourth Quarter $ 9.00 $6.25
1997
- ----
First Quarter $10.00 $6.50
Second Quarter $ 8.75 $5.88
Third Quarter (through September , 1997)
</TABLE>
On August 31, 1997 there were approximately 360 holders of record (which
includes individual holders) and as of the last Shareholders' meeting, there
were over 4,420 beneficial shareholders of the Company's Common Stock.
The Medarex Board of Directors will review Medarex's dividend policy from
time to time to determine the feasibility and desirability of paying dividends,
after giving consideration to Medarex's earnings, financial conditions, capital
requirements and other factors as the Medarex Board of Directors deems relevant.
Medarex has not paid any dividends on Medarex Common Stock and does not
anticipate paying dividends in the foreseeable future. Medarex intends to
retain any earnings to finance its growth.
On May 5, 1997, the last trading day prior to the announcement by Medarex
and Genpharm that they had reached an agreement concerning the proposed Merger,
the closing sale price of Medarex Common Stock as reported on The Nasdaq
National Market was $8.50 per share. On ______________, 1997, the last trading
day prior to the date of this Prospectus/Consent Solicitation Statement, the
closing sale price of a share of Medarex Common Stock as reported on The Nasdaq
National Market was [$ ].
64
<PAGE>
There can be no assurance as to the actual price of Medarex Common Stock prior
to, at, or at any time following the Effective Time.
No established trading market exists for GenPharm Common Stock or GenPharm
Preferred Stock. As of August 31, 1997, there were 114 holders of record of
GenPharm Common Stock and 80 holders of record of GenPharm Preferred Stock and
68 holders of record of options to purchase shares of GenPharm Common Stock.
GenPharm has never paid, and has no present intention to pay in the foreseeable
future, any cash dividends on the GenPharm Common Stock.
As of August 31, 1997, GenPharm executive officers and directors and their
affiliates owned an aggregate of 625,198 shares of GenPharm Common Stock and
3,088,965 shares of GenPharm Preferred Stock as well as vested and unvested
options to purchase an additional 248,690 shares of GenPharm Common Stock.
Based upon the closing price of Medarex Common Stock on September __, 1997 of
$___, and assuming the exercise of outstanding options to purchase GenPharm
Common Stock, the aggregate dollar value of the Medarex Common Stock to be
received by GenPharm officers and directors and their affiliates is
approximately $__________.
MEDAREX AND GENPHARM
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the Merger under the purchase method of accounting. The
unaudited pro forma combined condensed financial statements are derived from and
should be read in conjunction with the respective historical financial
statements and the notes thereto of Medarex and GenPharm, which are incorporated
by reference in or included elsewhere in this Prospectus/Consent Solicitation
Statement. The unaudited pro forma combined condensed balance sheet combines
Medarex's June 30, 1997 unaudited balance sheet with GenPharm's June 30, 1997
unaudited balance sheet. The unaudited pro forma combined condensed statements
of operations combine Medarex's historical condensed statements of operations
for the year ended December 31, 1996 and the unaudited six months ended June 30,
1997 with the corresponding GenPharm historical condensed statements of
operations for the year ended December 31, 1996 and the unaudited six months
ended June 30, 1997, respectively. The pro forma adjustments have been applied
to the financial information derived from the financial statements of Medarex
and GenPharm to account for the Merger as a purchase; accordingly, assets
acquired and liabilities assumed are reflected at their estimated fair values
which are subject to further refinement, with appropriate recognition given to
the effect of current interest rates and income taxes. The unaudited pro forma
combined condensed statement of operations for the year ended December 31, 1996
also combines the Houston Biotechnology Incorporated ("HBI") historical
condensed statement of operations for the year ended December 31, 1996 as
Medarex completed its acquisition of HBI on February 28, 1997.
The unaudited pro forma condensed combined financial statements have been
prepared on the basis of assumptions described in the notes thereto and include
assumptions relating to the allocation of the consideration paid for the assets
and liabilities of GenPharm based on preliminary estimates of their fair value.
The actual allocation of such consideration may differ from that reflected in
the unaudited pro forma condensed combined financial statements after valuations
and other procedures to be performed after the closing of the Merger. Medarex
does not expect that the final allocation of the aggregate Purchase Price for
the Merger will differ materially from the preliminary allocations. In the
opinion of Medarex, all adjustments necessary to present fairly such unaudited
pro forma condensed combined financial statements have been made based on the
proposed terms and structure of the Merger.
65
<PAGE>
As a result of the Merger, Medarex expects to record a nonrecurring charge
to operations for acquired in-process technology estimated at approximately
$29.0 million. The charge for acquired in-process technology has been reflected
in the unaudited pro forma condensed combined balance sheet, but excluded from
the unaudited pro forma condensed combined statements of operations because the
charge is nonrecurring. The unaudited pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the Merger had been
consummated at the beginning of the periods presented, nor is it necessarily
indicative of future operating results or financial position.
MEDAREX, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Acquisition
Pro Forma
Medarex GenPharm Adjustments Total
------------- ------------- ------------------- -------------
Assets
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,377,537 $ 4,441,511 $ 5,819,048
Marketable securities 23,100,410 --- 23,100,410
Other current assets 937,184 393,055 1,330,239
------------ ------------ ------------
Total current assets 25,415,131 4,834,566 30,249,697
Property and equipment, net 1,157,411 162,629 1,320,040
Note receivable 15,000,000 15,000,000
Other assets 2,249,270 --- 2,249,270
------------ ------------ ------------
Total assets $ 28,821,812 $ 19,997,195 $ 48,819,007
============ ============ ============
Liabilities and Stockholders'
Equity
Current liabilities $ 2,144,341 $ 795,559 7,917,974/(2)/ $ 10,587,874
Accrued litigation expense --- 800,000 800,000
Unearned income --- 487,500 487,500
Other long-term obligations 85,917 --- 29,443,966/(2)/ 29,529,883
Stockholders' equity:
Preferred Stock --- 39,837,292 (39,837,292)/(2)/ ---
Common Stock 186,595 289,552 (269,552)/(2)/ 206,595
Capital in excess of par value 74,208,808 --- 8,556,000/(2)/ 83,764,808
Unrealized gain on securities 120,148 --- 120,148
Accumulated deficit (47,923,997) (22,212,708) (6,811,096) /(3)/ (73,111,403)
------------ ------------ ------------------ ------------
Total stockholders' equity 26,591,554 17,914,136 (37,361,940) 12,111,148
------------ ------------ ------------
Total liabilities and stockholders' $ 28,821,812 $ 19,997,195 $ 48,819,007
equity ============ ============ ============
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
66
<PAGE>
MEDAREX, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Acquisition
Pro Forma
Medarex GenPharm Adjustments Total
------------- ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Contract and license revenues $ 821,620 $ 1,672,212 $ 2,493,832
Other revenue 106,360 88,225 194,585
------------ ----------- ----------------
Total revenues 927,980 1,760,437 2,688,417
Costs and expenses
Research and development 5,646,279 1,003,545 6,649,824
General, administrative and
litigation 1,691,893 5,565,730 7,257,623
Acquisition of in-process
technology 10,750,465 --- 10,750,465
Other 77,597 --- 77,597
------------ ----------- ----------------
Operating income (loss) (17,238,254) (4,808,838) (22,047,092)
----------------
Cross license settlement 22,500,000 22,500,000
Interest, dividend income and other,
net 805,519 309,004 1,114,523
Provision for income taxes --- (400,000) 400,000/(5)/ ---
------------ ----------- ----------------
Net income (loss) $(16,432,735) $17,600,166 $ 1,567,431/(5)/
============ =========== ================
Net income (loss) per share $(0.90) $1.70 $0.07/(5)(6)/
============ =========== ================
Shares used in computation of net
income (loss) per share 18,312,504 10,353,008 21,302,644/(5)/
============ =========== ================
</TABLE>
See notes to pro forma combined condensed financial statements.
67
<PAGE>
MEDAREX, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HBI GenPharm
Acquisition ProForma Acquisition
ProForma Medarex Pro Forma
Medarex HBI/(7)/ Adjustments and HBI GenPharm Adjustments
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Contract and license revenues $ 1,626,191 $ 1,235,000 $ 2,861,191 $ 3,199,600
Research grants 2,941,075
Other revenue 255,217 85,421 340,638 ---
----------- ----------- ----------- -----------
Total revenues 1,881,408 1,320,421 3,201,829 6,140,675
Costs and expenses
Research and 7,596,273 1,552,936 9,149,209 2,372,531
development
General, administrative
and litigation 2,558,596 830,584 3,389,180 1,244,585
Other 131,576 131,576 ---
----------- ----------- -----------
Operating income (loss) (8,405,037) (1,063,099) (9,468,136) 2,523,559
Interest and dividend income, 1,536,544 18,117 1,554,661 (66,251)
net
Other (20,783)
Provision for income taxes --- --- --- (45,000) 45,000/(3)/
----------- ----------- ----------- -----------
Net income (loss) $(6,868,493) $(1,044,982) $(7,913,475) $ 2,391,525
=========== =========== =========== ===========
Net income (loss) per share $(0.45) $(0.19) $(0.49) $0.24
=========== =========== =========== ===========
Shares used in computation of
net loss per share 15,288,754 5,638,707 16,314,999 10,136,962
=========== =========== =========== ===========
<CAPTION>
ProForma
Medarex, HBI
and
GenPharm
<S> <C>
Contract and license revenues $ 6,060,791
Research grants 2,941,075
Other revenue 340,638
------------------
Total revenues 9,342,504
Costs and expenses
Research and 11,521,740
development
General, administrative
and litigation 4,633,765
Other 131,576
------------------
Operating income (loss) (6,944,577)
Interest and dividend income, 1,488,410
net
Other (20,783)
Provision for income taxes ---
------------------
Net income (loss) $(5,476,950)
==================
Net income (loss) per share $(0.30)/(4)/
==================
Shares used in computation of
net loss per share 18,314,999
=============
</TABLE>
See notes to pro forma combined condensed financial statements.
68
<PAGE>
Notes to Pro Forma Combined Condensed Financial Statements
(Unaudited)
(1) Medarex will acquire all of the assets and liabilities of GenPharm in
exchange for up to $62.7 million of Medarex Common Stock valued as of the
time of distribution to GenPharm shareholders. Based on Medarex's share
price on September 2, 1997 of $4.625 per share, Medarex would issue
10,318,919 shares of Medarex Common Stock for the non-contingent portion of
the acquisition. The total cost of the proposed acquisition is anticipated
to be approximately $47.7 million, including tangible assets acquired of
$19,997,195, liabilities assumed of $2,083,059 and estimated transaction
costs and other costs, including facility consolidation and reductions in
workforce of $2,335,000; excluding $15,000,000 of contingent purchase price
(and offset by $800,000 of related contingent legal fees). The contingent
purchase price of $15,000,000 is based upon certain conditions related to
the receipt by GenPharm of its first relevant patent in the European Patent
Office and Japan and the related cash receipt of $7,500,000 for each from
Xenotech and Japan Tobacco. These pro forma financial statements exclude the
impact of any contingent purchase price.
Medarex will record a charge to operations for the amount of in-process
technology of $29,023,804 upon the consummation of the proposed
acquisition.
(2) The pro forma combined condensed balance sheet includes the adjustments
necessary as if the acquisition had occurred on June 30, 1997 to reflect the
preliminary allocation of the cost of the proposed acquisition to the fair
value of the net assets acquired, accrual of certain other acquisition-
related liabilities and the issuance of Medarex Common Stock as discussed in
Note 1 and the elimination of GenPharm's equity accounts.
These adjustments are summarized as follows:
(a) Elimination of GenPharm equity accounts:
Preferred stock $(39,837,292)
Common stock (289,552)
Accumulated deficit (22,212,708)
(b) Accrual of certain acquisition related costs: $2,335,000
(c) Charge to operations for in-process technology (as per an
independent valuation): $29,023,804
(d) Issuance of Medarex Common Stock and Medarex options as discussed
in Note 1. The value of the shares has been computed based on the
closing price of Medarex Common Stock on September 2, 1997 of
$4.625 per share. (The acquisition will be based on the Medarex
Common Stock price on the Closing Date in accordance with the
Merger Agreement). A value of $336,000 has been assigned to the
Medarex warrants and options. Based upon the closing price of the
Medarex Common Stock on September 2, 1997 of $4.625 per share
Medarex would be required to issue
69
<PAGE>
10,318,919 shares of its Common Stock to acquire all of the
outstanding GenPharm Preferred Stock and GenPharm Common Stock. On
the closing date, 2,000,000 shares of Medarex Common Stock will be
issued. On the Initial Placement Date (to occur no later than
December 31, 1997), Medarex will issue an additional 1,250,000
shares of Common Stock with the remaining 7,068,919 shares of
Medarex Common Stock issued during 1998 or 1999. This calculation
does not include any contingent payments of up to $15,000,000 based
on certain conditions of patent awards to GenPharm and related cash
received by GenPharm. Payment of the Purchase Price may, under
certain circumstances, be in the form of cash or Medarex Common
Stock at the option of Medarex. The current and long-term
liabilities have been discounted assuming payment dates of December
31, 1997 and 1998, respectively.
<TABLE>
<S> <C>
Medarex Common Stock $ 20,000
Capital in excess of par value $ 9,556,000
Current liabilities $ 5,582,974
Long-term liabilities $29,443,966
</TABLE>
(3) The pro forma combined condensed statement of operations for the year ended
December 31, 1996 includes all adjustments necessary to reflect the
acquisition as if it had occurred on January 1, 1996.
The adjustments are summarized as follows:
Elimination of certain GenPharm provision for income taxes of $45,000
for the year ended December 31, 1996.
(4) The pro forma combined condensed statement of operations for the year ended
December 31, 1996 excludes write-off of acquired in-process technology of
$29,023,804 and also excludes a one-time charge for the GenPharm stock bonus
plan of $2,275,000.
(5) The pro forma combined condensed statement of operations for the six months
ended June 30, 1997 includes all adjustments necessary to reflect the
acquisition as if it had occurred on January 1, 1996.
The adjustments are summarized as follows:
Elimination of certain GenPharm provision for income taxes of $400,000
for the six months ended June 30, 1997.
The net income (loss) per share and the shares used in computing net loss
per share for the year ended December 31, 1996 and the six months ended June
30, 1997 are based upon the historical weighted average common shares and
dilutive common share equivalents outstanding for the
70
<PAGE>
respective periods adjusted to reflect, as of January 1, 1996, the issuance
of 2,000,000 shares of Medarex Common Stock on the Closing Date as described
in Note 2. The pro forma weighted average shares outstanding for the six
months ending June 30, 1997 include Medarex common stock equivalents of
990,140.
(6) Cross license settlement income of $22,500,000 and related litigation fees
and expenses of $4,726,933 (included within General and Administrative
expenses) are not expected to occur in the future and without this cross
license settlement income and the related litigation fees and expenses the
pro forma net loss for the six months ended June 30, 1997 would have been
$(16,205,636) or $(0.76) per share.
(7) On February 28, 1997 Medarex completed its acquisition of HBI for 1,026,245
shares of Medarex Common Stock, options and warrants valued at approximately
$550,000 and assumed certain liabilities in excess of assets acquired. The
pro forma combined condensed statement of operations for the year ended
December 31, 1996 includes all adjustments necessary to reflect the
acquisition as if it had occurred on January 1, 1996.
The pro forma combined condensed statement of operations for the year ended
December 31, 1996 excludes the write-off of acquired in-process technology
of $10,750,465.
71
<PAGE>
SELECTED INFORMATION CONCERNING MEDAREX
Medarex is a biotechnology company developing therapeutic products for
cancer, AIDS and other life-threatening diseases based on proprietary technology
in the field of immunology. Medarex's products are designed either to enhance
and direct a specific immune response or to block or diminish an undesirable
immunological activity. Medarex's broad technology platform has led to several
products now in clinical trails and to four strategic alliances and has the
potential to provide the foundation for new products and new strategic alliances
in various therapeutic areas. At present, Medarex has seven products in
thirteen human clinical trials for the treatment of breast cancer, prostate
cancer, kidney cancer, head and neck cancer and a variety of other solid tumor
cancers, leukemia, AIDS and certain autoimmune conditions and the prevention of
secondary cataracts. Medarex is developing four of its products through
strategic alliances with Novartis Inc., of Basel, Switzerland ("Novartis"),
Merck KGaA, of Darmstadt, Germany ("E. Merck") and Centeon, L.L.C., of King of
Prussia, Pennsylvania ("Centeon") and Santen Pharmaceuticals Co. Ltd., Osaka,
Japan ("Santen").
Medarex's principal products under development are bispecific; that is, they
are designed to attach to both disease targets and immune system killer cells
simultaneously. This dual binding ability is essentially a target-trigger
combination in which one portion of the Bispecific binds to a Trigger molecule
on killer cells and the other targets and binds to the tumor cell or infectious
agent (a "pathogen") to be eliminated. After joining the killer cell and the
tumor cell or pathogen, the Bispecific triggers the killer cell's destruction of
the target. Based on early clinical trial results, management believes that its
Bispecifics have the potential to cause the destruction of tumors and pathogens
that ordinarily might escape detection by the body's immune system. See "Risk
Factors."
The Trigger portion of Medarex's Bispecific products may be linked to a
variety of different targeting mechanisms, such as recombinant proteins, single
chain antibodies and antibody fragments. For this reason, Medarex believes that
its Bispecifics may be designed for the treatment of a wide range of cancers,
viruses, bacteria and parasites. Medarex has patented the Trigger molecule and
has obtained licenses to a number of targeting mechanisms.
In April 1996, Medarex entered into a strategic alliance with Centeon for
the development of MDX-33 for the treatment of autoimmune hematological
disorders. Pursuant to the collaboration, Centeon has licensed MDX-33, the
Company's monoclonal antibody therapeutic used in down-regulating parts of the
immune system, on a world wide basis for diseases like Idiopathic
Thrombocytopenia Purpura (ITP). MDX-33 is currently in Phase I clinical trials.
In May 1995, Medarex entered into a strategic alliance with Novartis
pursuant to which Novartis obtained a worldwide exclusive license to MDX-210,
Medarex's Bispecific therapeutic for tumors that overexpress an antigen known as
HER-2. These tumors include a significant number of breast, ovarian, prostate,
kidney and other tumors. MDX-210 is currently in Phase II clinical trials.
In 1994, Medarex entered into an collaborative arrangement with E. Merck
pursuant to which Medarex is developing MDX-447 for the treatment of cancers
that overexpress the epidermal growth factor receptor ("EGF-R"). Cancers in
which EGF-R is overexpressed include head and neck, breast, brain, non-small
cell long and bladder tumors. MDX-447 is currently in Phase I/II clinical
trails.
72
<PAGE>
Medarex is currently in discussion with biotechnology and pharmaceutical
companies collaborations for the creation and development of additional
Bispecific products.
Medarex believes that its Bispecific products may also act as therapeutic
vaccines. In addition to destroying the target cells, they may stimulate the
patient's own immune system to generate a further active immune response leading
to the production of specific antibodies and killer cells that may cause on-
going destruction of the tumor or pathogen. Research programs are also underway
to develop Bispecific products as tumor vaccines. See "Risk Factors."
On February 28,1997, Medarex acquired HBI pursuant to an Agreement
and Plan of Merger entered into on December 18,1996 (the "Houston Merger
Agreement"). Under the terms of the Houston Merger Agreement, Medarex issued
1,026,245 shares of Medarex Common Stock in exchange for the 5,638,707
outstanding shares of common stock of HBI. In accordance with the terms of the
Houston Merger Agreement, HBI became a wholly-owned subsidiary of Medarex.
HBI is developing monoclonal and other biopharmaceutical products to prevent
secondary cataracts and to treat glaucoma, disorders that impair or destroy
human vision. In December 1995, HBI entered into a strategic alliance with
Santen for the development of MDX-RA to prevent the formation of secondary
cataract. Pursuant to the collaboration, Santen has obtained the exclusive
marketing rights of MDX-RA in Japan. MDX-RA is currently in Phase II clinical
trials.
Additional information concerning Medarex and its subsidiaries is contained
in Medarex's Annual Report on Form 10-K for the year ended December 31, 1996,
its Quarterly Report for the period ended June 30, 1997, and its other public
filings. See "Available Information" and "Incorporation by Reference."
DESCRIPTION OF MEDAREX CAPITAL STOCK
MEDAREX COMMON STOCK. Medarex is authorized to issue 40,000,000 shares of
Medarex Common Stock. As of August 31, 1997, there were 18,659,475 shares of
Medarex Common Stock issued and outstanding and Medarex had approximately 360
holders of record. The transfer agent and registrar for the Medarex Common
Stock is Continental Stock Transfer & Trust Company, Two Broadway, New York, New
York 10004.
VOTING. Each share of Medarex Common Stock entitles the holder thereof to
one vote on all matters submitted to a vote of the shareholders. Since the
holders of Medarex Common Stock do not have cumulative voting rights, holders of
more than 50% of the outstanding shares can elect all of the directors of
Medarex and holders of the remaining shares by themselves cannot elect any
directors. The holders of Medarex Common Stock do not have preemptive rights or
rights to convert their Medarex Common Stock into other securities. Holders of
Medarex Common Stock are entitled to receive ratably such dividends as may be
declared by the Medarex Board of Directors out of funds legally available
therefor. In the event of a liquidations, dissolution or winding up of Medarex,
holders of Medarex Common Stock have the right to a ratable portion of the
assets remaining after payment of liabilities. All shares of Medarex Common
Stock outstanding (including the shares of Medarex Common Stock to be issued in
the Merger) are, or will be upon issuance, fully paid and non-assessable.
73
<PAGE>
MEDAREX PREFERRED STOCK. Medarex's authorized preferred stock consist of
2,000,000 shares, par value $1.00 per share. There are currently no shares of
preferred stock issued and outstanding. Medarex's Charter grants the Medarex
Board of Directors the authority to issue by resolution shares of preferred
stock in one or more series and (i) to fix the number of shares constituting any
such series, the voting powers, if any, designations, references, and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including the rate or rates at which, and the other
terms and conditions on which, dividends shall be payable, (ii) whether and on
what terms the shares constituting any series shall be redeemable, subject to
sinking fund provisions, or convertible or exchangeable into securities of
Medarex, and (iii) the liquidation preferences, if any, of such series, without
further vote or action by the shareholders. For example, the Medarex Board of
Directors is authorized to issue a series of preferred stock that would have the
right to vote, separately or with any other series of preferred stock, on any
proposed amendment to the Medarex Charter or any other proposed corporate
action, including business combinations and other transactions. The Medarex
Board of Directors currently does not contemplate the issuance of any preferred
stock and is no aware of any pending or proposed transactions that would be
affected by such issuance.
CERTAIN SPECIAL CHARTER AND BY-LAW PROVISIONS. The Medarex Charter and
Medarex By-Laws as in effect on the date hereof contain certain provisions that
may delay, defer or prevent a change in control of Medarex. Specifically, the
Board of Directors is classified. Directors are elected for three year terms
with only one class of board members elected each year. In addition, the
Medarex By-Laws provide that special meetings of shareholders may be called only
by the President, the Chairman of the Board of Directors, the Board of Directors
or by the holders of not less than 33% of the Medarex capital stock entitled to
vote at such meetings.
Furthermore, the Medarex Charter incorporates all of the provisions of the
New Jersey Shareholders Protection Act (the "NJ Protection Act"), which provides
that a resident New Jersey corporation such as Medarex may not engage in certain
Business Combinations with any Interested Shareholder, as such terms are defined
therein, for a period of five years following the date (the "Acquisition Date")
that such Interested Shareholder becomes the owner, directly or indirectly, of
10% or more of the voting power of Medarex, unless (i) such transaction is
approved by the Medarex Board of Directors prior to he Acquisition Date, or (ii)
the holders of two-thirds (66 2/3%) of the voting stock of Medarex, excluding
the shares of the Interested Shareholder, approve such transaction. The NJ
Protection Act also precludes the purchase by Medarex (except as hereinafter
noted) at a premium over market of any of its voting stock from an Interested
Shareholder who has owned such securities for less than five years.
Notwithstanding the foregoing, such a purchase would be permitted if (i) the
same offer were made to all other holders of the same kind of securities, (ii)
the transaction were approved by the holders 66 2/3% of the outstanding voting
stock of Medarex excluding the shares of any Interested Shareholder, or (iii)
the Board of Directors of Medarex approved the transaction prior to such
Interested Shareholder's Acquisition Date. The Medarex Charter does not provide
for any additional anti-takeover protection other than those set forth in the NJ
Protection Act. Also see "Comparison of Shareholder Rights--Shareholder
Protection Legislation."
SHARES ELIGIBLE FOR FUTURE SALE
As of August 31, 1997, Medarex had 18,659,475 shares of Medarex Common Stock
outstanding, without taking into account shares of Medarex Common Stock issuable
upon exercise of outstanding options and warrants. Medarex has filed
registration statements on Form S-3 under the Securities Act
74
<PAGE>
relating to 1,210,888 shares of Medarex Common Stock being offered by certain
selling security holders. Such shares of Medarex Common Stock are freely
tradeable without restriction or further registration under the Securities Act,
except for shares, if any, held by "affiliates" of Medarex which shares will be
subject to resale limitations of Rule 144.
Of such 18,659,475 shares of Medarex Common Stock outstanding, 3,130,263
shares (the "Restricted Shares") were issued and sold by Medarex in private
transactions in reliance upon one or more exemptions contained in the Securities
Act or upon the exercise of stock options. The Restricted Shares are deemed to
be "restricted securities" within the meaning of Rule 144 and may be publicly
sold only if registered under the Securities Act or sold pursuant to Rule 144.
All of the Restricted Shares have been held for more than two years and are
eligible for public sale in accordance with the requirements of Rule 144, as
described below.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including persons deemed to be affiliates od
Medarex, whose restricted securities have been fully paid for and held for at
least two years from the later of the date of issuance by Medarex or acquisition
from an affiliate, may sell such securities in brokers' transaction or directly
to market makers, provided that the number of shares sold in any three month
period may not exceed the greater of 1% of the then outstanding shares of
Medarex Common Stock or the average weekly trading volume of the Medarex Common
Stock in the over-the-counter market during the four calendar weeks preceding
the sale. Sales under Rule 144 are also subject to certain notice requirements
and the availability of current public information about Medarex. After three
years have elapsed from the later of the issuance of restricted securities by
Medarex and their acquisition from an affiliate, such securities may be sold
without limitation by persons who are not affiliates under the rule.
Medarex has filed registration statements under the Securities Act on Form
S-8 to register the shares of Medarex Common Stock issuable under its Amended
and Restated 1987 Stock Option Plan (282,450 shares), Amended and Restated EMP
Plan (451,500), Amended and Restated 1991 Stock Option Plan (250,000), 1992
Stock Option Plan (250,000 shares), 1994 Stock Option Plan (300,000 shares),
1995 Stock Option Plan (350,000 shares), 1996 Stock Option Plan (350,000 shares)
and intends to file a Registration Statement on Form S-8 for the 1997 Stock
Option Plan (750,000 shares). Shares issued under such plans other than shares
issued to affiliates of Medarex, will be freely tradeable in the public market.
In addition, Medarex has filed a registration statement under the Securities Act
on Form S-8 to register up to 193,500 shares of Medarex Common Stock issuable
under the outstanding HBI options assumed by Medarex. Such shares will be
freely tradeable in the public market.
In addition, up to 822,924 shares of Medarex's Common Stock issuable upon
the exercise of the HBI Warrants assumed by Medarex under the terms of the
Houston Merger Agreement have been registered pursuant to a Registration
Statement on Form S-4. Said shares will be freely tradeable without restriction
or further registration under the Securities Act.
No predictions can be made as to the effect, if any, that sales of
shares or the availability of shares for sale will have on the market prices
prevailing from time to time. Moreover, Medarex cannot predict the number of
shares of Medarex Common Stock that may be sold in the future pursuant to Rule
144 because such sales will depend upon, among other factors, the market prices
of the Medarex Common Stock and the individual circumstances of the holders
thereof. Nevertheless, sales of substantial amounts of the Medarex Common Stock
in the public market following the offering made hereby could have a significant
adverse effect on prevailing market prices and could impair Medarex's future
ability to raise capital through the sale of its equity securities. See "Risk
Factors--Possible Volatility of Securities Prices."
75
<PAGE>
SELECTED INFORMATION CONCERNING GENPHARM
GENERAL
GenPharm is engaged in the application of transgenic animal technology to
the development of human antibody products for therapeutic uses. Transgenic
animals are animals into which new genetic material has been introduced at an
early embryonic stage. GenPharm's strategy is to develop proprietary systems
for the generation of human antibody products using transgenic animals.
GenPharm expects that, using its transgenic mice containing human antibody genes
together with standard laboratory techniques, it will be able to generate human
therapeutic monoclonal antibodies to various antigens, including human
antigens.
GenPharm believes that the complex biological process by which humans make
antibodies can be functionally replicated by the immune system of suitably
modified transgenic mice. GenPharm has identified a subset of human antibody
genes and has combined these genes to form proprietary transgenes. These
transgenes have been introduced into mice to develop several lines of
proprietary transgenic mice. Separately, GenPharm has inactivated mouse
antibody genes using proprietary gene targeting techniques. GenPharm has
combined mice having these different genetic backgrounds by cross breeding and
other techniques and has demonstrated that the resulting cross-bred, transgenic
mice ("HUMAb-Mouse/TM/") and their offspring are capable of generating human
sequence antibodies ("HUMAbs") to various antigens including human antigens.
Analysis of these HuMab-Mouse strains indicates that the human genes in theses
mice are expressed in a manner similar to their expression in humans.
GenPharm believes that these HuMAbs will be less likely to cause allergic or
similar reactions and will remain effective longer in patients than most
monoclonal antibody products under development, which contain some mouse or
animal protein. GenPharm is developing HuMAbs which it believes may be useful
for treatment of certain autoimmune disorders such as rheumatoid arthritis and
psoriasis, and for organ transplant rejection. GenPharm expects to file an IND
application with the FDA for the first of its human monoclonal antibodies in
1998.
In March 1997, GenPharm entered into the Cross-License Agreement with Cell
Genesys, Abgenix, Xenotech and Japan Tobacco for human monoclonal antibody
technology. Included in the Cross-License Agreement is a worldwide royalty-free
cross license to all issued and related patent applications pertaining to the
generation of fully human monoclonal antibodies in genetically modified strains
of mice. The Cross-License Agreement settles all related litigations and claims
between the parties, which began in February 1994, and provides for payments to
GenPharm as follows:
a) A note from Cell Genesys due September 30, 1998 for $15 million
bearing interest at 7% per annum. The note is convertible into Cell
Genesys common stock at $9.00 per share. This conversion price is
subject to reset in twelve months;
b) Two potential milestone payments of $7.5 million each. The payments
are triggered by the issuance of certain patents to GenPharm in Europe
and Japan, respectively. The latter payment can also be triggered
following an issuance of certain patents in the United States. These
payments are to be made by Xenotech, an equal joint venture of Abgenix
and Japan Tobacco; and
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<PAGE>
c) Cash payments aggregating $7.5 million from Xenotech and Japan Tobacco
to be made within 15 days of the execution of the Cross-License
Agreement. These payments were received by GenPharm in April
1997.
In February 1997, GenPharm entered into a Research and Commercialization
Agreement (the "Centocor Agreement") with Centocor, Inc. ("Centocor"). The
collaboration is focused on developing completely human antibodies to four
unnamed antigens. The Centocor Agreement provides for research payments to be
paid to GenPharm, as well as two equity investments totalling $4 million. In
addition GenPharm will receive up to $4 million upon the exercise of Centocor's
option for commercial rights to such antibodies together with up to a further
$48 million upon the achievement of various clinical milestones with respect to
these antibodies. In turn, Centocor will have worldwide marketing and
manufacturing rights to any resulting antibodies for which they have exercised
their option for commercial rights, subject to the payment of royalties to
GenPharm.
In September 1996, GenPharm and Genencor International, Inc. ("Genencor")
entered into a joint program of research and development directed toward the
development and generation of transgenic immunomodified mice suitable for use in
studies of human allergenicity of non-therapeutic proteins or peptides. The
terms of this agreement continue until December 31, 1997. Genencor pays for the
direct and indirect costs of the program including all reasonable supplies and
services. Genencor owns the intellectual property arising out of the program.
GenPharm spun off its majority interest in its wholly-owned subsidiary Gene
Pharming Europe B.V. ("Pharming") in April 1995 in order to facilitate the
separate financing of Pharming. GenPharm contributed approximately $1.4 million
of certain net assets related to the operations of Pharming after it had
converted intercompany debt of approximately $21.3 million into equity in
Pharming. During 1996, GenPharm and Pharming entered into a technology cross-
license agreement. This agreement provided GenPharm with approximately $1.8
million and a license to certain Pharming patent rights concerning homologous
recombination. In return Pharming received a sublicense to certain GenPharm
patent rights for transgenic rabbits, goats, sheep and cattle.
In January 1995, GenPharm entered into a collaboration with LeukoSite, Inc.
("LeukoSite") to produce human antibodies from Genpharm's HuMAb-Mouse against
specified antigens (the "LeukoSite Agreement"). The term of the LeukoSite
Agreement and the research program to be conducted thereunder (the "Research
Program") were extended pursuant to certain amendments executed in 1996. Each
party is responsible for their own costs of work to be performed and materials
to be supplied under the Research Program. The companies will share worldwide
commercial rights for human antibodies which result from the collaboration. The
first human antibodies from the collaboration are in the pre-clinical phase.
In May 1993, GenPharm entered into a collaborative agreement with
Eisai Co., Ltd. ("Eisai"), a leading Japanese healthcare company, to fund the
development and initial manufacturing of a human antibody product to a specific
antigen (the "Eisai Agreement"). The Eisai Agreement and subsequent amendments
provide for $12 million of research payments to GenPharm, as well as a further
$18.5 million of milestone and other payments. To date, GenPharm has received
research and milestone payments totalling $12.8 million. GenPharm expects to
file an IND with the FDA in 1998 for the first of the HuMAb products developed
through this collaboration. Eisai has exclusive marketing rights for Japan and
for countries in Asia and Europe. GenPharm has retained marketing rights for
North America and the remaining parts of the world. GenPharm will receive
royalty payments on Eisai sales as well as payments for providing bulk product
to Eisai.
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<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF GENPHARM
The following selected financial data for the five years ended December 31,
1996, 1995, 1994, 1993 and 1992 are derived from audited financial statements of
GenPharm. The financial data for the six months ended June 30, 1997 and 1996
are derived from unaudited financial statements. Such unaudited financial
statements include all adjustments (consisting only of normal recurring
adjustments) which GenPharm considers necessary for a fair presentation of its
financial condition and results of operations for such periods. Operating
results for the six months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the entire year ending December 31, 1997.
This selected financial data should be read in conjunction with the financial
statements, related notes and other financial information included elsewhere in
this Prospectus/Consent Solicitation Statement.
<TABLE>
<CAPTION>
(In thousands, except per share data)
Six Months Ended
June 30, Year Ended December 31,
---------------------- -----------------------------------------------------
1997/(2)/ 1996 1996 1995 1994 1993 1992
----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(unaudited)
STATEMENT OF OPERATIONS DATA:
Revenues $ 1,760 $ 2,981 $ 6,141 $ 2,660 $ 4,728 $ 5,248 $ 432
Expenses:
Research and development 1,003 924 2,373 3,794 7,281 6,438 3,594
Marketing, general and administrative 839 356 634 984 1,879 1,756 2,357
Litigation and restructuring 4,727 512 611 5,728 880 --- ---
---------- -------- -------- -------- -------- -------- --------
Total operating expenses 6,569 1,792 3,618 10,506 10,040 8,194 5,951
---------- -------- -------- -------- -------- -------- --------
Other income (expense), net 22,809 33 (87) 768 (261) (9) 537
Provision for income taxes 400 20 45 --- --- --- ---
---------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations 17,600 1,202 2,391 (7,078) (5,573) (2,955) (4,982)
Discontinued operations/(1)/ --- --- --- (2,723) (4,313) (4,094) (2,309)
---------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 17,600 $ 1,202 $ 2,391 $ (9,801) $ (9,886) $ (7,049) $ (7,291)
========== ======== ======== ======== ======== ======== ========
Per share data:
Income (loss) from continuing
operations $1.70 $0.12 $0.24 $(6.40) $(5.27) $(2.89) $(5.07)
Loss from discontinued operations --- --- --- (2.46) (4.07) (4.00) (2.35)
---------- -------- -------- -------- -------- -------- --------
Net income (loss) $1.70 $0.12 $0.24 $(8.86) $(9.34) $(6.89) $(7.42)
========== ======== ======== ======== ======== ======== ========
Weighted average common shares
and equivalents used in per share data 10,353 10,131 10,137 1,106 1,059 1,024 983
BALANCE SHEET DATA:
Cash and cash equivalents $ 4,441 $ 1,623 $ 1,971 $ 459 $ 5,208 $ 5,435 $ 5,787
Total assets 19,997 2,495 2,363 1,427 14,284 16,711 21,640
Long term debt and capital lease
obligations --- 327 --- 354 1,466 3,355 4,244
Common Stock 289 237 241 227 876 863 814
Preferred Stock 39,838 39,838 39,838 39,838 37,913 30,095 27,802
Accumulated deficit (22,213) (41,002) (39,813) (42,204) (32,403) (22,517) (15,468)
Translation adjustment 348 221 415
Shareholders equity 17,914 (927) 266 (2,139) 6,734 8,662 13,563
- ----------------------------
</TABLE>
(1) Results of Gene Pharming Europe B.V.
(2) Includes $22.5 million of other income which is comprised of a $15 million
note from Cell Genesys, Inc. and an aggregate of $7.5 million received from
Xenotech L.P. and Japan Tobacco Inc. per agreement of March 26, 1997 as well
as associated accrued legal costs.
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<PAGE>
GENPHARM MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Since inception in December 1988, GenPharm has been engaged primarily in the
application of transgenic animal technology to the development of human antibody
products for therapeutic uses. Pharming, GenPharm's wholly owned subsidiary in
the Netherlands from 1988 through April 1995, applied transgenic animal
technology to the development of production systems for human protein products.
Revenues primarily consisted of payments under research and collaborative
agreements as well as government grants through 1995. In addition, the
litigation settlement and technology sales and licenses have provided income
since 1995.
In 1994, a competitor filed a lawsuit against GenPharm alleging
misappropriation of trade secrets. GenPharm denied these allegations, filed a
cross complaint, and in 1996 commenced a civil action asserting violations of
antitrust laws. In October 1996 and January 1997, GenPharm filed patent
infringement suits against a wholly owned subsidiary of the competitor. The
competitor voluntarily withdrew its lawsuit in January 1997 and the parties
entered into the Cross-License Agreement on March 26, 1997. As a result of the
litigation, GenPharm was unable to obtain financing adequate to sustain its
various research projects. During 1995, GenPharm spun-off a majority interest
in its wholly owned subsidiary, Pharming, sold its research animal model
business, sold a majority of its operating equipment, furniture and leasehold
improvements, reduced its work force, and relocated its continuing operations to
smaller facilities.
GenPharm was unprofitable through 1995. GenPharm achieved profitability for
the year ended December 31, 1996 and the six months ended June 30, 1997 from
revenues resulting from numerous technology sales and cross license agreements
in addition to payments under research agreements and the litigation settlement.
As of December 31, 1996 and June 30, 1997, GenPharm's accumulated deficit was
approximately $39.8 million and approximately $22.2 million, respectively. The
difference of approximately $17.6 million is primarily a result of the Cross-
License Agreement signed in March 1997 less associated legal fees and costs.
GenPharm's principal sources of capital have been private placements of
preferred stock, long-term debt and capital leases, contract and license
revenues and government grants. GenPharm's business is subject to substantial
risks. See "Risk Factors--Risks Related to GenPharm."
RESULTS OF OPERATIONS
Six months ended June 30, 1996 and 1997
- ---------------------------------------
Revenues for the six month period ended June 30, 1997 were approximately
$1.8 million compared to approximately $3.0 million for the six month period
ended June 30, 1996. Revenue decreased approximately $1.2 million or 41%. The
decrease is primarily due to revenue of approximately $1.2 million recognized in
1996 under an amendment to the Eisai Co., Ltd. ("Eisai") collaboration agreement
for achievement of milestones and for certain marketing rights in the technology
developed under this agreement.
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<PAGE>
Research and development expenses for the six month period ended June 30,
1997 were approximately $1.0 million compared to approximately $924,000 for the
six months ended June 30, 1996, an increase of approximately $79,000 or 9%. The
increase is principally due to increased patent costs and expenses associated
with the research collaboration with Eisai.
General and administrative expenses for the six month period ended June 30,
1997 were approximately $839,000 and were approximately $356,000 for the six
month period ended June 30, 1996, an increase of approximately $483,000 or 136%
primarily due to a payment of $306,000 in legal fees pertaining to a 1994
initial public offering attempt becoming payable following settlement of the
litigation and professional fees and costs associated with the Medarex Merger
Agreement.
Litigation expenses for the six month period ended June 30, 1997 were
approximately $4.7 million as compared to $512,000 for the six month period
ended June 30, 1996. The increase of $4.2 million represents legal fees and
cost reimbursements due to the legal counsel representing GenPharm in the Cell-
Genesys litigation on a contingent fee basis.
Settlement and cross-license income of $22.5 million for the six month
period ended June 30, 1997 relates to the Cross-License Agreement signed on
March 26, 1997. The agreement provided a $7.5 million cash payment to GenPharm
and a $15 million note from Cell Genesys plus interest due September 1998.
Interest income for the six month period ended June 30, 1997 was $336,000
compared to $6,000 for the six month period ended June 30, 1996, an increase of
approximately $330,000. The increase is due to the increase in cash available
during the period ending June 30, 1997 and interest accrued on the $15 million
note receivable from Cell Genesys.
Interest expense for the six month period ended June 30, 1997, was $27,000
as compared to $52,000 for the six month period ended June 30, 1996, a decrease
of $25,000 or 48% primarily due to a reduction in the amounts due on a bank loan
and capitalized lease obligations.
Years ended December 31, 1994, 1995 and 1996
- --------------------------------------------
Revenues for the year ended December 31, 1996 were approximately $6.1
million compared to approximately $2.7 million for the year ended December 31,
1995, an increase of approximately $3.5 million or 131%. The increase resulted
primarily from the signing of an amendment to the Eisai Agreement which provided
approximately $1.3 million in additional payments for milestones and territory
expansion, as well as a technology license agreement with Pharming which
provided approximately $1.8 million. Additional contract and license revenue of
$726,000 resulted from a technology license and joint research and access
agreement with Genencor signed in 1996. Revenues decreased to approximately
$2.7 million in 1995 from approximately $4.7 million in 1994. The decrease in
revenue of $2.1 million, or 44%, from 1994 to 1995 resulted primarily from the
discontinuation of certain grants from the National Institutes of Health and the
National Institute of Standards and Technology in addition to the sale of the
animal research model business in July 1995.
Research and development expenses for the year ended December 31, 1996
decreased to approximately $2.4 million from approximately $3.8 million for the
year ended December 31, 1995, a decrease of approximately $1.4 million or 37%.
Research and development costs decreased to
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<PAGE>
approximately $3.8 million in 1995 from $7.3 million in 1994, a decrease of $3.5
million or 48%. The decrease from 1994 through 1996 resulted primarily from the
reduction in the research staff and elimination of certain research programs.
Marketing, general and administrative expenses for the year ended December
31, 1996 were approximately $634,000 compared to approximately $984,000 for the
year ended December 31, 1995, a decrease of approximately $350,000 or 36% due
primarily to reduced facility costs. Marketing, general and administrative
expenses in 1995 decreased by approximately $895,000 to approximately $984,000
for the year ended December 31, 1995, a 48% decrease from 1994. The decrease is
due to a reduction in marketing and administrative staffing as a result of the
sale of the animal model research business in mid 1995.
Litigation fees and costs are associated with the complaint filed by a
competitor against GenPharm in February 1994 and all subsequent actions.
GenPharm incurred fees and costs of approximately $611,000 in 1996 as compared
to $2.8 million in 1995 and $880,000 in 1994. The increase of approximately
$2.0 million or 223% from 1994 to 1995 is due to the engagement of new lead
counsel in May 1995 which included payment of a substantial deposit to the firm
and certain costs. Professional fees and costs in excess of the deposit were
payable on a contingent basis following the results of the litigation.
The restructuring charge in the year ended December 31, 1995, resulted from
GenPharm reducing its work force and selling a majority of its operating
equipment, furniture and leasehold improvements.
Interest income was approximately $46,000 in 1996, $84,000 in 1995 and
$197,000 in 1994 representing a decrease of $113,000 or 57% from 1994 to 1995
and a decrease of $38,000 or 45% from 1995 to 1996. The decrease in interest
income was due primarily to lower average cash and cash equivalent balances.
Interest expense decreased by approximately $195,000 or 64% to approximately
$112,000 for the year ended December 31, 1996 and decreased by approximately
$151,000 or 33% to approximately $307,000 for the year ended December 31, 1995.
The decreases are due to the reduction of a $4 million term loan obtained in
December 1992 and refinanced in 1996 in addition to the early termination of
capital lease finance agreements.
LIQUIDITY AND CAPITAL RESOURCES
GenPharm has financed its operations since inception primarily through
private placements of preferred stock, long-term debt and capital leases,
contract and license revenues and government grants. Through December 31, 1996,
GenPharm had raised approximately $39.8 million from private placements of
preferred stock.
At June 30, 1997, the Company had approximately $4,441,000 in cash and cash
equivalents as compared to approximately $1,971,000 at December 31, 1996 and
approximately $459,000 at December 31, 1995. The increase in cash of
approximately $2,470,000 or 125% for the six months ended June 30, 1997
primarily reflects cash payments of $7.5 million received by GenPharm under the
Cross-License Agreement offset by $4.5 million of net cash used for payments of
associated legal fees and costs and $663,000 of cash used for payments of debt
and capital lease obligations. The net increase in cash of
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<PAGE>
approximately $1.5 million or a 329% increase from December 31, 1995 to December
31, 1996 is primarily due to net income of $2.4 million partially offset by
decreases in accrued liabilities.
GenPharm received payments under collaborative agreements of $1.6 million
for the six months ended June 30, 1997, $2.9 million in the year ended December
31, 1996 and $2.0 million in the year ended December 31, 1995. Future research
payments under these agreements will be determined pursuant to schedules set
forth in the agreements. GenPharm's collaborative agreements are terminable
upon specified notice without cause.
GenPharm has incurred and will continue to incur significant costs related
to ongoing product and manufacturing process research and development, pre-
clinical and clinical trials, regulatory activities and augmentation of its
organization as products develop.
As of December 31, 1996, GenPharm had federal tax net operating loss (NOL)
carryforwards of approximately $21 million. GenPharm also has federal research
and development tax credit carryforwards of approximately $500,000. The net
operating loss and credit carryforwards will expire at various dates beginning
on 2004 through 2011 if not utilized. GenPharm has had a detailed analysis
performed to determine the "ownership" changes under Section 382 of the Code and
similar state provisions and the results indicate there is no material
restriction on the utilization of net operating loss carryforwards. The income
tax provision for the year ended December 31, 1996 and the six month periods
ended June 30, 1996 and 1997 are a result of using the net operating loss
carryforwards as well as federal and state alternative minimum tax.
GenPharm's current sources of liquidity are its cash and cash equivalents,
interest earned on such cash and contract and licensing revenues. Management
believes that under existent operating plans its current sources of liquidity
will be sufficient to meet anticipated cash requirements for at least the next
12 months. GenPharm's future capital requirements will depend on many factors,
including continued scientific progress in its research and development
programs, the magnitude of these programs, progress with preclinical and
clinical trials, expenses incurred by GenPharm in prosecuting and enforcing
patent claims or in interference proceedings relating to intellectual property
rights, competing technological and market developments, the ability of GenPharm
to maintain and establish additional product development arrangements, and the
cost of commercialization activities and arrangements. GenPharm will be
required to raise additional funds through equity or debt financing and/or enter
into licensing or joint development agreements. There can be no assurance that
these sales or financing activities will be successful.
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<PAGE>
BENEFICIAL OWNERSHIP OF GENPHARM STOCK
The following table sets forth, as of July 31, 1997, certain information
with respect to the beneficial ownership of shares of both classes of GenPharm
Stock by (i) each person (or group of affiliated persons) known to GenPharm to
be the beneficial owner of 5% or more of GenPharm's outstanding shares of both
classes of GenPharm Stock, (ii) each GenPharm director, (iii) each executive
officer of GenPharm, and (iv) all directors and executive officers of GenPharm
as a group. Except as otherwise noted, GenPharm believes that the beneficial
owners of the shares of GenPharm Stock listed below, based on information
furnished by such owners, have sole voting and investment power with respect to
such shares.
<TABLE>
<CAPTION>
Shares of GenPharm Shares of GenPharm
Common Stock Preferred Stock
Beneficially Owned Beneficially Owned
Prior to Merger/(1)/ Prior to Merger/(1)/
--------------------- ---------------------
Beneficial Owner Number Percent Number Percent
- ---------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Entities associated with 6,875 * 1,946,658 13.5%
Institutional Venture Partners/(2)/
3000 Sand Hill Road, 2-290
Menlo Park, CA 94025
Genencor, Inc. 3,125 * 800,000 5.5%
1870 South Winton Road
4 Cambridge Place
Rochester, NY 14618
Entities associated with --- --- 1,090,433 7.6%
Delphi Ventures L.P./(3)/
3000 Sand Hill Road, 1-135
Menlo Park, CA 94025
Kleiner, Perkins, Caufield & Byers 9,906 * 929,640 6.4%
2750 Sand Hill Road
Menlo Park, CA 94025
Entities associated with 6,875 * 1,008,162 7.0%
Atlas Venture/(4)/
1411 MA Naarden
P.O. Box 5225
1410 AE Naarden
The Netherlands
Biotechnology Venture Fund SA/(5)/ --- --- 927,433 6.4%
231 Val des Bons Malades
Kirchberg 2121
Luxembourg
Euroventures Benelux Il B.V. --- --- 773,218 5.4%
Joh. Vermeerplain 91
1071 DV Amsterdam
The Netherlands
PaineWebber R&D Partners III --- --- 1,000,000 6.9%
1285 Avenue of the Americas, 14th Flr.
New York, NY 10019
Samuel Colella/(2)/ 6,875 * 1,946,658 13.5%
Herman de Boer/(6)/ 176,937 9.3% --- ---
Michiel A. deHaan/(4)/ 6,875 * 1,008,162 7.0%
Sang Hc Lee 96,738 5.1% --- ---
Herbert Heyneker/(7)/ 16,875 * 53,333 *
Robert M. Kay 150,155 7.9% --- ---
Thomas Kiley/(8)/ 176,250 9.3% 28,571 *
David Leathers/(5)/ 6,875 * --- ---
Nils Lonberg/(9)/ 106,648 5.6% --- ---
Jonathan J. MacQuitty/(10)/ 456,397 24.0% 2,660 *
Edmund Olivier/(11)/ 8,541 * 49,581 *
Carl Peck/(12)/ 8,750 * --- ---
All current directors and executive officers as a group (8
persons)/(13)/ 687,438 36.4% 3,088,965 21.4%
</TABLE>
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<PAGE>
- ------------------------
* Less than one percent.
(1) Percentage ownership calculations are based on 1,893,413 shares of GenPharm
Common Stock and 14,433,568 shares of GenPharm Preferred Stock outstanding
as of May 31, 1997. Beneficial ownership is determined in accordance with
the rules of the Commission and includes voting and investment power with
respect to shares. Shares of GenPharm subject to options or warrants
currently exercisable or exercisable within 60 days of May 31, 1997 are
deemed outstanding for computing the percentage ownership of the person
holding such options or warrants, but are not deemed outstanding for
computing the percentage ownership of any other person.
(2) Consists of (a) 6,875 shares of GenPharm Common Stock issuable to
Institutional Venture Management V pursuant to stock options exercisable
within 60 days; (b) 29,183 shares of GenPharm Preferred Stock held by
Institutional Venture Management III; and (c) 1,917,475 shares of GenPharm
Preferred Stock held by Institutional Venture Partners III. Samuel
Colella, a director of GenPharm, is a General Partner of Institutional
Venture Partners and disclaims beneficial ownership of the shares held by
Institutional Venture Management V, Institutional Venture Management III
and Institutional Venture Partners III except to the extent of his
proportionate partnership interest therein.
(3) Consists of (a) 3,743 shares of GenPharm Preferred Stock held by Delphi
BioInvestments, L.P.; (b) 153 shares of GenPharm Preferred Stock held by
Delphi BioInvestments II, L.P.; (c) 1,056,720 shares of GenPharm Preferred
Stock held by Delphi BioVentures, L.P.; and (d) 29,817 shares of GenPharm
Preferred Stock held by Delphi BioVentures II, L.P.
(4) Consists of (a) 6,875 shares of GenPharm Common Stock issuable to Atlas
Venture Fund L.P. pursuant to stock options exercisable within 60 days; (b)
438,400 shares of GenPharm Preferred Stock held by Atlas Venture Fund L.P.;
and (c) 569,762 shares of GenPharm Preferred Stock held by Atlas Venture
Beheer II. Michiel A. de Haan, a director of GenPharm, is a General
Partner of Atlas Venture and disclaims beneficial ownership of the shares
held by Atlas Venture Fund L.P. and Atlas Venture Beheer II except to the
extent of his proportionate partnership interest therein.
(5) Includes 6,875 shares of GenPharm Common Stock issuable pursuant to stock
options exercisable within 60 days. Also includes 927,433 shares of
GenPharm Preferred Stock held by Biotechnology Venture Fund SA. David
Leathers, a director of GenPharm, is a management advisor to Biotechnology
Venture Fund SA and disclaims beneficial ownership of the shares held by
Biotechnology Venture Fund SA except to the extent of his proportionate
interest therein.
(6) Includes 4,062 shares of GenPharm Common Stock issuable pursuant to stock
options exercisable within 30 days.
(7) Includes 16,875 shares of GenPharm Common Stock issuable pursuant to stock
options exercisable within 60 days.
(8) Includes 1,668 shares of GenPharm Common Stock issuable pursuant to stock
options exercisable within 60 days.
(9) Includes 3,373 shares of GenPharm Common Stock issuable pursuant to stock
options exercisable within 60 days.
(10) Consists of (a) 410,616 shares of GenPharm Common Stock held by Jonathan J.
MacQuitty & Laurie Hunter, Husband & Wife, as Community Property; (b)
20,000 shares of GenPharm Common Stock held by Laurie Hunter & Jonathan
MacQuitty TTEES of the Alexander James MacQuitty Trust dtd 10/25/93; (c)
20,000 shares of GenPharm Common Stock held by Laurie Hunter and Jonathan
MacQuitty TTEES of the Philip Merrill MacQuitty Trust dtd 10/25/93; (d)
5,781 shares of GenPharm Common Stock issuable pursuant to stock options
exercisable within 60 days; and (e) 2,660 shares of GenPharm Series I
Preferred Stock held by Jonathan J. MacQuitty & Laurie Hunter, Husband &
Wife, as Community Property.
(11) Includes 8,541 shares of GenPharm Common Stock issuable pursuant to stock
options exercisable within 60 days.
(12) Includes 8,750 shares of GenPharm Common Stock issuable pursuant to stock
options exercisable within 60 days.
(13) See footnotes 2, 4, 6, 7, 8, 10, 11 and 12.
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COMPARISON OF SHAREHOLDER RIGHTS
The following is a summary of material differences between the rights of
holders of Medarex Common Stock and the rights of holders of GenPharm Common
Stock. Medarex is incorporated under the laws of the State of New Jersey and,
accordingly, the rights of shareholders are governed by the Medarex Certificate
of Incorporation, the Medarex By-laws and the NJCA. GenPharm is incorporated
under the laws of the State of California and, accordingly, the rights of
holders of GenPharm Common Stock are governed by the GenPharm Articles, the
GenPharm By-laws and the CGCL. This summary does not purport to be complete and
is qualified in its entirety by reference to the NJCA and the CGCL, which
statutes may change from time to time, and the Medarex Certificate of
Incorporation and the Medarex By-laws, which also may be changed.
BY-LAWS
Under the NJCA and the Medarex By-Laws, Medarex's By-Laws may be amended or
repealed or new bylaws adopted (i) by action of the shareholders entitled to
vote thereon at any annual or special meeting of shareholders or (ii) by action
of the Board at a regular or special meeting thereof. The GenPharm By-Laws
provide that new bylaws may be adopted or such bylaws may be amended or repealed
by the vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that (i) if the articles of
incorporation of the corporation set forth the number of authorized directors of
the corporation, then the authorized number of directors may be changed only by
an amendment of the articles of incorporation, and (ii) subject to the rights of
the shareholders as provided above, the GenPharm By-Laws, other than a bylaw or
an amendment of a bylaw changing the authorized number of directors (except to
fix the authorized number of directors pursuant to a bylaw providing for a
variable number of directors), may be adopted, amended or repealed by the board
of directors.
POWER TO CALL SPECIAL SHAREHOLDERS' MEETINGS
Under the GenPharm By-Laws, a special meeting of shareholders may be called
by the board of directors, the chairman of the board, the president or the
holders of shares entitled to cast not less than ten (10%) percent of the votes
at such meeting. Under the Medarex By-Laws, special meetings of the
shareholders may be called by the board of directors, the chairman of the board,
the president or the holders of shares entitled to cast not less than thirty-
three percent (33%) of the votes of such meeting.
CUMULATIVE VOTING
Under the NJCA, shareholders do not have cumulative voting rights in the
election of directors unless the certificate of incorporation so provides. The
Medarex Certificate of Incorporation does not provide for cumulative voting.
The GenPharm By-Laws provide that at a shareholders' meeting at which directors
are to be elected, a shareholder shall be entitled to cumulate votes if the
candidates' names have been placed in nomination prior to commencement of the
voting and the shareholder has given notice prior to commencement of the voting
of the shareholder's intention to cumulate votes. If any shareholder has given
such a notice, then every shareholder entitled to vote may cumulate votes for
candidates in nomination.
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SHAREHOLDERS' CONSENT TO CORPORATE ACTION
Unless otherwise provided in the articles of incorporation (GenPharm's
Articles presently contain no such restrictions), the CGCL provides that any
corporate action or authorization which requires the affirmative vote of
shareholders may be taken without a meeting, if a consent in writing to such
action is signed by the holders of outstanding stock having not less than the
minimum number of votes necessary to approve such action, provided that
directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote thereon.
Except as otherwise provided by the certificate of incorporation (Medarex's
Certificate of Incorporation presently contains no such restrictions), the NJCA
permits any action acquired or permitted to be taken at any meeting of a
corporation's shareholders, other than the annual election of directors, to be
taken without a meeting upon the written consent of shareholders who would have
been entitled to cast the minimum number of votes necessary to authorize such
action at a meeting of shareholders at which all shareholders entitled to vote
were present and voting. The annual election of directors, if not conducted at
a shareholders' meeting, may be effected only by unanimous written consent.
Under the NJCA, a shareholder vote on a plan of merger or consolidation, if not
conducted at a shareholders' meeting, may only be effected by either: (i)
unanimous written consent of all shareholders entitled to vote on the issue with
advance notice to any other shareholders, or (ii) written consent of
shareholders who would have been entitled to cast the minimum number of votes
necessary to authorize such action at a meeting, together with advance notice to
all other shareholders.
NUMBER OF DIRECTORS; CLASSIFIED BOARD
The Medarex Certificate of Incorporation provides that the number of
directors shall be not less than three (3) nor more than ten (10). The exact
number of Directors with such maximum and minimum shall be determined from time
to time by resolution of the Board of Directors or by the shareholders at an
annual meeting or special meeting. The Medarex Certificate of Incorporation
provides for directors to be classified into three classes, as nearly equal in
number as possible, with each group to serve a three-year term.
The GenPharm By-Laws provide that the number of directors of the corporation
shall be not less than five (5) nor more than nine (9) and that the exact number
of directors shall be seven (7) until changed, within the limits specified
above, by a bylaw amendment, duly adopted by the board of directors or by the
shareholders. The GenPharm By-Laws further provide that the indefinite number
of directors may be changed, or a definite number may be fixed without provision
for an indefinite number, by a duly adopted amendment to the GenPharm Articles
or by a bylaw amendment duly adopted by the vote or written consent of holders
of a majority of the outstanding shares entitled to vote; provided, however,
that an amendment reducing the fixed number or the minimum number of directors
to a number less than five (5) cannot be adopted if the votes cast against its
adoption at a meeting, or the shares not consenting in the case of an action by
written consent, are equal to more than sixteen and two-thirds percent (16-2/3%)
of the outstanding shares entitled to vote thereon. No GenPharm Bylaw amendment
may change the stated maximum number of authorized directors to a number greater
than two (2) times the stated minimum number of directors minus one (1). The
GenPharm Articles do not provide for a classified board of directors.
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VACANCIES ON THE BOARD OF DIRECTORS
Medarex's By-Laws provide that any vacancy in the Board may be filed by the
vote of a majority of the directors then in office, even if less than a quorum.
Any directorship not filled by the Board may be filled by shareholders at an
annual meeting, or at a special meeting called for that purpose.
GenPharm's By-Laws provide that vacancies in the board of directors may be
filled by approval of the Board or, if the number of the Directors then in
office is less than a quorum by (i) a majority vote of the remaining directors,
(ii) unanimous written consent of the remaining Directors or (iii) a sole
remaining director; however, a vacancy created by the removal of a director by
the vote or written consent of the shareholders or by court order may be filled
only by the affirmative vote of a majority of the shares represented and voting
at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the required quorum), or by the
unanimous written consent of all shares entitled to vote thereon. Under the
GenPharm By-Laws, the shareholders may elect a director or directors at any time
to fill any vacancy or vacancies not filled by the directors, but any such
election other than to fill a vacancy created by removal, if by written consent,
shall require the consent of the holders of a majority of the outstanding shares
entitled to vote thereon.
LIMITATIONS OF LIABILITY OF DIRECTORS AND OFFICERS
Under the NJCA, a corporation may include in its certificate of
incorporation a provision which would, subject to the limitations described
below, eliminate or limit directors' or officers' liability to the corporation
or its shareholders for monetary damage for breaches of their fiduciary duty of
care. A similar provision under the CGCL, applies to directors, but not
officers. Both the GenPharm and the Medarex Certificate of Incorporation
eliminate or provide for such limits to a director's liability.
Under the NJCA, a director or officer cannot be relieved from liability or
otherwise indemnified for any breach of duty based upon an act or omission (i)
in breach of such person's duty of loyalty to the corporation or its
shareholders, (ii) not in good faith or involving a knowing violation of law, or
(iii) resulting in receipt by such person of an improper personal benefit.
Under the CGCL, a director cannot be relieved of liability (i) for acts or
omissions that involve intentional misconduct or a knowing and culpable
violation of law, (ii) for acts or omissions that a director believes to be
contrary to the best interests of the corporation or its shareholders or that
involve the absence of good faith on the part of the director, (iii) for any
transaction from which a director derived an improper personal benefit, (iv) for
acts or omissions that show a reckless disregard for the director's duty to the
corporation or its shareholders in circumstances in which the director was
aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of serious injury to the corporation or its
shareholders, (v) for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation or its shareholders, (vi) under Section 310 of the CGCL (relating to
conflicts of interest), or (vii) under Section 316 of the CGCL (relating to
certain prohibited actions by directors).
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DIVIDENDS AND OTHER DISTRIBUTIONS
The CGCL dispenses with the concepts of par value of shares as well as
statutory definitions of capital, surplus and the like. The concepts of par
value, capital and surplus are retained under the NJCA.
Under the CGCL, a corporation may not make any distribution unless either
the corporation's retained earnings immediately prior to the proposed
distribution equal or exceed the amount of the proposed distribution or,
immediately after giving effect to such distribution, the corporation's assets
(exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 1 1/4 times its liabilities (not
including deferred taxes, deferred income and other deferred credits), and the
corporation's current assets would be at least equal to its current liabilities
(or 1 1/4 times its current liabilities if the average pre-tax and pre-interest
expense earnings for the preceding two fiscal years were less than the average
interest expense for such years). Such tests are applied to California
corporations on a consolidated basis.
Unless there are other restrictions contained in a New Jersey corporation's
certificate of incorporation (Medarex's Certificate of Incorporation presently
contains none), the NJCA generally provides that a New Jersey corporation may
declare and pay dividends on its outstanding stock so long as the corporation is
not insolvent and would not become insolvent as a consequence of the dividend
payment.
SHAREHOLDER VOTING ON MERGER
Both the CGCL and the NJCA generally require that a majority of the
shareholders of acquiring and target corporations approve statutory mergers.
The NJCA does not require a shareholder vote of the surviving corporation in a
merger (unless the corporation provides otherwise in its certificate of
incorporation) if (a) the plan of merger does not make an amendment requiring
shareholder approval to the certificate of incorporation of the surviving
corporation, (b) each share of the surviving corporation outstanding before the
merger is an identical outstanding or treasury share after the merger, and (c)
the number of shares of the surviving corporation outstanding immediately after
the merger, plus the shares issuable on exercise or conversion of other
securities issued pursuant to the merger, does not exceed 40% of the shares
outstanding immediately prior to the merger. The CGCL contains a similar
exception to its voting requirements for reorganizations where shareholders or
the corporation itself, or both, immediately prior to the reorganization will
own immediately after the reorganization equity securities constituting more
than five-sixths of the voting power of the surviving or acquiring corporation
or its parent entity.
RIGHTS OF DISSENTING SHAREHOLDERS
Generally, shareholders of a California corporation who dissent from a
merger or reorganization of the corporation are entitled to appraisal rights.
There are, however, no statutory rights of appraisal with respect to
shareholders of a corporation whose shares are listed on a national securities
exchange or on a list of over-the-counter margin stocks issued by the Board of
Governors of the Federal Reserve System unless the holders of at least five (5%)
percent of the class of outstanding shares claim the right or unless the
corporation or any law restricts the transfer of such shares. Appraisal rights
are unavailable, however, if the shareholders of a corporation or the
corporation itself, or both, immediately prior to the reorganization will own
immediately after the reorganization equity securities constituting
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more than five sixths of the voting power of the surviving or acquiring
corporation or its parent entity, and if the shares of the surviving corporation
have the same rights, preferences, privileges and restrictions as the shares of
the disappearing corporation that are surrendered in exchange. Since the
exceptions from the California statutory right of appraisal do not apply to the
Merger, shareholders of GenPharm will have statutory rights of appraisal with
respect to the Merger. See "The Merger--Appraisal Rights."
Shareholders of a New Jersey corporation who dissent from a merger,
consolidation, sale of all or substantially all of the corporation's assets or
certain other corporation transactions are generally entitled to appraisal
rights. No statutory right of appraisal exists, however, where the stock of the
New Jersey corporation is listed on a national securities exchange, or is held
of record by not less than 1,000 holders, or the consideration to be received
pursuant to the merger, consolidation or sale consists of cash or securities or
other obligations which, after the transaction, will be listed on a national
securities exchange or held of record by not less than 1,000 holders.
SHAREHOLDER PROTECTION LEGISLATION
The NJ Protection Act prohibits certain transactions involving an
"interested shareholder" and a "resident domestic corporation." An "interested
shareholder" is one that is directly or indirectly a beneficial owner of 10% or
more of the voting power of the outstanding voting stock of a resident domestic
corporation. The NJ Protection Act prohibits certain business combinations
between an interested shareholder and a resident domestic corporation for a
period of five years after the date the interested shareholder acquired its
stock, unless the business combination was approved by the resident domestic
corporation's board of directors prior to the "stock acquisition date." After
the five-year period expires, the prohibition on certain business combinations
continues unless the business combination is approved by the affirmative vote of
two-thirds of the voting stock not beneficially owned by the interested
shareholder, the business combination is approved by the board prior to the
interested shareholder's stock acquisition date or certain fair price provisions
are satisfied. The term "business combination" is defined to include, among
others, transactions between an interested shareholder and a resident domestic
corporation; a merger or consolidation; a sale, lease exchange, mortgage,
pledge, transfer or other disposition of assets of the resident domestic
corporation having an aggregate market value in excess of 10% or more of either
the aggregate market value of all the assets of the resident domestic
corporation on a consolidated basis or the aggregate market value of all the
outstanding stock of that resident domestic corporation; certain transactions
that would increase the interested shareholder's percentage ownership in the
resident domestic corporation; and any receipt by an interested shareholder of
the benefit of any loans, advances, guarantees, pledges or certain other
financial benefits provided by or through the corporation. The NJ Protection
Act also prohibits the interested shareholder from engaging in any of these
business combinations through its "affiliates" and "associates" or by engaging
in such business combinations with a subsidiary of the resident domestic
corporation. The Medarex Certificate of Incorporation provides that the NJ
Protection Act shall be applicable to Medarex and such charter provision may be
amended only by the affirmative vote of the holders of sixty-six and two-thirds
percent of the issued and outstanding voting stock of Medarex including sixty-
six and two-thirds percent of the outstanding voting stock held by persons other
than "interested shareholders," provided, however, that such provision may be
amended by the affirmative vote of the holders of sixty-six and two-thirds
percent of the issued and outstanding voting stock of Medarex or the approval of
a majority of the Disinterested Directors (as defined in the Medarex Certificate
of Incorporation) and the holders of a majority of the issued and outstanding
voting stock of Medarex.
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The GenPharm's Articles do not contain a provision relating to business
combinations. Under the CGCL, there is no analogous set of provisions
regulating business combinations (although there are provisions requiring, under
certain circumstances, a related party seeking to extend its control over a
particular corporation to deliver to the other shareholders of the corporation
an opinion as to the fairness of the consideration to be paid to such
shareholders in the proposed transaction).
SHAREHOLDER DERIVATIVE SUITS
The CGCL provides that a shareholder bringing a derivative action on behalf
of a corporation need not have been a shareholder at the time of the transaction
in question, provided that certain tests are met. Under the NJCA, a shareholder
may only bring a derivative action on behalf of the corporation if the
shareholder was a shareholder of the corporation at the time of the transaction
in question or his or her stock thereafter devolved upon him or her by operation
of law.
INTERESTED DIRECTOR TRANSACTIONS
Under both the CGCL and the NJCA, certain contracts or transactions in which
one or more of a corporation's directors has an interest are not void or
voidable because of such interest provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. Under the CGCL, (a) either the shareholders or
the board of directors must approve any such contract or transaction after full
disclosure of the material facts and the director's interest therein, and in the
case of board approval the contract or transaction must also be "just and
reasonable" to the corporation at the time it was approved, or (b) the contract
or transaction must have been just and reasonable as to the corporation at the
time it was approved with the burden of proof of such reasonableness being on
the interested director. Under the CGCL, if shareholder approval is sought, the
interested director is not entitled to vote his shares at a shareholder meeting
with respect to any action regarding such contract or transaction. If board
approval is sought, the contract or transaction must be approved by a majority
vote of a quorum of the directors, without counting the vote of any interested
directors (except that interested directors may be counted for purposes of
establishing a quorum). Under the NJCA, (a) the contract or other transaction
must be fair and reasonable as to the corporation at the time it is approved; or
(b) the director's interest must be disclosed or known to the board or committee
and the board or committee authorized the contract or transaction by unanimous
written consent, provided at least one director so consenting is disinterested,
or by affirmative vote of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum (interested directors may be
counted in determining the presence of a quorum at a board or committee meeting
at which such contract or transaction is approved); or (c) the fact of the
common directorship or interest must be disclosed to the shareholders, and they
approve the contract or transaction.
LEGAL MATTERS
The validity of the shares of Medarex Common Stock offered by this
Prospectus/Consent Solicitation Statement will be passed upon for Medarex by
Satterlee Stephens Burke & Burke LLP, New York, New York. Certain federal
income tax consequences of the Merger will be passed upon by Wilson, Sonsini,
Goodrich & Rosati, Professional Corporation. See "The Merger--Certain Federal
Income Tax Considerations" regarding the legal opinion by Wilson, Sonsini,
Goodrich & Rosati, Professional Corporation.
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EXPERTS
The financial statements of Medarex at December 31, 1995 and 1996, and for
each of the three years in the period ended December 31, 1996 appearing in the
Medarex Annual Report on Form 10-K have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of GenPharm at December 31, 1995 and 1996 and for
each of the three years in the period ended December 31, 1996 appearing
elsewhere in this Prospectus/Consent Solicitation Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and are included herein in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
Medarex is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Such reports, proxy statements
and other information may be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices located
at 5670 Wilshire Boulevard, 11th Floor, Los Angeles, CA 90036-3648. Copies of
such material may be obtained by mail form the Public Reference Section of the
SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The SEC maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the site is
http://www.sec.gov. Medarex's Common Stock is quoted on The Nasdaq Stock Market
and such reports, proxy statements and other information can also be inspected
at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C.
20006.
Medarex has filed with the SEC a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Medarex Common Stock to be issued pursuant to the Merger. This
Prospectus/Consent Solicitation Statement does not contain all the information
set forth in the Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the SEC. Such additional
information may be obtained form the SEC's principal office in Washington, D.C.
Statements contained in this Prospectus/Consent Solicitation Statement as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other documents, each such statement being qualified in all
respects by such reference.
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INCORPORATION BY REFERENCE
This Prospectus/Consent Solicitation Statement incorporates certain
documents by reference which are not presented herein or delivered herewith.
Documents relating to Medarex are available upon request from Medarex, Inc.,
1545 Route 22 East, Annandale, New Jersey 08801, Attention: Michael A.
Appelbaum, telephone (908) 713-6001. To ensure timely delivery of the
documents, any such request should be made by ______________, 1997. Copies of
documents that are requested will be sent by first-class mail, postage paid.
Medarex hereby undertakes to provide without charge to any beneficial owner
of GenPharm Common Stock or GenPharm Preferred Stock to whom a copy of this
Prospectus/Consent Solicitation Statement has been delivered, upon the written
or oral request of any such person, a copy of any and all of the documents
referred to below which have been or may be incorporated herein by reference,
other than exhibits to such documents, unless such exhibits are specifically
incorporated herein by reference. Requests for such documents should be
directed to the persons indicated in the immediately preceding paragraph.
The following Medarex documents filed with the Commission (File No. 0-19312)
are incorporated by reference herein:
(i) Medarex's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
(ii) Medarex's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997;
(iii) Medarex's Current Report on Form 8-K filed on May 12, 1997;
(iv) Medarex's Current Report on Form 8-K filed on June 17, 1997;
(v) Medarex's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1997;
(vi) the portions of the Proxy Statement for the Annual Meeting of
Stockholders held on May 15, 1997 that have been incorporated by
reference in Medarex's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995; and
(vii) all other documents filed by Medarex pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus/Consent Solicitation Statement and prior to the Effective
Time.
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GENPHARM INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors F-2
Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statement of Shareholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
GenPharm International, Inc.
We have audited the accompanying balance sheets of GenPharm
International, Inc. as of December 31, 1995 and 1996 and the related
consolidated statements of operations, shareholders' equity (net capital
deficiency), and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
Since the date of completion of our audit of the accompanying
financial statements and initial issuance of our report thereon dated March 7,
1997, which report contained an explanatory paragraph regarding the Company's
ability to continue as a going concern, the Company, as discussed in Note 12,
has entered into a settlement and cross-license which resolved the litigation
described in Note 4 and resulted in a settlement of at least $22.5 million to
the Company. Therefore, the conditions that raised substantial doubt about
whether the Company will continue as a going concern no longer exist.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of GenPharm
International, Inc. at December 31, 1995 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Palo Alto, California
March 7, 1997
except for Note 12, as to which the date
is March 26, 1997
F-2
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GENPHARM INTERNATIONAL, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 459 $ 1,971 $ 4,441
Interest receivable - - 263
Prepaid expenses and other current assets 178 192 130
---------- --------- ---------
Total current assets 637 2,163 4,834
Note receivable (Note 12) - - 15,000
Property and equipment, net 249 200 163
Investment in Pharming B.V. 60 - -
Patents 481 - -
---------- --------- ---------
$ 1,427 $ 2,363 $ 19,997
========== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY)
Current liabilities:
Accounts payable $ 198 $ 277 $ 543
Accrued liabilities 179 75 253
Accrued litigation fees and costs 1,698 595 800
Deferred revenue and advance payment 752 487 487
Current portion of long-term debt 327 654 -
Capital lease obligations 58 9 -
---------- --------- ---------
Total current liabilities 3,212 2,097 2,083
Long-term debt 354 - -
Commitments and contingencies
Shareholders' equity (net capital deficiency):
Preferred stock, no par value; 33,691,116 shares
authorized, issuable in series; 14,433,568 convertible
shares issued and outstanding at December 31, 1995
and 1996 and June 30, 1997, aggregate liquidation
preference is $40,379 39,838 39,838 39,838
Common stock, no par value; 32,000,000 shares
authorized, 1,304,933, 1,360,083 and 1,893,413
shares issued and outstanding at December 31, 1995
and 1996 and June 30, 1997, respectively 227 241 289
Accumulated deficit (42,204) (39,813) (22,213)
---------- --------- ---------
Total shareholders' equity (net capital deficiency) (2,139) 266 17,914
---------- --------- ---------
$ 1,427 $ 2,363 $ 19,997
========== ========= =========
</TABLE>
See accompanying notes.
F-3
<PAGE>
GENPHARM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1994 1995 1996 1996 1997
--------- --------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Technology license fees, contract and grant
revenues (includes related party revenues
of $1,806 in the year ended December 31, $ 4,728 $ 2,660 $ 6,141 $ 2,981 $ 1,760
1996)
Operating expenses:
Research and development 7,281 3,794 2,373 924 1,003
Marketing, general and administrative 1,879 984 634 356 839
Litigation fees and costs 880 2,838 611 512 4,727
Restructuring charge - 2,890 - - -
--------- --------- -------- -------- --------
Total operating expenses 10,040 10,506 3,618 1,792 6,569
--------- --------- -------- -------- --------
Income (loss) from operations (5,312) (7,846) 2,523 1,189 (4,809)
Other income (expense):
Settlement and cross-license (Note 12) - - - - 22,500
Gain from sale of animal model business - 991 - - -
Interest income 197 84 46 6 336
Interest expense (458) (307) (112) (52) (27)
Other income (expense), net - - (21) 79 -
--------- --------- -------- -------- --------
Total other income (expense), net (261) 768 (87) 33 22,809
--------- --------- -------- -------- --------
Income (loss) before income taxes (5,573) (7,078) 2,436 1,222 18,000
Provision for income taxes - - 45 20 400
--------- --------- -------- -------- --------
Income (loss) from continuing operations (5,573) (7,078) 2,391 1,202 17,600
Discontinued operations - loss from
operations of Pharming B.V. (4,313) (2,723) - - -
--------- --------- -------- -------- --------
Net income (loss) $(9,886) $(9,801) $ 2,391 $ 1,202 $17,600
========= ========= ======== ======== ========
Income (loss) from continuing operations per share $ (5.27) $ (6.40) $0.24 $0.12 $1.70
Loss from discontinued operations per share (4.07) (2.46) - - -
--------- --------- -------- -------- --------
Net income (loss) per share $ (9.34) $ (8.86) $0.24 $0.12 $1.70
========= ========= ======== ======== ========
Shares used in the calculation of net income
(loss) per share 1,059 1,106 10,137 10,131 10,353
========= ========= ======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
GENPHARM INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
SHAREHOLDERS'
PREFERRED STOCK COMMON STOCK CUMULATIVE EQUITY (NET
--------------- -------------- ACCUMULATED TRANSLATION CAPITAL
SHARES AMOUNT SHARES AMOUNT DEFICIT ADJUSTMENT DEFICIENCY)
--------------- -------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 13,010 $30,095 1,051 $ 863 $(22,517) $ 221 $ 8,662
Issuance of common stock for cash - - 15 13 - - 13
Issuance of Series C convertible
preferred stock 5 9 - - - - 9
Issuance of Series H convertible
preferred stock, net of issuance costs of 1,144 7,809 - - - - 7,809
$197
Net loss - - - - (9,886) - (9,886)
Accumulated translation adjustment - - - - - 127 127
--------------- -------------- ------------ ------------ -------------
Balance at December 31, 1994 14,159 37,913 1,066 876 (32,403) 348 6,734
Issuance of common stock for cash - 239 68 - - 68
Issuance of Series I convertible preferred
stock 275 1,925 - - - - 1,925
Accumulated translation adjustment - - - - - 302 302
Distribution of Pharming B.V. stock to
shareholders - - - (717) - (650) (1,367)
Net loss - - - - (9,801) - (9,801)
--------------- -------------- ------------ ------------ -------------
Balance at December 31, 1995 14,434 39,838 1,305 227 (42,204) - (2,139)
Issuance of common stock for cash - - 55 14 - - 14
Net income - - - - 2,391 - 2,391
--------------- -------------- ------------ ------------ -------------
Balance at December 31, 1996 14,434 39,838 1,360 241 (39,813) - 266
Issuance of common stock for cash
(unaudited) - - 533 48 - - 48
Net income (unaudited) - - - - 17,600 - 17,600
--------------- -------------- ------------ ------------ -------------
Balance at June 30, 1997 (unaudited) 14,434 $39,838 1,893 $ 289 $(22,213) $ - $17,914
=============== ============== ============ ============ =============
</TABLE>
See accompanying notes.
F-5
<PAGE>
GENPHARM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1994 1995 1996 1996 1997
----------- --------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (9,886) $(9,801) $ 2,391 $ 1,202 $ 17,600
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 867 867 566 156 47
Accrued rent expense 204 - - - -
Restructuring charge - noncash portion - 2,575 - - -
Gain on sale of animal model business - (991) - - -
Loss on transfer of investment in Pharming B.V. - - 60 - -
Change in interest receivable and other current
assets 21 262 (14) (61) (201)
Change in note receivable - - - - (15,000)
Change in accounts payable 168 (608) 79 (45) 266
Change in deferred revenue and advance payment (195) 264 (265) - -
Change in accrued liabilities and other 201 2,005 (1,207) (393) 383
Cash provided by discontinued operations - noncash
charges and working capital changes 314 460 - - -
----------- --------- -------- -------- ---------
Net cash provided by (used in) operating activities (8,306) (4,967) 1,610 859 3,095
----------- --------- -------- -------- ---------
INVESTING ACTIVITIES
Proceeds from sale of short-term investments 3,045 - - - -
Net purchases of other assets 3 (228) - - -
Purchases of property and equipment (877) (7) (47) - (10)
Proceeds from sale of animal model business - 1,067 - - -
Proceeds from sale of property and equipment - 974 11 - -
Cash used in discontinued operations - purchases of
property, equipment and other assets (1,096) (869) - - -
----------- --------- -------- -------- ---------
Cash flows provided by (used in) investing activities 1,075 937 (36) - (10)
----------- --------- -------- -------- ---------
FINANCING ACTIVITIES
Proceeds from capital equipment financing 496 81 50 50 -
Principal payments and cancellation fees paid on debt
and capital lease obligations (1,615) (3,143) (426) (55) (663)
Proceeds from additional borrowings 450 - 300 300 -
Proceeds form issuances of common stock 13 68 14 10 48
Net proceeds from issuances of convertible preferred
stock 7,818 1,925 - - -
Distribution of Pharming B.V. - cash and cash - (2,049) - - -
equivalents
Cash provided by discontinued operations - net
proceeds from debt (158) 2,399 - - -
----------- --------- -------- -------- ---------
Cash flows provided by (used in) financing activities 7,004 (719) (62) 305 (615)
----------- --------- -------- -------- ---------
Net increase (decrease) in cash and cash equivalents (227) (4,749) 1,512 1,164 2,470
Cash and cash equivalents at beginning of period 5,435 5,208 459 459 1,971
Cash and cash equivalents at end of period $ 5,208 $ 459 $ 1,971 $1,623 $ 4,441
=========== ========= ======== ======== =========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest $ 610 $ 307 $ 112 $ 52 $ 27
=========== ========= ======== ======== =========
Cash paid for income taxes $ - $ - $ 25 $ - $ 226
=========== ========= ======== ======== =========
</TABLE>
See accompanying notes.
F-6
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
GenPharm International, Inc. (the "Company" or "GenPharm") was incorporated in
the State of California on December 20, 1988 to develop and commercialize
human healthcare products from transgenic animals. As further discussed in
Notes 2 and 3, during 1995, the Company spun off the majority interest in its
wholly owned subsidiary Pharming B.V. ("Pharming"), formerly named Gene
Pharming Europe B.V. ("spin off") and restructured its domestic operations.
Following the restructuring, the Company has been focused on developing and
commercializing human monoclonal antibodies from genetically-modified mice.
BASIS OF PRESENTATION
As more fully described at Note 2, Pharming was spun off in April 1995.
Accordingly, the financial statements for the three years in the period ended
December 31, 1996 reflect the consolidated operations of the Company and its
wholly owned subsidiary Pharming, through April 28, 1995. Intercompany
transactions have been eliminated.
The financial statements at June 30, 1997 and for the six months ended June
30, 1996 and 1997 are unaudited but include all adjustments (consisting only
of normal recurring adjustments) which the Company considers necessary for a
fair presentation of the financial position at such date and the operating
results and cash flows for those periods. Results for interim periods are not
necessarily indicative of results for the entire year.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with a maturity
of three months or less to be cash equivalents. The Company invests its excess
cash primarily in deposits with banks and a money market fund. The Company has
not experienced losses on its cash equivalents.
F-7
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION AND AMORTIZATION
Property and equipment are recorded at cost and depreciated on a straight-line
basis over the estimated useful lives of two to five years. Equipment under
capital leases is amortized over the same period.
PATENT COSTS
Prior to 1996, costs incurred in filing for patent applications were
capitalized as incurred and amortized over their estimated useful lives of
five years. Capitalized patent costs and related accumulated amortization were
$935,000 and $454,000, respectively, at December 31, 1995. These patent
applications relate to the Company's technology for developing human
monoclonal antibodies from genetically-modified mice. In 1996, due to the
uncertainty of the future economic benefit of these technologies, the
estimated useful lives of these patents were revised and the remaining
unamortized balance at December 31, 1995 was expensed.
RECOGNITION AND SOURCES OF REVENUE
Revenue under research and development agreements is recognized as the
research and development expenses under such agreements are incurred. Amounts
received in advance of the services to be performed are recorded as deferred
revenue. Milestone payments received under research and development agreements
are recognized on receipt following the achievement of agreement
specifications.
The Company has entered into license agreements with various companies to
enable these companies to make, use and sell certain inventions developed by
the Company. Fees paid under such agreements are recognized when earned based
upon the performance requirements of the agreements.
The Company has received government grants which support the Company's
research effort on specific research projects. These grants generally provide
for reimbursement based on the performance requirements of the grants. The
reimbursement is of all or a portion of approved costs incurred as defined in
the various agreements. Government grant revenues are recognized either as the
costs are approved or as the costs are incurred, depending upon the terms of
the grant. For the years ended December 31, 1994, 1995 and 1996, grant-related
revenues which were all derived from continuing operations were approximately
$2,387,000, $374,000 and $30,000, respectively.
F-8
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECOGNITION AND SOURCES OF REVENUE (CONTINUED)
One party funding research contributed 52%, 73% and 52% of the Company's total
revenues from continuing operations in the years ended December 31, 1994, 1995
and 1996, respectively. This party will continue to provide funding through
1997.
FOREIGN CURRENCY TRANSLATION
Revenues and expenses of Pharming (a Netherlands company) for the period from
January 1, 1994 to April 28, 1995 (the date of the spin off) have been
translated at average exchange rates. Foreign currency exchange gains or
losses were not material.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share has been computed based upon the weighted average
number of common shares and dilutive common equivalent shares outstanding
during the period. Common equivalent shares resulting from stock options,
convertible preferred stock and warrants are included in the calculation when
their effect is dilutive and excluded from the computation when their effect
is antidilutive.
STOCK-BASED COMPENSATION
The Company has elected to follow the Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and the related
interpretations in accounting for its employee stock awards because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123")
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options and stock purchase rights equals the fair
value of the underlying stock on the date of grant, no compensation expense is
recognized on the granting of employee stock awards.
F-9
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
401(K) PLAN CONTRIBUTIONS
The Company has a 401(k) plan under which the Company may make employer
contributions at the discretion of the board of directors, but no such
contributions are required. The board of directors also has discretion in
determining the amount of any employer contribution. To date, no employer
contributions have been made.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
2. SPIN OFF OF PHARMING B.V.
On April 25, 1995, the board of directors of the Company approved the spin off
of Pharming to facilitate the separate financing of Pharming. The Company
contributed approximately $1,367,000 of certain net assets related to the
operations of Pharming ($2,049,000 in cash and cash equivalents less net
liabilities of $682,000). As a consequence of this transaction, the Company no
longer owns a controlling interest in Pharming and the results of operations
for the three years in the period ended December 31, 1996 include the Pharming
operations for the sixteen months ended April 28, 1995, the effective date of
the spin off.
F-10
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SPIN OFF OF PHARMING B.V. (CONTINUED)
Prior to the spin off, the Company converted its intercompany debt from
Pharming, of approximately $21,300,000, into equity in Pharming. Also,
Pharming completed a recapitalization that resulted in the creation of Class A
and B shares and an increase in the authorized capital stock of Pharming. In
the spin off, the Company, which owned 100% of Pharming prior to the spin off,
transferred all but 25,000 shares of its Class A holdings in Pharming and all
of its Class B holdings to two trusts which were created for the benefit of
the Company's shareholders and the holders of vested options and outstanding
warrants, subject to any valid claims by creditors of the Company not
satisfied by the Company. Investors in the Company's common and preferred
stock other than Series I preferred, received one share of Pharming Class A
stock for every 35.8 shares of the Company's stock held. Investors in the
Series I preferred stock received one share of Pharming Class B stock for
every 17.1 shares of GPI Series I preferred stock held. Vested option holders
and holders of outstanding warrants received rights to one share of Pharming
Class A stock for vested options or outstanding warrants relating to every
35.8 shares of the Company's stock. Upon exercise of the options or warrants,
the holders receive the Pharming Class A shares, in addition to the required
number of shares of the Company. In the event that some options and warrants
remain unexercised at expiration, the unexercised options and warrants are
canceled and the Pharming Class A shares relating to them revert to the
Company.
The results of operations for Pharming through April 28, 1995 have been
presented separately as discontinued operations. Pharming recorded revenue of
$2,419,000 in the year to December 31, 1994 and no revenue in the period from
January 1, 1995 to April 28, 1995.
At December 31, 1995, the Company continued to own 25,000 Class A shares of
Pharming (out of a total outstanding of 300,360 Class A shares and 120,410
Class B shares). These shares were transferred to Pharming in 1996. Pharming
remains a privately held company.
During 1996, the Company and Pharming entered into a technology cross-license
agreement. This agreement provides GenPharm a payment of approximately
$1,806,000 and a license to certain Pharming patent rights for use in the
field of human immunogolobulins in transgenic mice. In exchange, Pharming
received a license to certain GenPharm patents and licensed technology for use
in the field of production of human immunogolobulin products in the milk of
certain transgenic animals.
F-11
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SPIN OFF OF PHARMING B.V. (CONTINUED)
In a separate transaction, the Company transferred to Pharming, for no
consideration, the 25,000 shares of Pharming Class A stock which it held as a
result of the 1995 spin off transaction together with an additional 1,920
shares which will revert to the Company upon the expiration of unexercised
options in one of the aforementioned trusts. The Company recognized a loss of
$60,000 on the transfer of these shares.
3. RESTRUCTURING CHARGE AND GAIN FROM SALE OF BUSINESS
The Company recorded a charge of $2,890,000 in 1995 in connection with a
restructuring of its domestic business. Under this restructuring, the Company
reduced its domestic employment level across all functional areas from 59 to
12 people and incurred and paid termination and severance pay costs of
$348,000 associated with this reduction in force. The Company sold off the
majority of its operating equipment and machinery, its office furniture and
fixtures and its leasehold improvements for $974,000 cash proceeds, and
terminated its property and capital equipment leases, which resulted in a
combined aggregate loss of $2,542,000.
Also during 1995, the Company sold its United States animal model business for
$1,067,000 which resulted in a gain of $991,000. The Company continues to seek
potential buyers for other of its proprietary technologies. The Company
believes that it has reduced its operations to a level which can be sustained
at least through 1997.
4. LITIGATION
On February 1, 1994, Cell Genesys, Inc. ("Cell Genesys"), a competitor, filed
a complaint against the Company in the Superior Court of the State of
California. In the complaint, Cell Genesys alleged misappropriation of certain
trade secrets. The Company denied these allegations. The Company filed a cross
claim in March 1994 against Cell Genesys asserting that Cell Genesys' actions
were improper. The cross-claim was voluntarily dismissed by GenPharm in
September 1996. On January 13, 1997, Cell Genesys voluntarily dismissed its
complaint against the Company.
On February 6, 1996, the Company commenced a civil action in the United States
District Court for the Northern District of California against Japan Tobacco
Inc. and Cell Genesys, Inc. asserting violation of antitrust laws. That action
was dismissed without prejudice in December 1996 and was appealed in January
1997. In October 1996 and January 1997, the Company filed patent infringement
suits against Abgenix, Inc., a wholly owned
F-12
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LITIGATION (CONTINUED)
subsidiary of Cell Genesys. These suits were filed on the basis of patents
issued to GenPharm during 1996 and in January 1997. (See Note 12).
During 1994, 1995 and 1996, the Company incurred $880,000, $2,838,000 and
$611,000, respectively, of legal fees and costs associated with these cases.
In addition, the Company had agreed to pay a substantial contingent fee,
dependent upon the results of the litigation. On February 2, 1997, the Company
and its present counsel amended the terms of the professional services
agreement to, among other things, provide legal services for the patent
litigation suits, continue the antitrust litigation, confirm additional
payments made in 1996 as compensation because of the postponement of the trial
and to define some of the fees to be paid in the case of a settlement of any
or all of the complaints. At December 31, 1995 and 1996, $1,698,000 and
$595,000, respectively, in fees and costs were payable by the Company. (See
Note 12).
5. RESEARCH AND DEVELOPMENT AGREEMENTS
In 1993, the Company entered into a collaboration agreement with Eisai Company
Ltd. to fund the development and initial manufacturing of a specific human
antibody product. This agreement has been subsequently amended to provide for
further research and development funding through December 31, 1997. Revenue
recognized under this research agreement as amended was $1,950,000, $1,950,000
and $2,669,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. Research and development costs incurred under this agreement, to
date, have approximated revenues. Also in 1996, the Company received proceeds
of $500,000 for certain marketing rights in the technology developed under
this collaboration agreement.
In February 1997, the Company entered into a Research and Commercialization
Agreement with Centocor, Inc. ("Centocor"). This agreement provides Centocor
with a research license in return for annual license fees. Further, Centocor
is granted an option to obtain exclusive worldwide marketing and manufacturing
rights to any antibodies which are developed under the terms of the agreement
contingent upon Centocor making equity investments in GenPharm. Upon exercise
of the option, the agreement provides for benchmark payments on the
achievement of certain milestones and royalty payments on product sales.
F-13
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL INSTRUMENTS
CASH EQUIVALENTS
At December 31, 1993, the Company held certain short-term investments,
primarily corporate securities with maturities in excess of three months from
the purchase date, which were sold in 1994 without significant gain or loss.
Cash equivalents at December 31, 1995 include repurchase agreements and U.S.
Corporate notes of $25,000 and $450,000, respectively.
At December 31, 1996, cash equivalents of $1,914,000 represented money market
funds. The money market fund invests primarily in U.S. government obligations
and short-term repurchase agreements and generally seeks to maintain a
constant $1.00 per share net asset value.
These items are carried at cost which equals or closely approximates market
(redemption value).
NOTE PAYABLE TO BANK
At December 31, 1995 and 1996, the Company has a note payable to a bank that
was used to finance certain leasehold improvements and equipment purchases
related to the Company's expansion into a 53,000 square foot research and
administrative facility in the United States. The interest rate is prime plus
percentage points. This loan was refinanced in 1996.
Under the terms of the March 1996 renegotiated agreement, the loan is to be
completely paid off on or before December 31, 1997. (See Note 13). Interest
is at prime plus 3% and is payable monthly based on the average outstanding
loan balance for the month. As a condition of the refinancing, the Company
issued warrants to purchase 100,000 shares of its common stock at $0.05 per
share. The warrants expire on February 28, 2000. The loan is secured by all
the tangible and intangible assets owned by the Company, together with a claim
over the Pharming shares distributed into trust for the Company's shareholders
at the date of the spin off.
F-14
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PROPERTY AND EQUIPMENT
Property and equipment at cost, consists of the following at December 31 (in
thousands):
1995 1996
--------------
Laboratory equipment $ 440 $ 469
Office and computer equipment 126 123
--------------
566 592
Less accumulated depreciation and
amortization 317 392
--------------
Net property and equipment $ 249 $ 200
==============
Laboratory, office and computer equipment include approximately $436,000 and
$486,000 recorded under capital leases at December 31, 1995 and 1996,
respectively. The related accumulated amortization totaled approximately
$245,000 and $305,000 at December 31, 1995 and 1996, respectively.
8. LEASES
During 1995, the Company paid off its then existing equipment lease line from
the proceeds of the sale of the majority of its machinery and equipment. The
Company pledged its remaining laboratory equipment as collateral for a capital
lease of $81,000. This lease required monthly payments commencing in October
1995 and terminated in October 1996. The Company deemed outstanding warrants
for 2,548 shares previously issued to the lessor to be fully paid and
exercised as part of the continuing lease accommodation. In March 1996, the
Company entered into a similar capital lease agreement for an additional
$50,000, which required monthly payment through March 1997. These facilities
may be prepaid at any time without penalty and all title to the equipment
reverts to the Company upon payment of principal. (See Note 13).
In September 1995, the Company negotiated an early termination of a 10-year
noncancelable facilities lease agreement as a part of its restructuring plan
(see Note 3). In July 1996, the Company entered into an 18-month facilities
lease. The total rental cost of $211,000 was prepaid at this time.
Rent expense for facilities and equipment under operating leases was
approximately $1,123,000, $705,000 and $150,000 for the years ended December
31, 1994, 1995 and 1996, respectively.
F-15
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDERS' EQUITY
PREFERRED STOCK
Holders of shares of preferred stock are entitled to noncumulative dividends
when and if declared by the board of directors. No dividends have been
declared as of December 31, 1996. No dividends or other distributions may be
made to common shareholders other than dividends payable solely in common
stock, unless, at the same time, an equivalent dividend to the preferred
shareholders has been paid or provided for.
Each share of preferred stock will automatically convert into common stock
upon the closing of a firm commitment underwritten public offering under the
Securities Act of 1933 in which the aggregate offering price to the public is
not less than $10,000,000. Each share of preferred stock is convertible into
common stock at the option of the holder. The conversion rate into common
stock per share is subject to adjustment due to dilution provisions.
The holder of each share of common stock shall have one vote, and the holder
of each share of Series A, C, D, E, F, G, H and I preferred stock is entitled
to the number of votes equal to the number of shares of common stock into
which such shares of preferred stock could be converted at the record date.
The holders of Series B preferred stock have no voting rights, other than the
right to elect one director and as required by law, until conversion of their
shares into common stock.
F-16
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDERS' EQUITY (CONTINUED)
PREFERRED STOCK (CONTINUED)
The following table describes the rights, features and privileges of the
various series of preferred stock at December 31, 1996:
<TABLE>
<CAPTION>
CONVERSION
AGGREGATE RATE INTO
ISSUANCE PRICE LIQUIDATION COMMON
AUTHORIZED SHARES LESS ISSUANCE PREFERENCE STOCK PER
SHARES OUTSTANDING COSTS PER SHARE SHARE
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Series A 800,000 800,000 $ 293,382 $0.375 0.5
Series B 800,000 800,000 300,000 $0.375 0.5
Series C 4,105,200 4,055,200 6,066,221 $ 1.50 0.5
Series C1 4,105,200 - - $ 1.50 0.5
Series D 2,350,000 2,342,858 4,065,960 $ 1.75 0.5
Series D1 2,350,000 - - $ 1.75 0.5
Series E 5,142,858 4,675,700 16,103,103 $ 3.50 0.5
Series E1 5,142,858 - - $ 3.50 0.5
Series F 145,000 111,112 982,094 $ 9.00 1.0
Series G 250,000 230,000 2,293,517 $10.00 1.1
Series H 1,500,000 1,143,697 7,808,603 $ 7.00 1.0
Series H1 1,500,000 - - $ 7.00 1.0
Series I 500,000 275,001 1,925,007 $ 7.00 1.0
Undesignated 5,000,000 - - - -
-------------------------------------------
33,691,116 14,433,568 $39,837,887
===========================================
</TABLE>
The Series I preferred shareholders are entitled to receive, upon liquidation,
their preference per share as noted above (subject to adjustment for a
recapitalization) plus all declared but unpaid dividends. Thereafter, the
holders of the remaining series of preferred stock shall be entitled to
receive their preference per share as noted above (subject to adjustment for a
recapitalization) plus all declared but unpaid dividends. The remaining assets
and funds, if any, shall be distributed among the preferred and common
shareholders pro rata on an as-converted basis.
F-17
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDERS' EQUITY (CONTINUED)
WARRANTS
At December 31, 1996, as part of financing and technology license
arrangements, the Company had issued a warrant to purchase 50,000 shares of
the Company's Series C preferred stock. This warrant is exercisable through
2000 at $3.00 per share, depending, in certain circumstances, on a public
offering price. At December 31, 1996, there were 50,000 shares of the
Company's preferred stock reserved for issuance under this warrant agreement.
As part of the loan refinancing agreement (see Note 6), the Company replaced a
warrant to purchase 50,000 shares of Series E preferred stock with a warrant
to purchase 25,000 shares of common stock exercisable through 2000 at $0.30
per share. During 1996, the Company also issued warrants to purchase 102,500
shares of common stock at exercise prices between $0.05 and $1.00 exercisable
at various dates through 2000. Certain of these warrants are subject to early
termination in the event of a registered public offering.
COMMON STOCK
At December 31, 1996, the Company has reserved approximately 8,250,000 shares
of common stock for issuance on the conversion of the preferred stock and
warrants and approximately 1,133,000 shares of common stock for issuance of
options granted under the incentive stock plan.
INCENTIVE STOCK PLAN
Under the incentive stock plan (the "Plan"), options or 60-day stock purchase
rights ("Stock Purchase Rights") may be granted by the board of directors to
employees and consultants. Options granted may be either incentive stock
options or nonstatutory stock options. Stock purchased under Stock Purchase
Rights is subject to a repurchase option by the Company upon termination of
the purchaser's employment or services. The repurchase right lapses over a
period of time as determined by the board of directors.
Incentive stock options become exercisable ratably over the term of exercise
as specified in each option agreement. Options granted under the Plan are at
prices not less than the fair market value on the date of grant, as determined
by the board of directors. All options have a term not greater than 10 years
from the date of grant. The Plan, as amended, has authorized issuance of up to
1,600,000 shares of common stock pursuant to options and Stock Purchase
Rights.
F-18
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDERS' EQUITY (CONTINUED)
INCENTIVE STOCK PLAN (CONTINUED)
On July 26, 1995, the board of directors authorized the repricing of options
to purchase 558,737 shares to fair value at that date which was deemed to be
$0.30 for options which had vested prior to the spin off and $0.05 for options
which had not vested at the date of the spin off. The number of shares
repriced has been restated from the prior year as a result of a legal
determination made subsequent to the issuance of the 1995 financial statements
regarding the cancellation of unvested options held by employees of Pharming
at the date of the spin off. Consequently, the 1995 option activity under the
plan has been restated. The repriced options vest over the remaining vesting
period under the original option agreement. Generally, options vest over a
four-year term.
Pro forma information regarding net income is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
and Stock Purchase Rights granted subsequent to December 31, 1994, under the
fair value method of that Statement. The fair value for these options and
stock purchase rights was estimated at the date of grant or repricing using
the minimum value method with weighted-average, risk-free interest rates of
6.96% and 5.86% for 1995 and 1996, respectively. The weighted-average expected
life of these options and stock purchase rights for 1995 and 1996 was three
years and six years, respectively.
F-19
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDERS' EQUITY (CONTINUED)
INCENTIVE STOCK PLAN (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of options and
stock purchase rights granted is amortized over the vesting period. The
estimated fair value and its effect on net income (loss) for both 1995 and
1996 is immaterial. Because SFAS is applicable to options granted subsequent
to December 31, 1994, its pro forma effect will not be fully reflected until
1999.
The following table summarizes stock option activity under the plan (in
thousands, except for per share information):
<TABLE>
<CAPTION>
1994 1995 1996
---------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 1,019 $1.73 1,109 $1.82 723 $0.17
Granted 319 $2.97 820 $0.23 55 $0.05
Exercised (20) $0.86 (234) $0.39 (55) $0.14
Forfeited (209) $3.24 (972) $0.57 (29) $0.06
Outstanding at end of 1,109 $1.82 723 $0.17 694 $0.16
year
===============================================================
Exercisable at end of 494 $1.67 407 $0.26 479 $0.21
year
===============================================================
Weighted-average fair
value of options
granted during the year $0.23 $0.05
========= =========
</TABLE>
No stock purchase rights have been issued through December 31, 1996. Exercise
prices for options outstanding as of December 31, 1996 ranged from $0.05 to
$0.30. The weighted-average remaining contractual life of those options is 7.3
years.
F-20
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. FOREIGN OPERATIONS
The Company operated in two geographical areas, the United States and The
Netherlands, for 1994 and 1995 (through the spin-off date). The following
presents information for the geographical areas:
<TABLE>
<CAPTION>
THE
UNITED STATES NETHERLANDS ELIMINATIONS TOTAL
------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
1994:
Revenues from continuing operations $ 4,728 $- $- $ 4,728
Net income (loss) $(5,573) $(4,313) $- $(9,886)
Assets at December 31, 1994 $27,559 $ 3,456 $(16,731) $14,284
1995:
Revenues from continuing operations $ 2,660 $- $- $ 2,660
Net income (loss) $(7,078) $(2,723) $- $(9,801)
Assets at December 31, 1995 $ 1,427 $- $- $ 1,427
</TABLE>
11. INCOME TAXES
The provision for income taxes consists of the following for the years
ended December 31 (in thousands):
1994 1995 1996
---------------------------------------
Current:
Federal $- $- $ 36
State - - 9
---------------------------------------
Total provision $- $- $ 45
=======================================
The provision for 1996 and the three months ended March 31, 1997 is the result
of federal and state alternative minimum tax.
F-21
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (CONTINUED)
As of December 31, 1996, the Company had federal net operating loss
carryforwards of approximately $20,500,000. The Company also has federal
research and development tax credit carryforwards of approximately $500,000.
The net operating loss and credit carryforwards will expire at various dates
beginning on 2004 through 2011, if not utilized.
Significant components of the Company's deferred tax assets of $10,700,000 and
$9,900,000 as of December 31, 1995 and 1996, respectively, are U.S. net
operating loss carryforwards, research credit carryforwards and capitalized
research and development. The deferred tax assets have been fully offset by a
valuation allowance of $10,700,000 and $9,900,000 as of December 31, 1995 and
1996, respectively. The net valuation allowance decreased by $2,300,000 and
$800,000 during the years ended December 31, 1995 and 1996, respectively. The
decrease in 1995 is primarily related to the spin off of Pharming.
12. LITIGATION SETTLEMENT
On March 26, 1997, the Company entered into release and settlement and cross-
license agreements with Cell Genesys, Inc., its wholly-owned subsidiary
Abgenix, Inc., Japan Tobacco Inc., and Xenotech L.P., a joint venture between
Abgenix and Japan Tobacco. Included in the cross-license agreement is a
worldwide royalty-free cross license to all issued patents and patent
applications pertaining to the generation of fully-human monoclonal antibodies
in genetically-modified strains of mice. The purpose of the agreements was to
settle all related litigation and claims between the parties as described in
Note 4 as well as providing a cross-license among the parties. The cross-
license continues until the final patent expires.
In relation to these agreements, the Company recorded $22.5 million of
settlement and cross-license income in the six month period ended June 30,
1997 which consisted of $7.5 million received within fifteen days of the
effective date of the settlement and a $15 million note receivable from Cell
Genesys, Inc. The $7.5 million consisted of two amounts of $3,750,000 each
from Xenotech L.P. and Japan Tobacco Inc., respectively, which were received
in April 1997. The $15 million note receivable is outstanding as of June 30,
1997 and is payable no later than September 30, 1998. The note is convertible,
at the option of the Company, into Cell Genesys, Inc. common stock. Based on
Cell Genesys' current financial condition, the Company believes the note to be
fully collectible. Two potential milestone payments of $7.5 million each may
become due to GenPharm dependent upon the issuance of certain patents to
GenPharm in Europe and Japan respectively. These patents are part of the
cross-license agreement, and the Company anticipates their issuance prior to
December 31, 1998. The milestone payments are to be paid half by Xenotech L.P.
and half by Japan Tobacco as part of the terms of the settlement and cross-
license agreements.
F-22
<PAGE>
GENPHARM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
From February 1, 1994 when the litigation commenced through June 30, 1997, the
Company incurred total fees and costs associated with the settlement of these
cases of approximatley $9 million of which $800,000 is payable as of June 30,
1997. A further $800,000 of legal fees will become payable if the Company
receives the $15 million of additional payments due upon the issuance of
certain patents in Europe and Japan.
13. SUBSEQUENT EVENTS (UNAUDITED)
As of March 31, 1997, the Company had paid off all of its outstanding bank
debt and equipment lease obligations.
On May 5, 1997, the Company entered into an Amended and Restated Agreement and
Plan of Reorganization with Medarex, Inc. ("Medarex") subject to the approval
of GenPharm shareholders. Under the terms of the agreement, GenPharm will
become a wholly-owned subsidiary of Medarex. The terms of the merger provide
for the GenPharm shareholders to receive shares of Medarex common stock. The
maximum aggregate market value of all the Medarex shares to be received by
GenPharm shareholders pursuant to the merger will be $62,725,000, subject to
certain adjustments as described in the agreement. The Medarex shares will be
issued at various times in 1997 and 1998 and possibly 1999. The shares will
be issued firstly to the holders of GenPharm preferred stock to the extent of
their aggregate $40,379,000 liquidation preference and then pro rata to the
holders of GenPharm common stock and preferred stock on an as-converted basis.
In addition, outstanding stock options and warrants for the purchase of
GenPharm common and preferred stock will be assumed by Medarex and become
options or warrants to purchase Medarex common stock.
F-23
<PAGE>
GENPHARM INTERNATIONAL, INC.
Statement Re: Computation of Per Share Earnings
(In thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1994 1995 1996 1996 1997
-------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Income (loss) $(9,886) $(9,801) $ 2,391 $ 1,202 $17,600
======= ======= ======= ======= =======
Average common shares outstanding during 1,059 1,106 1,332 1,319 1,540
the period
Convertible preferred stock, as if converted --- --- 8,114 8,114 8,114
Stock Options and warrants, determined using --- --- 691 698 699
the treasury stock method ------- ------- ------- ------- -------
Common and common equivalent shares used 1,059 1,106 10,137 10,131 10,353
in the calculation of per share amounts ======= ======= ======= ======= =======
Net income (loss) per share - primary and $ (9.34) $ (8.86) $0.24 $0.12 $1.70
fully diluted ======= ======= ======= ======= =======
</TABLE>
F-24
<PAGE>
ANNEX A
________________________________________________
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>
AMENDED AND RESTATED 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........................................ 11
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............................ 34
SECTION 4.3 Shareholders' Consent/Meeting................................ 34
SECTION 4.4 Access to Information; Confidentiality....................... 34
SECTION 4.5 Affiliates................................................... 35
SECTION 4.6 No Solicitation.............................................. 35
SECTION 4.7 Employee Benefits Matters.................................... 36
SECTION 4.8 Directors' and Officers' Indemnification and Insurance....... 36
SECTION 4.9 Further Action; Reasonable Best Efforts...................... 37
SECTION 4.10 Notification of Certain Matters.............................. 38
SECTION 4.11 Public Announcements......................................... 38
SECTION 4.12 Tax Free Reorganization Treatment............................ 38
SECTION 4.13 Rule 144 Information......................................... 38
SECTION 4.14 Preparation of Form S-4 and the Consent Solicitation
Statement/Prospectus................................................... 38
SECTION 4.15 Contingent Payments.......................................... 39
SECTION 4.16 Parent Shareholders' Meeting; Payment of Additional Shares... 39
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 4.17 FIRPTA Matters............................................... 40
SECTION 4.18 Expenses..................................................... 40
SECTION 4.19 NMS Listing.................................................. 40
SECTION 4.20 Blue Sky Laws................................................ 40
SECTION 4.21 Employee Stock Bonus......................................... 40
SECTION 4.22 Shareholder Agreements....................................... 41
ARTICLE V CONDITIONS OF MERGER................................................. 41
SECTION 5.1 Conditions to Obligation of Each Party to Effect the Merger.. 41
SECTION 5.2 Conditions to Obligations of Parent and Merger Sub........... 42
SECTION 5.3 Conditions to Obligations of the Company..................... 45
ARTICLE VI TERMINATION, AMENDMENT AND WAIVER................................... 47
SECTION 6.1 Termination.................................................. 47
SECTION 6.2 Effect of Termination........................................ 48
SECTION 6.3 Breakup Fee.................................................. 49
SECTION 6.4 Amendment.................................................... 50
SECTION 6.5 Waiver....................................................... 51
ARTICLE VII REGISTRATION OF SECURITIES; LIMITATION ON
SALE OF PARENT COMMON SHARES......................................... 51
SECTION 7.1 Registration of Shares....................................... 51
SECTION 7.2 Restrictions on Transfer of Parent Common Shares............. 51
ARTICLE VIII GENERAL PROVISIONS................................................ 53
SECTION 8.1 Non-Survival of Representations, Warranties and Agreements... 53
SECTION 8.2 Notices...................................................... 54
SECTION 8.3 Certain Definitions.......................................... 55
SECTION 8.4 Severability................................................. 56
SECTION 8.5 Entire Agreement; Assignment................................. 56
SECTION 8.6 Parties in Interest.......................................... 56
SECTION 8.7 Governing Law................................................ 56
SECTION 8.8 Consent to Jurisdiction...................................... 56
SECTION 8.9 Headings..................................................... 57
SECTION 8.10 Counterparts................................................. 57
</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" 40
"Adjusted Placement Amount" 7
"Agreement" 1
"Audited Balance Sheet" 15
"Balance Sheets" 16
"Board Designee" 39
"Business Combination" 50
"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" 41
"Company Options" 11
"Company Plans" 20
"Company Preferred Stock" 1
"Company Securities" 13
"Confidentiality Agreement" 35
"Consents" 42
"Consent Solicitation Statement/Prospectus" 15
"Contingent Payments" 6
"Contingent Payment Adjustment" 7
"Constituent Corporations" 2
"Conversion Rates" 4
"Convertible Note" 7
"Designated Shareholders" 41
"Disclosure Schedule" 12
"Dissenters' Shares" 9
"Effective Time" 2
"Employee Share Amount" 41
"Employee Shares" 40
"Environmental Laws" 22
"ERISA" 19
"Exchange Act" 28
"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" 37
"Initial Payment Shares" 4
"Initial Placement" 4
"Initial Placement Amount" 5
"Initial Placement Ceiling" 7
"Initial Placement Ceiling Adjustment" 7
"Initial Placement Date" 4
"Initial Placement Floor" 7
"Initial Placement Floor Adjustment" 7
"Initial Placement Participants" 52
"Initial Shares" 4
"Intellectual Property" 21
"Letter of Transmittal" 10
"Lock-Up Period" 51
"Material Adverse Effect" (For the Company) 12
"Material Adverse Effect" (For Parent and Merger Sub) 26
"Merger" 1
"Merger Agreement" 2
"Merger Consideration" 3
"Merger Sub" 1
"NASD" 27
"Parent" 1
"Parent Common Shares" 1
"Parent Intellectual Property" 30
"Parent Preferred Shares" 26
"Parent SEC Reports" 28
"Per Share Placement Amount" 5
"Placement Agent" 4
"Placement Agent Fee Amount" 52
"Placement Date Shares" 4
"Placement Notice" 52
"Plans" 11
"Preference Amount" 4
"Pricing Committee" 53
"Prior Agreement" 1
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
"Required Amendments" 42
"Requisite Regulatory Approvals" 42
"Returns" 21
"Representatives" 35
"Sale" 51
"SEC" 11
"Second Payment Amount" 5
"Second Payment Date" 5
"Securities Act" 15
"Series C Preferred Exchange Ratio" 11
"Shareholder's Meeting" 34
"Specified Contracts" 23
"Surviving Corporation" 2
"Takeover Proposal" 48
"Tax" 21
"Tax Liability" 7
"Transaction Proposal" 36
"Unaudited Balance Sheet" 15
"Voting Stock" 51
</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 $40,378,646 (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
------------------------------
NO. OF $ PER SHARING CONV. AS CONV.
SERIES SHARES SHARE AGGREGATE PERCENTAGES RATE SHS.
- ---------- --------- ------ ----------- ------------ ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Series A 800,000 .375 $ 300,000 .743% 0.5 400,000
Series B 800,000 .375 300,000 .743% 0.5 400,000
Series C 4,055,200 1.50 6,082,800 15.064% 0.5 2,027,600
Series D 2,342,858 1.75 4,100,002 10.154% 0.5 1,171,429
Series E 4,675,700 3.50 16,364,950 40.529% 0.5 2,337,850
Series F 111,112 9.00 1,000,008 2.476% 1.040 115,556
Series G 230,000 10.00 2,300,000 5.696% 1.055 242,650
Series H 1,143,697 7.00 8,005,879 19.828% 1.0 1,143,697
Series I 275,001 7.00 1,925,007 4.767% 1.0 275,001
----------- ------ ---------
TOTALS $40,378,646 100% 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.
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(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
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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
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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
-----------------------------------------------------
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)
------------------------------------------------------
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
--------------------
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
-------------------
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.
----------------------------------------------------------
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
--------
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
-----------
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
3.626943% 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.
-----------------------------------------------------------
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.
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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
-----------
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
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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
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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.
57
<PAGE>
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]
<PAGE>
ANNEX B
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of _________________, 1997
("Merger Agreement"), is made and entered into by MEDAREX ACQUISITION CORP., a
California corporation (being herein referred to as "Merger Sub"), and GENPHARM
INTERNATIONAL, INC., a California corporation (being herein referred to as
"Company" or "Surviving Company"), with Company and Merger Sub being herein
collectively referred to as the "Constituent Corporations".
RECITALS
WHEREAS, Medarex, Inc., a Delaware corporation ("Parent"), directly owns all
of the outstanding shares of stock of Merger Sub.
WHEREAS, the Constituent Corporations and Parent entered into an Amended and
Restated Agreement and Plan of Reorganization dated as of May 5, 1997 (the
"Agreement and Plan of Reorganization") providing for certain representations,
warranties and agreements in connection with the transactions contemplated
herein.
WHEREAS, the Boards of Directors of the Constituent Corporations deem it
advisable and in the best interests of the Constituent Corporations and in the
best interests of the shareholders of the Constituent Corporations that the
Company be acquired by Parent through a merger ("Merger") of Merger Sub with and
into Company.
ARTICLE I
The Constituent Corporations
1.01(a) The Company was incorporated under the laws of the State of
California on December ___, 1988 .
(b) The Company is authorized to issue an aggregate of 32,000,000 shares of
Common Stock, without par value ("Company Common Stock"), and 33,691,116 shares
of Preferred Stock, without par value ("Company Preferred Stock"), of which
5,000,000 shares are undesignated preferred ("Blanket Preferred Stock"); 800,000
shares are designated Series A Preferred Stock ("Series A Preferred Stock"),
800,000 shares are designated as Series B Preferred Stock ("Series B Preferred
Stock"), 4,105,200 shares are designated as Series C Preferred Stock ("Series C
Preferred Stock"), 4,105,200 shares are designated as Series C1 Preferred Stock
("Series C1 Preferred Stock"), 2,350,000 shares are designated as Series D
Preferred Stock ("Series D Preferred Stock"), 2,350,000 shares are designated as
Series D1 Preferred Stock ("Series D1 Preferred Stock"), 5,142,858 shares are
designated as Series E Preferred Stock ("Series E Preferred Stock"), 5,142,858
shares are designated as Series E1 Preferred Stock ("Series E1 Preferred
Stock"), 145,000 shares are designated as Series F Preferred Stock ("Series F
Preferred Stock"), 250,000 shares are designated as Series G Preferred Stock
("Series G Preferred Stock"), 1,500,000 shares are designated as Series H
Preferred Stock ("Series H Preferred Stock"), 1,500,000 shares are designated as
Series H1 Preferred Stock ("Series H1 Preferred Stock"), and 500,000 shares are
designated as Series I Preferred Stock ("Series I Preferred Stock").
<PAGE>
(c) On the business day immediately preceding the date hereof, an aggregate
of ____________ shares of Company Common Stock and ____________ shares of
Company Preferred Stock were issued and outstanding, of which 800,000 were
Series A Preferred Stock, 800,000 were Series B Preferred Stock, 4,055,200 were
Series C Preferred Stock, 0 were Series C1 Preferred Stock, 2,342,858 were
Series D Preferred Stock, 0 were Series D1 Preferred Stock, 4,675,700 were
Series E Preferred Stock, 0 were Series E1 Preferred Stock, 111,112 were Series
F Preferred Stock, 230,000 were Series G Preferred Stock, 1,143,697 were Series
H Preferred Stock, 0 were Series H1 Preferred Stock, and 275,001 were Series I
Preferred Stock.
1.02(a) Merger Sub was incorporated under the laws of the State of
California on May 2, 1997.
(b) Merger Sub is authorized to issue an aggregate of 10,000 shares of
common stock, $.01 par value ("Sub Stock").
(c) On the date hereof, an aggregate of 1,000 shares of Sub Stock are
outstanding.
ARTICLE II
The Merger
2.01(a) The Merger shall become effective at such time ("Effective Time")
as this Merger Agreement and officers' certificates of each Constituent
Corporation are filed with the Secretary of State of California pursuant to
Section 1103 of the California Corporation Law ("CGCL").
(b) At the Effective Time, Merger Sub shall be merged with and into Company
and the separate corporate existence of Merger Sub shall thereupon cease.
Company shall be the surviving corporation in the Merger and the separate
corporate existence of Company with all its purposes, objects, rights,
privileges, powers, immunities and franchises, shall continue unaffected and
unimpaired by the Merger.
2.02(a) 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>
(b) If, at any time after the Effective Time, the Surviving Corporation
shall consider or be advised that any deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record or otherwise in the Surviving Corporation its
right, title or interest in, to or under any of the rights, properties or assets
of any Constituent Corporation acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or to otherwise
carry out this Merger Agreement, the officers and directors of the Surviving
Corporation shall and will be authorized to execute and deliver, in the name and
on behalf of the Constituent Corporations or otherwise, all such deeds, bills of
sale, assignments and assurances and to take and do, in the name and on behalf
of the Constituent Corporations or otherwise, all such other actions and things
as may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or to otherwise carry out this Merger Agreement.
ARTICLE III
Articles of Incorporation, Bylaws and
Directors and Officers of the Surviving Corporation
3.01(a) At the Effective Time of the Merger, the Articles of Incorporation
of the Company as the Surviving Corporation, shall be amended to read in their
entirety as set forth in Exhibit A attached hereto.
(b) 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 as provided in Subsection (a) above.
(c) 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.
(d) 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 IV
Manner and Basis of Converting Shares
of the Constituent Corporations
4.01 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:
3
<PAGE>
(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 Merger Agreement, "Merger
Consideration" shall mean $62,725,000, subject to adjustment as provided in
subsection 4.01(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 Merger Consideration with an aggregate value of $40,378,646 (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
------------------------------
NO. OF $ PER SHARING CONV. AS CONV.
SERIES SHARES SHARE AGGREGATE PERCENTAGES RATE SHS.
- ---------- --------- ------ ----------- ------------ ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Series A 800,000 .375 $ 300,000 .743% 0.5 400,000
Series B 800,000 .375 300,000 .743% 0.5 400,000
Series C 4,055,200 1.50 6,082,800 15.064% 0.5 2,027,600
Series D 2,342,858 1.75 4,100,002 10.154% 0.5 1,171,429
Series E 4,675,700 3.50 16,364,950 40.529% 0.5 2,337,850
Series F 111,112 9.00 1,000,008 2.476% 1.040 115,556
Series G 230,000 10.00 2,300,000 5.696% 1.055 242,650
Series H 1,143,697 7.00 8,005,879 19.828% 1.0 1,143,697
Series I 275,001 7.00 1,925,007 4.767% 1.0 275,001
----------- ------ ---------
TOTALS $40,378,646 100% 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
4
<PAGE>
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 Merger 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 wiht Section 2.2 of the Merger Agreement. 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.
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
4.01(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
4.01(b)(i)(A) above.
(C) Second Payment. For the purposes of this Merger 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 4.01(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 4.01(b)(ii) below) shall be equal to the quotient
obtained by dividing (1)
5
<PAGE>
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 4.01
(b)(i)(A) above 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 4.01(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
Merger Agreement, be deemed to be converted into shares of Company Common Stock
on the basis of the Conversion Rates set forth above in subsection
4.01(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 4.01(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 Merger 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 4.01(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 Merger 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 Merger 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").
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
6
<PAGE>
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 4.01(b)(ii) hereof, shall be entitled to
receive on the Final Payment Date shall be determined in the same manner as in
subsection 4.01(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 4.01(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 4.01(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 Merger 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
Merger 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 4.01(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 4.01(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 Co., Ltd. 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) of the Agreement and Plan of Reorganization
(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
Placement Floor Adjustment made pursuant to subsection 4.01(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 4.01(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
7
<PAGE>
advisor engaged by the Company in connection with the Merger and the
transactions contemplated by this Merger Agreement or (y) $100,000.
For the purposes of this Merger 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 the Agreement and Plan of Reorganization, 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 4.01 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.
(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.
8
<PAGE>
(h) Adjustments. If between the date hereof and the date of payment of any
-----------
shares pursuant to this Section 4.01 or Section 4.03 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
4.01 or Section 4.03 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 4.01 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 Parent, settle or offer to settle any such demands. Parent will pay all sums
due to holders of Dissenters' Shares.
4.02 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
9
<PAGE>
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 4.01, 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) of the Agreement and Plan
of Reorganization), 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 and clear of all claims or interest of any person
previously entitled thereto other than the holder of such Certificate as
specified in Section 4.02(a).
4.03 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
4.03(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.
10
<PAGE>
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.
4.04 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 Merger 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.
ARTICLE V
Termination and Amendment
5.01 Termination By Board of Directors. Notwithstanding the approval of
this Merger Agreement by the shareholders of Company and Sub, this Merger
Agreement may be terminated at any time prior to the Effective Time of the
Merger by mutual agreement of the Boards of Directors of Company and Sub.
5.02 Termination of Agreement and Plan of Reorganization. Notwithstanding
the approval of this Merger Agreement by the shareholders of Company and Sub,
this Merger Agreement shall terminate forthwith in the event that the Agreement
and Plan of Reorganization shall be terminated as therein provided.
5.03 Effect of Termination. In the event of the termination of this
Merger Agreement as provided above, this Merger Agreement shall forthwith become
void and there shall be no liability on the part of either Company or Sub or
their respective officers or directors, except as otherwise provided in the
Agreement and Plan of Reorganization.
5.04 Amendment. This Merger Agreement may be amended by the parties
hereto at any time before or after approval hereof by the shareholders of either
Company or Sub, but, after any such approval, no amendment shall be made which
by law requires the further approval of the shareholders of either Company or
Sub without obtaining such further approval. This Merger Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
11
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Merger Agreement as
of the date first written above.
GENPHARM INTERNATIONAL, INC.
By:__________________________________________________
Title:_________________________________
MEDAREX ACQUISITION CORP.
By:__________________________________________________
Title:_________________________________
12
<PAGE>
EXHIBIT A TO AGREEMENT AND PLAN OF MERGER
RESTATED ARTICLES OF INCORPORATION
OF
MEDAREX ACQUISITION CORP.
I
The name of this corporation is GenPharm International, Inc.
II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III
This Corporation is authorized to issue only one class of shares of stock,
designated as "Common Stock", consisting of 1,000 shares, $1.00 par value.
IV
Section 1. Limitation of Directors' Liability. The liability of the
directors of this Corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.
Section 2. Indemnification of Corporate Agents. This Corporation is
authorized to provide indemnification of agents (as defined in Section 317 of
the California Corporations Code) through by-law provisions, agreements with
agents, vote of shareholders or disinterested directors or otherwise, in excess
of the indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to the applicable limits set forth in Section
204 of the California Corporations Code with respect to actions for breach of
duty to the corporation and its shareholders.
Section 3. Repeal or Modification. Any repeal or modification of the
foregoing provisions of this Article IV shall not adversely affect any right of
indemnification or limitation of liability of an agent of this Corporation
relating to acts or omissions occurring prior to such repeal or modification.
<PAGE>
ANNEX C
SECTION 1300. RIGHT TO REQUIRE PURCHASE; "DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation is
required for a reorganization under subdivisions (a) and (b) or subdivision (e)
of Section 1201, each shareholder of such corporation entitled to vote on the
transaction and each shareholder of a subsidiary corporation in a short-form
merger may, by complying with this chapter, require the corporation in which the
shareholder holds shares to purchase for cash at their fair market value the
shares owned by the shareholder which are dissenting shares as defined in
subdivision (b). The fair market value shall be determined as of the day before
the first announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split or share dividend which
becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come within
all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form merger
either (A) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (0) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, and the notice of meeting of shareholders to act upon
the reorganization summarizes this section and Sections 1301, 1302, 1303 and
1304; provided, however, that this provision does not apply to any shares with
respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A) or
(B) if demands for payment are filed with respect to five percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for the determination of shareholders
entitled to vote on the reorganization and (A) were not voted in favor of the
reorganization or, (B) if described in subparagraph (A) or (B) of paragraph (1)
(without regard to the provisos in that paragraph), were voted against the
reorganization, or which were held of record on the effective date of a short-
form merger; provided, however, that subparagraph (A) rather than subparagraph
(B) of this paragraph applies in any case where the approval required by Section
1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation purchase
at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1301.
(c) As used in this chapter, "dissenting shareholder" means the recordholder of
dissenting shares and includes a transferee of record.
SECTION 1301. DEMAND FOR PURCHASE
(a) If, in the case of a reorganization, any shareholders of a corporation have
a right under Section 1300, subject to compliance with paragraphs (3) and (4) of
subdivision (b) thereof, to require the corporation to purchase their shares for
cash, such corporation shall mail to each such shareholder a
<PAGE>
notice of the approval of the reorganization by its outstanding shares (Section
152) within ten (10) days alter the date of such approval accompanied by a copy
of Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase the
shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the cash of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within thirty (30) days alter the
date on which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record by
the shareholder which the shareholder demands that the corporation purchase and
shall contain a statement of what such shareholder claims to be the fair market
value of those shares as of the day before the announcement of the proposed
reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. ENDORSEMENT OF SHARES.
Within thirty (30) days alter the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303. AGREED PRICE; TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are dissenting
shares and agree upon the price of the shares, the dissenting shareholder is
entitled to the agreed price with interest thereon at the legal rate on
judgments from the date of the agreement. Any agreements fixing the fair market
value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
<PAGE>
(b) Subject to the provisions of Section 1306, payment of the fair market value
of dissenting shares shall be made within thirty (30) days after the amount
thereof has been agreed or within thirty (30) days after any statutory or
contractual conditions to the reorganization are satisfied, whichever is later,
and in the case of certificated securities, subject to surrender of the
certificates therefor, unless provided otherwise by agreement.
SECTION 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six (6) months after the date on
which notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined as
defendants in any such action and two or more such actions may be consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. APPRAISER'S REPORT; PAYMENT; COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within ten (10) days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to uncertificated
securities and, with respect to certificated securities, only upon the
endorsement and delivery to the corporation of the certificates for the shares
described in the judgment. Any party may appeal from the judgment.
<PAGE>
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting shares
after the date of approval of the reorganization by the outstanding shares
(Section 152) and prior to payment for the shares by the corporation shall be
credited against the total amount to be paid by the corporation therefor.
SECTION 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
SECTION 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders thereof
cease to be dissenting shareholders and cease to be entitled to require the
corporation to purchase their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorney's fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the status
of the shares as dissenting shares or upon the purchase price of the shares, and
neither files a complaint or intervenes in a pending action as provided in
Section 1304, within six (6) months after the date on which notice of the
approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
<PAGE>
(d) The dissenting shareholder, with the consent of the corporation, withdraws
the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the votes
of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or short-
form merger, or to have the reorganization or short-form merger set aside or
rescinded, except in an action to test whether the number of shares required to
authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is directly
or indirectly controlled by, or under common control with, another party to the
reorganization or short-form merger, subdivision (a) shall not apply to any
shareholder of such party who has not demanded payment of cash for such
shareholder's shares pursuant to this chapter; but if the shareholder institutes
any action to attack the validity of the reorganization or short-form merger or
to have the reorganization or short-form merger set aside or rescinded, the
shareholder shall not thereafter have any right to demand payment of cash for
the shareholder's shares pursuant to this chapter. The court in any action
attacking the validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall not restrain or
enjoin the consummation of the transaction except upon ten (10) days' prior
notice to the corporation and upon a determination by the court that clearly no
other remedy will adequately protect the complaining shareholder or the class of
shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is directly
or indirectly controlled by or under common control with, another party to the
reorganization or short-form merger, in any action to attack the validity of the
reorganization or short-form merger or to have the reorganization or short-form
merger set aside or rescinded, (1) a party to a reorganization or short-form
merger which controls another party to the reorganization or short-form merger
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of the controlled party, and (2) a person who controls two
or more parties to a reorganization shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of any party so
controlled.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated Certificate of Incorporation, as amended, and Article XIII of
the Registrant's Amended and Restated By-Laws provide for the indemnification of
its Officers and Directors under certain circumstances and are incorporated
herein by reference.
Section 14A:3-5 of The New Jersey Business Corporation Act (the "NJBCA")
empowers a New Jersey corporation to indemnify any person who is or was a
director, officer, employee or agent of the indemnifying corporation or of any
constituent corporation absorbed by the indemnifying corporation in a
consolidation or merger and any person who is or was a director, officer,
trustee, employee or agent of any other enterprise, serving as such at the
request of the indemnifying corporation, or of any such constituent corporation,
or legal representative of any such director, officer, trustee, employee or
agent (a "corporate agent"), against his expenses and liabilities incurred in
connection with any proceeding involving the corporate agent, other than a
proceeding by or in the right of the corporation, if (a) such corporate agent
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and (b) with respect to any
criminal proceeding, such corporate agent had no reason to believe that his
conduct was unlawful. In addition, a corporation may indemnify such corporate
agent against his expenses in connection with any preceding by or in the right
of the corporation to procure a judgment in its favor which involves such
corporate agent by reason of his having been such corporate agent, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation. However, in such proceeding no
indemnification shall be provided in respect of any claim, issue or matter as to
which such corporate agent shall have been adjudged to be liable to the
corporation, unless and only to the extent that the Superior Court of the State
of New Jersey or the court in which such proceeding was brought shall determine
upon application that despite the adjudication of liability, but in view of all
circumstances of the case, such corporate agent is fairly and reasonably
entitled to indemnity for such expenses as the Superior Court or such other
court shall deem proper.
Under the NJBCA a corporation shall indemnify a corporate agent against
expenses to the extent that such corporate agent has been successful on the
merits or otherwise in any proceeding referred to above or in defense of any
claim, issue or matter therein.
The indemnification and advancement of expenses provided by or granted
pursuant to the NJBCA shall not exclude any other rights, including the right to
be indemnified against liabilities and expenses incurred in proceedings by or in
the right of the corporation, to which a corporate agent may be entitled under a
certificate of incorporation, by-law, agreement, vote of shareholders, or
otherwise; provided that no indemnification shall be made to or on behalf of a
corporate agent if a judgment or other final adjudication adverse to the
corporate agent establishes that his acts or omissions (a) were in breach of his
duty of loyalty to the corporation or its shareholders, (b) were not in good
faith or involved a knowing violation of law or (c) resulted in receipt by the
corporate agent of an improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in that Act and is,
II-1
<PAGE>
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The Registrant maintains a standard form of officers' and directors'
liability insurance policy which provides coverage to the officers and directors
of the Registrant for certain liabilities, including certain liabilities which
may arise out of this Registration Statement.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<C> <S>
/23/2.1 Amended and Restated Agreement and Plan of Reorganization among the
Registrant, Medarex Acquisition Corporation and GenPharm International, Inc.
dated as of May 5, 1997, together with the exhibits thereto.
/16/3.1 Restated Certificate of Incorporation, as amended, of the Registrant.
/1/3.2 Amended and Restated By-laws of the Registrant.
/1/4.1 Form of Specimen of Common Stock Certificate.
5.1 Opinion of Satterlee Stephens Burke & Burke LLP re: legality of securities being
registered.
8.1 Opinion of Wilson Sonsini Goodrich & Rosati; Professional Corporation, as to
federal income tax matters.
/4/10.1 Lease of the Registrant's executive offices dated August 1, 1992.
/1/10.2 Lease of the Registrant's laboratory facilities.
/1/10.3 1991 Employee Stock Option Plan.
/1/10.4 Letter of Intent dated April 25, 1991 between Lower Pyne Associates, L.P. and
Medarex, Inc.
/1/10.5 Joint Venture Agreement by and among Trustees of Dartmouth College, Essex
Medical Products, Inc. and the Registrant, dated as of July 15, 1987.
/1/10.6 Exclusive License Agreement by and between Trustees of Dartmouth College and
the Registrant, dated July 15, 1987.
/1/10.7 Non-Exclusive License Agreement by and between Trustees of Dartmouth College
and the Registrant, dated July 15, 1987.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
/1/10.8 Assignment Agreement by and between the Registrant and Michael W. Fanger,
dated July 15, 1987.
/1/10.9 Consulting Agreement between the Registrant and Michael W. Fanger, dated as of
July 15, 1987.
/1/10.10 Assignment Agreement by and between the Registrant and Paul M. Guyre, dated
July 15, 1987.
/1/10.11 Consulting Agreement between the Registrant and Paul M. Guyre, dated as of July
15, 1987.
/1/10.12 Assignment Agreement by and between the Registrant and Edward Ball, dated July
15, 1987.
/1/10.13 Consulting Agreement between the Registrant and Edward Ball, dated as of July
15, 1987.
/1/10.14 Stock Purchase Agreement among Essex Vencap, Inc. and Medarex Founders and
the Registrant, dated as of June 15, 1989.
/1/10.15 Amended and Restated Research and Development and Umbrella Agreement
between Fondation Nationale de Transfusion Sanguine and the Registrant, dated
March 7, 1991.
/1/10.16 AML/SCCL License Agreement between Fondation Nationale de Transfusion
Sanguine and the Registrant, dated February 13, 1990.
/1/10.17 HIV License Agreement between Fondation Nationale de Transfusion Sanguine
and the Registrant, dated February 13, 1990.
/1/10.18 HIV Targeting Antibody License Agreement between Fondation Nationale de
Transfusion Sanguine and the Registrant, dated February 13, 1990.
/1/10.18A Amendment to AML/SCCL License Agreement, the HIV License Agreement and
the HIV Targeting Antibody License Agreement dated March 7, 1991.
/1/10.19 Medarex Targeted Immunostimulation License Agreement between the Registrant
and Fondation Nationale de Transfusion Sanguine, dated March 7, 1991.
/1/10.20 FNTS Targeted Immunostimulation License Agreement between Fondation
Nationale de Transfusion Sanguine and the Registrant, dated March 7, 1991.
/1/10.21 Agreement of SmithKline Beecham Pharmaceuticals and the Registrant with respect
to Research Collaboration, dated February 1, 1990.
/1/10.21A Amendment to Agreement of SmithKline Beecham Pharmaceuticals and the
Registrant with respect to Research Collaboration dated July 5, 1990.
/1/10.22 Research Agreement between the Registrant and The Upjohn Company, dated
October 18, 1990.
/1/10.23 Agreement dated as of May 16, 1991 by and among Trustees of Dartmouth
College and the Registrant relating to the assignment of certain patents and the
modification of the Joint Venture Agreement.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
/1/10.24 Assignment of certain patent rights by Trustees of Dartmouth College to the
Registrant dated May 16, 1991.
/1/10.25 Loan Agreement by and between Dr. Edward Ball, Dr. Paul Guyre, Dr. Donald
Drakeman, Dr. Michael Fanger, and First New Hampshire Bank of Lebanon,
dated October 25, 1990.
/1/10.26 Security Agreement between the Registrant and First New Hampshire Bank of
Lebanon, dated October 25, 1990.
/1/10.27 Distribution Agreement between the Registrant and Funakoshi Pharmaceutical Co.,
Ltd., dated as of June 1, 1989, expiring May 31, 1990.
/1/10.28 Employment Agreement by and between the Registrant and Dr. Donald Drakeman,
dated as of April 1, 1991, as amended.
/1/10.29 Employment Agreement by and between the Registrant and Dr. Nathan B. Dinces,
dated as of April 1, 1991, as amended.
/1/10.30 Form of Financial Advisory and Investment Banking Agreement between the
Registrant and Josephthal Lyon & Ross Incorporated.
/1/10.31 License Agreement between the Registrant and Cetus Corporation dated as of
February 19, 1991.
/1/10.32 Form of invention and confidential information agreement between registrant and
its employees.
/1/10.33 Stock Purchase Plan.
/1/10.34 Settlement Agreement by and between the Registrant and Fondation Nationale de
Transfusion Sanguine, dated December 9, 1991.
/1/10.35 Amended and Restated HIV Targeting Antibody License Agreement by and
between the Registrant and Fondation Nationale de Transfusion Sanguine, dated
December 9, 1991.
/2/10.36 HBV Cell Line License Agreement by and between the Registrant and Fondation
Nationale de Transfusion Sanguine, dated December 9, 1991.
/3/10.37 Employment Agreement by and between the Registrant and Michael A.
Appelbaum, dated as of July 29, 1991.
/4/10.38 Agreement dated November 28, 1991 between Scotgen Limited and the Company
pertaining to the genetic engineering of one of the Company's antibodies.
/5/10.39 Amended and Restated 1987 Stock Option Plan.
/6/10.40 Letter of Intent between Registrant and The Bayson Company dated March 16,
1992.
/6/10.41 Form of Consulting Agreement between the Registrant and Paul M. Guyre, dated
as of March 17, 1992.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
/6/10.42 Form of Consulting Agreement between the Registrant and Edward Ball, dated as
of March 17, 1992.
/6/10.43 Form of Consulting Agreement between the Registrant and Michael W. Fanger,
dated as of March 17, 1992.
/6/10.44 Agreement In Principle dated as of July 10, 1992 between the Registrant and Dr.
Daniel Beck of Centre Hospitalier Universiter Vaudrois.
/6/10.45 Agreement In Principle dated as of July 23, 1992 by and among Institut Curie,
Immuno-Designed Molecules, SARL and the Registrant.
/7/10.46 Underwriting Agreement by and between the Registrant and Rosenkrantz Lyon &
Ross Incorporated as Representative of the Several Underwriters, dated June 20,
1991.
/9/10.47 Placement Agent Agreement between the Registrant and Josephthal Lyon & Ross
Incorporated, dated as of November 13, 1992.
/9/10.48 Placement Agent Warrant Agreement between the Registrant and Josephthal Lyon
& Ross Incorporated, dated as of December 14, 1992.
/9/10.49 Placement Agent Agreement between the Registrant and Josephthal Lyon & Ross
Incorporated, dated as of December 17, 1992.
/9/10.50 Placement Agent Warrant Agreement between the Registrant and Josephthal Lyon
& Ross Incorporated, dated as of December 18, 1992.
/8/10.51 1992 Employee Stock Option Plan.
/10/10.52 Lease of Registrant's Laboratory Facility (Clinton, New Jersey).
/11/10.53 Amendment to Lease of Registrant's Laboratory Facility (Clinton, New Jersey).
/11/10.54 Employment Agreement by and between the Registrant and Yashwant M. Deo,
dated as of July 8, 1993.
/12/10.55 Financing Agreement dated as of December 1, 1993 by and among the Registrant,
G. Musuri and FAM S.A.
/12/10.56 Consulting Agreement dated February 10, 1994 by and among the Registrant and
Dr. Julius A. Vida.
/13/10.57 Letter of Intent dated March 30, 1994 between the Registrant and E. Merck.
(Confidential Portions omitted and filed separately with the Securities and
Exchange Commission)
/14/10.58 Sublease of Registrant's Laboratory Facility (West Lebanon, New Hampshire).
/14/10.59 Sublease of Registrant's Executive Offices (Annandale, New Jersey).
/15/10.60 Sublease of Registrant's New Hampshire Facility, dated May 25, 1994.
/9/10.61 1995 Stock Option Plan
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
/9/10.62 Stock Purchase Agreement dated May 16, 1995 between the Registrant and CIBA-
GEIGY Limited.
/9/10.63 Development and Commercialization Agreement dated May 16, 1995 between the
Registrant and CIBA-GEIGY Limited. (Confidential Portions omitted and filed
separately with the Securities and Exchange Commission)
/9/10.64 Registration Rights Agreement dated May 16, 1995 between the Registrant and
CIBA-GEIGY.
/13/10.65 Letter of Josephthal Lyon & Ross Incorporated dated April 12, 1996.
/18/10.66 Convertible Note dated December 18, 9196 executed by Houston Biotechnology
Incorporated in favor of Registrant.
/19/10.67 License Agreement effective December 18, 1996 between Houston Biotechnology
Incorporated and the Registrant.
/20/10.68 Escrow Agreement dated as of December 18, 1996 among Houston Biotechnology
Incorporated, the Registrant and Satterlee Stephens Burke & Burke LLP, as escrow
agent.
/22/10.69 Convertible Note dated January 15, 1997 executed by Houston Biotechnology
Incorporated if favor of the Registrant.
/4/11 Statement re: computation of per share earnings.
**13.1 Registrant's Annual Report on Form 10-K for the year ended December 31, 1996
filed on March 27, 1997.
**13.2 Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1997
filed on May 15, 1997.
**13.3 Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1997
filed on August 14, 1997.
**21 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Satterlee Stephens Burke & Burke LLP (included in their opinion filed
as Exhibit 5.1.)
23.4 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included
in their opinion filed as Exhibit 8.1).
24.1 Power of Attorney (included in signature page).
**99.1 Form of Written Consent of Shareholders of GenPharm International, Inc.
</TABLE>
II-6
<PAGE>
- ---------------
<TABLE>
<C> <S>
/1/ Incorporated by reference to the identically numbered exhibit to the
Registrant's Registration Statement on Form S-1 (File No. 33-39956) filed
on April 12, 1991.
/2/ Incorporated by reference to the identically numbered exhibit to the
Registrant's Current Report on Form 8-K dated December 20, 1991.
/3/ Incorporated by reference to exhibit number 10.33 to the
Registrant's Current Report on Form 8-K dated August 9, 1991.
/4/ Incorporated by reference to the identically numbered exhibit to the
Registrant's Annual Report on Form 10-K filed on March 15, 1997.
/5/ Incorporated by reference to exhibit number 4 to the Registrant's
Registration Statement on Form S-8 (File No. 33-44276) filed on November
29, 1991.
/6/ Incorporated by reference to the identically numbered exhibit to the
Registrant's Registration Statement on Form S-1 (File No. 33-46509) filed
on March 18, 1992.
/7/ Incorporated by reference to the exhibit number 1.1 to the
Registrant's Registration Statement on Form S-1 (File No. 33-39956) filed
on April 12, 1991.
/8/ Incorporated by reference to the identically numbered exhibit to the
Registrant's Annual Report on Form 10-K filed on March 15, 1993.
/9/ Incorporated by reference to the identically numbered exhibit to the
Registrant's Post Effective Amendment No. 5 to Registration Statement on
Form S-1 (File No. 33-57366) filed on September 15, 1995.
/10/ Incorporated by reference to the identically numbered exhibit to
the Registrant's Quarterly Report on Form 10-Q filed on May 14, 1993.
/11/ Incorporated by reference to the identically numbered exhibit to
the Registrant's Quarterly Report on Form 10-Q filed on August 16, 1993.
/12/ Incorporated by reference to the identically numbered exhibit to
the Registrant's Annual Report on Form 10-K filed on February 15, 1994.
/13/ Incorporated by reference to the identically numbered exhibit to
the Registrant's Registration Statement on Form S-1 (File No. 33-57324)
filed on February 15, 1994.
/14/ Incorporated by reference to the identically numbered exhibit to
the Registrant's Quarterly Report on Form 10-K filed on May 13, 1994.
/15/ Incorporated by reference to the identically numbered exhibit to
the Registrant's Quarterly Report on Form 10-Q filed on August 12, 1994.
/16/ Incorporated by reference to the identically numbered exhibit to
the Registrant's Registration Statement on Form S-1 (File No. 33-98244).
/17/ Incorporated by reference to exhibit number 99.1 to the
Registrant's Current Report on Form 8-K filed on January 2, 1997.
/18/ Incorporated by reference to exhibit number 99.2 to the
Registrant's Current Report on Form 8-K filed on January 2, 1997.
/19/ Incorporated by reference to exhibit number 99.3 to the
Registrant's Current Report on Form 8-K filed on January 2, 1997.
/20/ Incorporated by reference to exhibit number 99.4 to the
Registrant's Current Report on Form 8-K filed on January 2, 1997.
/21/ Incorporated by reference to the identically numbered exhibit to
the Registrant's Registration Statement on Form S-3 (File No. 333-16373).
/22/ Incorporated by reference to the identically numbered exhibit to
the Registrant's Registration Statement on Form S-4 (File No. 333-20119).
/23/ Incorporated by reference to the identically numbered exhibit to
the Registrant's Current Report on Form 8-K filed on June 10, 1997.
</TABLE>
** Previously filed.
II-7
<PAGE>
(b) Financial Statement Schedules
All schedules are omitted because of the absence of the conditions under
which they are required, or because the information called for is included in
the financial statements or notes thereto.
(c) 4(b) Information
NONE
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities and Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration
II-8
<PAGE>
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(6) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (5) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be field as
a part of an amendment to this registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(7) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents, by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(8) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
See Item 20, "Indemnification of Directors and Officers."
II-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ANNANDALE,
STATE OF NEW JERSEY, ON THIS 8TH DAY OF SEPTEMBER, 1997.
MEDAREX, INC.
By:/s/Irwin Lerner
-----------------------------------
Irwin Lerner
Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Irwin Lerner * Chairman of the Board September 8, 1997
- -----------------------------------------------
Irwin Lerner
/s/Donald L. Drakeman President, Chief Executive Officer and September 8, 1997
- ----------------------------------------------- Director (Principal Executive Officer)
Donald L. Drakeman
/s/Michael A. Appelbaum * Senior Vice President - Finance and September 8, 1997
- ----------------------------------------------- Administration, Secretary, Treasurer,
Michael A. Appelbaum Chief Financial Officer and Director
(Principal Financial and Accounting
Officer)
/s/Michael W. Fanger * Director September 8, 1997
- -----------------------------------------------
Michael W. Fanger
/s/Julius A. Vida * Director September 8, 1997
- -----------------------------------------------
Julius A. Vida
/s/Charles R. Schaller * Director September 8, 1997
- -----------------------------------------------
Charles R. Schaller
/s/W. Leigh Thompson, Jr. * Director September 8, 1997
- -----------------------------------------------
W. Leigh Thompson, Jr.
/s/Robert Iggulden * Director September 8, 1997
- -----------------------------------------------
Robert Iggulden
</TABLE>
- ------------------------
* By /s/Donald L. Drakeman
----------------------------
Donald L. Drakeman, as attorney-in-fact, pursuant to Power of Attorney
previously filed.
<PAGE>
INDEX TO EXHIBITS
Location of
Exhibit in
Sequential
Exhibit No. Description of Document Numbering System
- ------------- ------------------------------------------- ----------------
5.1 Opinion of Satterlee Stephens Burke & Burke
LLP
8.1 Opinion of Wilson Sonsini Goodrich & Rosati
Professional Corporation
13.3 Registrant's Quarterly Report on Form 10-Q
for the period ended June 30, 1997
23.1 Consent of Ernst & Young LLP, Independent
Auditors
23.2 Consent of Ernst & Young LLP, Independent
Auditors
<PAGE>
EXHIBIT 5.1
SATTERLEE STEPHENS BURKE & BURKE LLP
230 Park Avenue
New York, New York 10169
September 8, 1997
Medarex, Inc.
1545 Route 22 East
Annandale, NJ 08801
Re: Medarex, Inc. - Registration Statement on Form S-4
--------------------------------------------------
Gentlemen:
We have acted as counsel to Medarex, Inc., a New Jersey corporation
(the "Company"), in connection with the preparation of a Registration Statement
on Form S-4 (including the proxy statement and prospectus forming a part
thereof) (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the issuance of up to 14,246,575
shares (the "Shares") of the Company's common stock, par value $.01 per share
(the "Common Stock") in connection with the merger (the "Merger") of Medarex
Acquisition Corp. ("Sub") with and into GenPharm International, Inc.
("GenPharm") pursuant to an Amended and Restated Agreement and Plan of
Reorganization dated as of May 5, 1997 (the "Merger Agreement") by and among the
Company, Sub and GenPharm. As such counsel, you have requested our opinion as
to the matters described herein relating to the issuance of the Shares.
We have examined the Company's Restated Certificate of Incorporation,
as amended; the Company's Amended and Restated By-Laws; minutes of the Company's
corporate proceedings, as made available to us by officers of the Company; an
executed copy of the Registration Statement, as amended through the date hereof,
and all schedules and exhibits thereto in the form filed with the Securities and
Exchange Commission; and such matters of law deemed necessary by us in order to
deliver this opinion. In the course of such examination, we have assumed the
genuineness of all signatures, the authority of all signatories to sign on
behalf
<PAGE>
of their principals, if any, the authenticity of all documents submitted to us
as original documents and the conformity to original documents of all documents
submitted to us as certified or photostatic copies. As to certain factual
matters, we have relied, without investigation, upon certificates of officers
and employees of the Company who we believe to be reliable, and upon
certificates, telegrams and other documents from, and oral conversation with,
public officials.
Based upon the foregoing, we are of the opinion that the Shares when
issued and delivered in accordance with the terms of the Merger Agreement will
be duly and validly authorized and legally issued, fully paid and non-assessable
with no personal liability attaching to ownership thereof.
We understand that this opinion is to be filed as an exhibit to the
Registration Statement. We consent to such filing and to the use of our name in
the Prospectus included therein under the caption "Legal Matters."
Very truly yours,
SATTERLEE STEPHENS BURKE & BURKE LLP
<PAGE>
EXHIBIT 8.1
[WSGR Letterhead]
Form of WSGR
------------
Tax Opinion
-----------
______________________, 1997
GenPharm International, Inc.
855 California Avenue, Suite 3
Palo Alto, CA 94304
Ladies and Gentlemen:
We have acted as counsel for GenPharm International, Inc., a California
corporation ("GenPharm") in connection with the preparation and execution of the
Agreement and Plan of Reorganization (the "Merger Agreement") dated as of May 5,
1997, among Medarex, Inc., a New Jersey corporation ("Medarex"), Medarex
Acquisition Corp., a California corporation and a direct wholly-owned subsidiary
of Medarex ("Merger Sub"), and GenPharm. This opinion is being delivered to you
in connection with the filing of a Form S-4 Registration Statement with the
Securities and Exchange Commission (the "Registration Statement") and pursuant
to Section 5.3(d) of the Merger Agreement. Pursuant to the Merger Agreement,
Merger Sub will merge with and into GenPharm (the "Merger"), and GenPharm will
become a wholly-owned subsidiary of Medarex. Unless otherwise defined,
capitalized terms referred to herein have the meanings set forth in the Merger
Agreement. All section references, unless otherwise indicated, are to the
Internal Revenue Code of 1986, as amended (the "Code").
You have requested our opinion regarding certain United States federal
income tax consequences of the Merger. In delivering this opinion, we have
reviewed and relied upon the facts, statements, descriptions and representations
set forth in the Registration Statement, and the Prospectus/Consent Solicitation
Statement included therewith, the Merger Agreement (including Exhibits), and
such other documents pertaining to the Merger as we have deemed necessary or
appropriate. We have also relied upon certificates of officers of GenPharm and
Medarex respectively (the "Officers' Certificates") as well as continuity of
interest certificates executed and delivered by certain shareholders of GenPharm
(the "Continuity of Interest Certificates").
In connection with rendering this opinion, we have assumed that Medarex
will not exercise its option to pay cash for any or all of the GenPharm stock
under Section 2.1(d). In the event Medarex pays cash for any or all of the
GenPharm stock, except in lieu of the issuance of fractional shares, this
opinion shall be deemed withdrawn.
In connection with rendering this opinion, we have also assumed (without
any independent investigation) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time) due
<PAGE>
GenPharm International, Inc.
____________, 1997
Page 2
execution and delivery of all documents where due execution and delivery are
prerequisites to effectiveness thereof;
2. Any statement made in any of the documents referred to herein, "to
the best of the knowledge" of any person or party is correct without such
qualification;
3. All statements, descriptions and representations contained in any of
the documents referred to herein or otherwise made to us are true and correct in
all material respects and no actions have been (or will be) taken which are
inconsistent with such representations; and
4. The Merger will be reported by Medarex and GenPharm on their
respective federal income tax returns in a manner consistent with the opinion
set forth below.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that, if the Merger is consummated in accordance with the Merger
Agreement (and without any waiver, breach or amendment of any of the provisions
thereof) and the statements set forth in the Officers' Certificates and the
Continuity of Interest Certificates are true and correct as of the date hereof,
at the effective date of the Information Statement and at the Effective Time,
then, for federal income tax purposes, the Merger will qualify as a
"reorganization" as defined in Section 368(a) of the Code.
This opinion represents and is based upon our best judgment regarding the
application of federal income tax laws arising under the Code, existing judicial
decisions, administrative regulations and published rulings and procedures. Our
opinion is not binding upon the Internal Revenue Service or the courts, and
there is no assurance that the Internal Revenue Service will not successfully
assert a contrary position. Furthermore, no assurance can be given that future
legislative, judicial or administrative changes, on either a prospective or
retroactive basis, would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, we undertake no responsibility to advise you of
any new developments in the application or interpretation of the Federal income
tax laws.
This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code, and does not address any other
Federal, state, local or foreign tax consequences that may result from the
Merger or any other transaction (including any transaction undertaken in
connection with the Merger). Furthermore, this opinion relates only to the
holders of GenPharm stock who hold such stock as a capital asset. No opinion is
expressed as to the Federal income tax treatment that may be relevant to a
particular investor in light of personal circumstances or to certain types of
investors subject to special treatment under the Federal income tax laws (for
example, life insurance companies, dealers in securities, taxpayers subject to
the alternative minimum tax, banks, tax-exempt organizations, non-United States
persons, and stockholders who acquired their shares of GenPharm stock pursuant
to the exercise of options or otherwise as compensation). Further, no opinion
is expressed as to the Federal income tax treatment with respect to holders of
warrants for GenPharm Series C Preferred Stock, or with respect to the treatment
of a portion of the Additional Shares under the imputed interest rules of
Section 483 and the original issue discount rules under Sections 1271 to 1275 of
the Code. Furthermore, no opinion is expressed as to the Federal income tax
treatment to GenPharm or any GenPharm shareholder in the event that Medarex
exercises its option to pay cash for any or all of GenPharm stock under Section
2.1(d) of the Merger Agreement.
<PAGE>
GenPharm International, Inc.
________, 1997
Page 3
No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement or to any transaction whatsoever, including
the Merger, if all the transactions described in the Merger Agreement are not
consummated in accordance with the terms of such Merger Agreement and without
waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
This opinion is solely for the benefit of GenPharm and its shareholders and
may not be relied upon or provided to any other party, including, but not
limited to Medarex and the Medarex shareholders without our express written
consent. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus included
therein under the caption "Legal Matters."
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 6, 1997, except for Note 11 as to which the
date is February 28, 1997, incorporated by reference in the Prospectus/Consent
Solicitation Statement of GenPharm International, Inc. and Medarex, Inc. that is
made a part of Amendment No. 2 to the Registration Statement (Form S-4 No. 333-
29953) and Prospectus of Medarex, Inc. for the registration of 14,246,575 shares
of its common stock.
ERNST & YOUNG LLP
Princeton, New Jersey
September 5, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to use
of our report dated March 7, 1997, except for Note 12, as to which the date is
March 26, 1997, with respect to the financial statements of GenPharm
International, Inc. included in the Prospectus/Consent Solicitation Statement of
GenPharm International, Inc. and Medarex, Inc. that is made a part of Amendment
No. 2 to the Registration Statement (Form S-4 No. 333-29953) of Medarex,
Inc.
ERNST & YOUNG LLP
Palo Alto, California
September 8, 1997
