<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1997
REGISTRATION STATEMENT NO. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
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
(609) 921-7121
(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
(609) 921-7121
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------------------
COPY TO:
<TABLE>
<S> <C>
DWIGHT A. KINSEY, ESQ. DAVID RONN, ESQ.
SATTERLEE STEPHENS BURKE & BURKE LLP BRACEWELL & PATTERSON, L.L.P.
230 PARK AVENUE SOUTH TOWER PENNZOIL PLACE
NEW YORK, NEW YORK 10169 711 LOUISIANA STREET, SUITE 2900
(212) 818-9200 HOUSTON, TEXAS 77002-2781
(713) 221-1212
</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].
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered registered/(1)/ Per Unit/(2)/ Offering Price Registration Fee/(3)/
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01/(4)/................ 1,026,445 -- $ 8,105,641 $ 2,457
Common Stock Purchase Warrants/(5)/............... 822,924 -- $ 212,061 $ 65
Common Stock, par value $0.01 issuable upon
exercise of Common Stock Purchase Warrants/(6)/.. 822,924 $42,413,503 $12,853
Total $50,731,205 $13,912.60
=============================================================================================================================
</TABLE>
(1) There are also registered pursuant to rule 416 such additional number of
securities as may be issuable under the antidilution provisions of the
warrants described in Note (5) below.
(2) Offering Price of Common Stock and Common Stock Purchase Warrants estimated
solely for the purpose of calculating the registration fee pursuant to Rule
457(c) and (f) of the Securities Act of 1933. The registration fee for the
Common Stock and the Common Stock Purchase Warrants was computed on the
basis of the average of the bid and asked prices of the common stock and
warrants respectively, of Houston Biotechnology Incorporated, on January 20,
1997. Offering Price of the Common Stock issuable upon exercise of the
Common Stock Purchase Warrants estimated solely for the purpose of
determining the registration fee pursuant to Rule 457(g) of the Securities
Act of 1933. The registration fee for the Common Stock issuable upon
exercise of Common Stock Purchase Warrants was computed on the basis of the
exercise price of the Common Stock Purchase Warrants.
(3) $1,462.40 previously paid at the time of the filing of the preliminary proxy
materials of Houston Biotechnology Incorporated.
(4) Consists of shares issuable in exchange for all of the issued and
outstanding stock of Houston Biotechnology Incorporated.
(5) Consists of Common Stock Purchase Warrants issuable in exchange for all
issued and outstanding warrants of Houston Biotechnology Incorporated.
(6) Consist of shares issuable upon the exercise of the Common Stock Purchase
Warrants.
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>
MEDAREX, INC.
Cross Reference Sheet Pursuant to Rule 404(a) of
Regulation C and Item 501(b) of Regulation S-K
Showing Location in the Proxy Statement and Prospectus
of the Information Required by Part I of Form S-4
<TABLE>
<CAPTION>
LOCATION OR
HEADING IN
PROXY STATEMENT
ITEM OF FORM S-4 AND PROSPECTUS
- ---------------- --------------
A. INFORMATION ABOUT THE TRANSACTION
- -- ---------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front..................... Forepart of Registration
Cover Page of Prospectus Statement; Outside Front Cover Page of Proxy
Statement and Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus................... Inside Front Cover Page of
of Proxy Statement and
Prospectus; Table of
Contents; AVAILABLE
INFORMATION; INCORPORATION
BY REFERENCE
3. Risk Factors, Ratio of Earnings to Fixed Charges, and
Other Information......................................................... SUMMARY;
RISK FACTORS
4. Terms of the Transaction.................................................. SUMMARY; THE
MERGER; THE
MERGER AGREEMENT;
COMPARISON OF
STOCKHOLDER RIGHTS;
INCORPORATION BY
REFERENCE
5. Pro Forma Financial Information........................................... SUMMARY; MEDAREX AND
HBI UNAUDITED PRO FORMA
COMBINED CONDENSED
FINANCIAL STATEMENTS
6. Material Contacts with the Company Being Acquired......................... THE MERGER
7. Additional Information Required for Reoffering by Persons and............. *
Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel.................................... *
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................................ *
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
B. INFORMATION ABOUT THE REGISTRANT
--------------------------------
<S> <C>
10. Information with Respect to S-3 Registrants............................... SUMMARY; SELECTED
INFORMATION
CONCERNING MEDAREX;
INCORPORATION BY
REFERENCE
11. Incorporation of Certain Information by Reference......................... INCORPORATION BY
REFERENCE
12. Information with Respect to S-2 or S-3 Registrants........................ *
13. Incorporation of Certain Information by Reference......................... *
14. Information with Respect to Registrants Other than S-3 or S-2
Registrants............................................................... *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
- -- --------------------------------------------
15. Information with Respect to S-3 Companies................................. *
16. Information with Respect to S-2 or S-3 Companies.......................... SUMMARY; SELECTED
INFORMATION
CONCERNING HBI;
INCORPORATION BY
REFERENCE
17. Information with Respect to Companies Other than S-2 or S-3
Companies................................................................. *
D. VOTING AND MANAGEMENT INFORMATION
- -- ---------------------------------
18. Information if Proxies, Consents or Authorizations are to be
Solicited................................................................. Outside Front Cover
of Proxy Statement and
Prospectus; SUMMARY;
SPECIAL MEETING; THE
MERGER; SELECTED
INFORMATION
CONCERNING MEDAREX;
SELECTED
INFORMATION
CONCERNING HBI;
INCORPORATION BY
REFERENCE
19. Information if Proxies, Consents or Authorizations are not
to be Solicited; or in an Exchange Offer.................................. *
</TABLE>
- ------------------------------------------
* Not applicable or the answer is negative.
2
<PAGE>
MEDAREX, INC.
HOUSTON BIOTECHNOLOGY INCORPORATED
PROXY STATEMENT AND PROSPECTUS
---------------------------------------------
GENERAL INFORMATION
This Proxy Statement and Prospectus ("Proxy Statement and Prospectus") is
being furnished to the stockholders of Houston Biotechnology Incorporated, a
Delaware corporation ("HBI"), in connection with the solicitation of proxies by
HBI's Board of Directors ("HBI Board") for use at the Special Meeting of
Stockholders of HBI ("Special Meeting") to be held at the offices of HBI at 3608
Research Forest Drive, The Woodlands, Texas 77381, at 10:00 a.m., local time, on
February 27, 1997, and at any adjournments or postponements of the Special
Meeting. At the Special Meeting, holders of record as of January 24, 1997, of
common stock, par value $0.01 per share, of HBI ("HBI Common Stock") will be
requested to consider and vote upon a proposal recommended by the HBI Board to
approve and adopt a plan of merger in accordance with the Agreement and Plan of
Merger dated December 18, 1996 ("Merger Agreement") among HBI, Medarex, Inc., a
New Jersey corporation ("Medarex"), and Medarex Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Medarex ("Merger Sub"), pursuant
to which (i) Merger Sub shall be merged with and into HBI ("Merger") with HBI
being the surviving corporation and resulting in HBI being a wholly-owned
subsidiary of Medarex, and (ii) each share of HBI Common Stock shall be
converted into the right to receive 0.182 shares of Medarex common stock, par
value $0.01 per share ("Medarex Common Stock"). As part of the Merger, all of
the outstanding warrants to acquire HBI Common Stock issued pursuant to that
certain Warrant Agreement dated May 24, 1993 (the "HBI Warrants") and all
outstanding options to acquire HBI Common Stock will be assumed by Medarex.
This Proxy Statement and Prospectus also includes and constitutes the
Prospectus of Medarex filed as part of its Registration Statement on Form S-4
(together with all amendments thereto, the "Registration Statement") with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), relating to the issuance of Medarex
Common Stock pursuant to the Merger Agreement and the Medarex common stock
purchase warrants ("Medarex Warrants") to be issued in the Merger in exchange
for the HBI Warrants as well as the shares of Medarex Common Stock issuable upon
exercise of the Medarex Warrants.
This Proxy Statement and Prospectus and the accompanying form of proxy are
first being mailed on or about __________, 1997, to all stockholders of record
of HBI as of the Record Date (as defined below).
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH A DECISION TO VOTE WITH RESPECT TO THE PROPOSALS SET FORTH IN THIS PROXY
STATEMENT AND PROSPECTUS, SEE "RISK FACTORS" BEGINNING ON PAGE 11.
THE HBI BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE
THE MERGER AGREEMENT AND THE MERGER.
---------------------------------------------
THE SECURITIES TO WHICH THIS PROXY STATEMENT AND PROSPECTUS RELATE HAVE
NOT 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 PROXY STATEMENT AND
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------------------------------
The date of this Proxy Statement and Prospectus is ____________, 1997.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED BY HBI OR MEDAREX TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT AND PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HBI OR
MEDAREX. THIS PROXY STATEMENT AND PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT AND PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE,
OR TO ANY PERSON WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT AND PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROXY STATEMENT AND PROSPECTUS
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>
GENERAL INFORMATION.................................................... 1
SUMMARY................................................................ 4
RISK FACTORS........................................................... 11
Risks Related to the Merger Agreement and the Merger................. 11
Risks Related to Medarex............................................. 11
Risks Related to the Industry........................................ 15
COMPARATIVE MARKET PRICE DATA.......................................... 16
DIVIDENDS.............................................................. 16
PROXY STATEMENT AND PROSPECTUS......................................... 17
SPECIAL MEETING........................................................ 17
Purpose of the Meeting............................................... 17
Voting Rights........................................................ 17
MEDAREX AND HBI
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.......... 18
THE MERGER............................................................. 23
Background of the Merger............................................. 23
Recommendation of the HBI Board; Effects and Reasons for the Merger.. 24
Fairness Opinion..................................................... 25
Certain Federal Income Tax Consequences of the Merger................ 25
Federal Securities Law Matters....................................... 27
Accounting Treatment................................................. 27
Appraisal Rights..................................................... 28
THE MERGER AGREEMENT................................................... 28
General Description of the Merger.................................... 28
Closing; Effective Time.............................................. 29
Exchange of Stock Certificates and Warrants.......................... 29
No Fractional Shares................................................. 29
Representations and Warranties....................................... 29
Certain Covenants.................................................... 30
Additional Agreements................................................ 31
No Solicitations of Other Transactions............................... 31
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C>
Insurance; Indemnification........................................... 32
Conditions to the Merger............................................. 32
Termination.......................................................... 32
Expenses and Termination Fee......................................... 33
Amendment and Waiver................................................. 33
Convertible Notes.................................................... 34
License Agreement.................................................... 34
SELECTED INFORMATION CONCERNING MEDAREX................................ 35
General.............................................................. 35
Description of Medarex Capital Stock................................. 36
Shares Eligible For Future Sale...................................... 37
SELECTED INFORMATION CONCERNING HBI.................................... 37
General.............................................................. 37
Securities Ownership of Certain Beneficial Owners and Management..... 39
COMPARISON OF STOCKHOLDER RIGHTS....................................... 40
General Stockholder Vote Requirements................................ 40
Cumulative Voting.................................................... 41
Rights of Dissenting Stockholders.................................... 41
Stockholders' Consent to Corporate Action............................ 41
Preemptive Rights.................................................... 42
Dividends and Other Distributions.................................... 42
By-Laws.............................................................. 42
Directors............................................................ 42
Limitations of Liability of Directors and Officers................... 42
Stockholder Protection Legislation................................... 43
LEGAL OPINION.......................................................... 44
EXPERTS................................................................ 44
SOLICITATION OF PROXIES................................................ 44
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS........................ 44
AVAILABLE INFORMATION.................................................. 45
INCORPORATION BY REFERENCE............................................. 45
DATE FOR RECEIPT OF PROPOSALS.......................................... 46
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS............................... 47
OTHER MATTERS.......................................................... 47
</TABLE>
Annex A - Fairness Opinion
Annex B - Merger Agreement
-3-
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the detailed information appearing elsewhere in
this Proxy Statement and Prospectus or incorporated herein by reference.
Capitalized terms used and not otherwise defined in this summary have the
meanings given to them elsewhere herein. Stockholders of HBI are urged to read
this Proxy Statement and Prospectus in its entirety.
SPECIAL MEETING
This Proxy Statement and Prospectus is being furnished to holders of shares of
HBI Common Stock, in connection with the solicitation of proxies by the HBI
Board for use at the Special Meeting of HBI to be held at 3608 Research Forest
Drive, The Woodlands, Texas 77381, at 10:00 a.m., local time, on February 27,
1997, and at any adjournments thereof. At the Special Meeting, holders of record
as of January 24, 1997, of HBI Common Stock will be requested to consider and
vote upon a proposal to approve and adopt the Merger Agreement and the Merger.
The HBI Board has fixed the close of business on January 24, 1997, as the record
date for the determination of holders of HBI Common Stock entitled to notice of
and to vote at the Special Meeting ("Record Date"). See "Special Meeting."
The HBI Board approved the Merger Agreement, the Merger and the transactions
contemplated thereby by the unanimous vote of its directors and recommends that
HBI stockholders vote "FOR" approval and adoption of the Merger Agreement and
the Merger. See "The Merger--Background of the Merger;--Recommendation of the
HBI Board; Effects of and Reasons for the Merger."
THE MERGER
Pursuant to the Merger Agreement and the Merger, Merger Sub shall be merged with
and into HBI with HBI being the surviving corporation and resulting in HBI being
a wholly-owned subsidiary of Medarex. At the effective time of the Merger (the
"Effective Time"), each share of HBI Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive 0.182 (the "Exchange Ratio") shares of Medarex Common Stock. All
outstanding HBI Warrants and all outstanding options to acquire HBI Common Stock
will be assumed by Medarex. Consequently, after the Effective Time, HBI Warrants
and options to acquire HBI Common Stock will be exercisable into such number of
shares of Medarex Common Stock equal to the number of shares of HBI Common Stock
subject to such HBI Warrant or option immediately prior to the Effective Time
multiplied by the Exchange Ratio and the exercise price shall be equal to the
exercise price of such HBI Warrant or option immediately prior to the Effective
Time divided by the Exchange Ratio. ACCORDINGLY, IT IS NOT NECESSARY FOR HOLDERS
OF HBI WARRANTS OR OPTIONS TO EXERCISE SUCH HBI WARRANTS OR OPTIONS PRIOR TO THE
EFFECTIVE TIME TO RECEIVE THE ECONOMIC EQUIVALENT OF THE CONSIDERATION TO BE
RECEIVED BY HOLDERS OF HBI COMMON STOCK IN THE MERGER. See "The Merger
Agreement--General Description of the Merger."
The Medarex Common Stock is traded on the Nasdaq National Market ("Nasdaq")
under the symbol "MEDX." Simultaneously with the closing of the Merger, it is
expected that the Medarex Warrants will be listed on Nasdaq. See "The Merger--
Exchange of Stock Certificates" and "Selected Information Concerning Medarex--
Description of Medarex Capital Stock."
-4-
<PAGE>
PARTIES TO THE MERGER
Medarex
Medarex is an antibody-based biopharmaceutical 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 three
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 five products in ten human clinical trials for the treatment of
breast cancer, head and neck cancer and a variety of other solid tumor cancers,
leukemia and AIDS. As of the date of this Proxy Statement and Prospectus,
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 "Medarex and HBI Unaudited
Pro Forma Combined Condensed Financial Statements," "Selected Information
Concerning Medarex" and "Incorporation by Reference."
HBI
HBI is engaged primarily in the research and development of monoclonal antibody
and other biopharmaceutical products to prevent secondary cataract and treat
glaucoma, disorders that impair or destroy human vision. HBI's principal
expertise is its monoclonal antibody-based immunoconjugate technology, which
involves the linking of a monoclonal antibody to another substance such as a
drug or an anti-proliferative agent. HBI has no products approved for sale by
the FDA and its current product candidates are not expected to generate
significant revenues, if any, for a number of years. See "Selected Information
Concerning HBI" and "Incorporation by Reference."
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.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the outstanding shares of
HBI Common Stock entitled to vote thereon is required to approve and adopt the
Merger Agreement and the Merger. On the Record Date, there were 5,638,707 shares
of HBI Common Stock issued and outstanding and the executive officers and
directors of HBI had the right to vote 20,853 (approximately 0.37%) shares of
HBI Common Stock. Each holder of HBI Common Stock will be entitled to one vote
for each share of HBI Common Stock owned of record as of the Record Date. See
"Special Meeting--Voting Rights" and "Selected Information Concerning HBI--
Securities Ownership of Certain Beneficial Owners and Management."
If a stockholder returns a signed proxy card, but does not indicate how his or
her shares are to be voted, the shares represented by the proxy card will be
voted "FOR" the adoption and approval of the Merger Agreement and the Merger.
RECOMMENDATION OF THE
HBI BOARD; EFFECTS OF AND
REASONS FOR THE MERGER
The HBI Board believes that the terms of the Merger are fair to and that the
Merger is in the best interests of HBI and its stockholders. Accordingly, the
HBI Board has unanimously approved the Merger Agreement, the Merger and the
transactions contemplated thereby and recommends approval of the
-5-
<PAGE>
Merger Agreement and the Merger by HBI stockholders. The HBI Board believes
that the Merger offers HBI stockholders the 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, HBI would lack
the critical mass, financial strength and other characteristics to maximize its
potential.
See "The Merger--Background of the Merger," "--Recommendation of the HBI Board;
Effects of and Reasons for the Merger" and "--Fairness Opinion."
FAIRNESS OPINION
Strategen, L.L.C. ("Strategen") delivered its written opinion dated December 16,
1996, to the HBI Board to the effect that the terms of the Merger are fair to
the stockholders of HBI from a financial point of view. The full text of the
written opinion of Strategen, which sets forth certain assumptions, factors and
limitations on the review undertaken, is attached as Annex A to this Proxy
Statement and Prospectus and should be read carefully in its entirety.
Strategen's opinion is directed only to the fairness of the terms of the Merger
to the stockholders of HBI from a financial point of view and is not intended to
be and does not constitute a recommendation to any stockholder of HBI as to how
such stockholder should vote with respect to the Merger Agreement and Merger.
See "The Merger--Fairness Opinion" and Annex A hereto.
CONDITIONS TO THE MERGER;
TERMINATION OF THE MERGER
AGREEMENT
In addition to the approval and adoption of the Merger Agreement and the Merger
by the stockholders of HBI, the consummation of the Merger is subject to the
satisfaction or waiver of certain other conditions, including among others (i)
authorization for the listing on the Nasdaq, upon official notice of issuance,
of Medarex Common Stock issuable to HBI stockholders in the Merger, (ii)
effectiveness of the Registration Statement, and (iii) there being in effect no
injunction or other order, legal constraint or prohibition preventing the
consummation of the Merger. The Merger Agreement may be terminated upon the
occurrence of certain events, including, by either Medarex or HBI if the Merger
shall not have been consummated by June 30, 1997. See "The Merger Agreement--
Conditions to the Merger" and "--Termination."
TERMINATION FEE
Upon the termination of the Merger Agreement in certain specified circumstances,
Medarex would be entitled to receive a fee from HBI in an amount of $750,000.
See "The Merger Agreement--Expenses and Termination Fee."
COMPARISON OF STOCKHOLDER
RIGHTS
The rights of HBI's stockholders are governed by the Delaware General
Corporation Law (the "DGCL"), HBI's Restated Certificate of Incorporation, as
amended (the "HBI Charter"), and HBI's By-Laws, as amended (the "HBI By-Laws").
As of the Effective Time, stockholders of HBI will become stockholders of
Medarex. As such, their rights will thereafter be governed by the New Jersey
Corporation Act ("NJCA"), Medarex's Restated Certificate of Incorporation, as
amended (the "Medarex Charter"), and Medarex's By-Laws, as amended (the "Medarex
By-Laws"). See "Comparison of Stockholder Rights" for a summary of the material
differences between the rights of holders of Medarex Common Stock and the rights
of holders of HBI Common Stock.
-6-
<PAGE>
APPRAISAL RIGHTS
No stockholder of HBI shall have appraisal rights with respect to the Merger.
See "The Merger--Appraisal Rights."
ACCOUNTING TREATMENT
The Merger is expected to be accounted for using the purchase method of
accounting. This method of accounting treats a business combination as the
acquisition of one enterprise by another. See "The Merger--Accounting
Treatment."
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER
It is the intention of Medarex and HBI that the Merger will qualify as a "tax
free reorganization" within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code"), for accounting and financial reporting
purposes. See "The Merger--Certain Federal Income Tax Consequences of the
Merger."
-7-
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED
PRO FORMA FINANCIAL INFORMATION
The summary of historical financial data of Medarex and HBI presented below
is derived from the historical audited financial statements of HBI and Medarex,
except for the data presented below for the nine months ended September 30, 1996
and 1995, which are derived from the unaudited financial statements which, in
the opinion of management of HBI and Medarex, as applicable, reflect all
adjustments, consisting of only normal, recurring adjustments, necessary for the
fair presentation of such information. The summary pro forma financial data of
Medarex as of and for the nine-months ended September 30, 1996 and the year
ended December 31, 1995, are derived from the pro forma financial statements of
Medarex that appear elsewhere in this Proxy Statement and Prospectus. The pro
forma balance sheet dated as of September 30, 1996 gives effect to the Merger as
if it had occurred on September 30, 1996. The pro forma statement of operations
data give effect to the Merger as if it had occurred on January 1, 1995.
The pro forma financial information of Medarex does not purport to
represent what Medarex's results of operations or financial position actually
would have been had the Merger, in fact, occurred on the date or at the
beginning of the period indicated, nor is it intended to project Medarex's
results of operations or financial position for any future data or period. The
data presented below should be read in conjunction with the selected historical
financial data, managements' discussion and analysis of financial condition and
results of operations, the financial statements and the related notes thereto
incorporated herein by reference. See "Incorporation by Reference."
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF HBI(1)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
---------------------- ----------------------------------------------------------------
1996 1995 1995 1994 1993(2) 1992(3) 1991
---------- ---------- ---------- ---------- ---------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $1,009,541 $ 78,332 $ 526,048 $ 298,127 $ 461,728 $ 395,753 $ 471,873
Expenses:
Research and development 1,179,757 1,612,918 2,152,390 3,274,078 3,218,344 2,976,532 2,813,027
General and administrative and other 462,977 594,096 849,896 1,254,423 1,068,008 636,913 362,208
Minority interest --- --- --- --- (379,863) (397,209) ---
---------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses 1,642,734 2,207,014 3,002,286 4,528,501 3,906,489 3,216,236 3,175,235
---------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss $ (633,193) $(2,128,682) $(2,476,238) $(4,230,374) $(3,444,761) $(2,820,483) $(2,703,362)
========== =========== =========== =========== =========== =========== ===========
Net loss per share $(0.11) $(0.38) $(0.44) $(0.84) $(1.10) $(1.07) $(1.03)
Weighted average common shares
outstanding 5,638,707 5,638,707 5,638,707 5,043,581 3,147,159 2,628,232 2,628,232
BALANCE SHEET DATA:
Cash and cash equivalents $ 163,674 $ 540,340 $ 572,058 $ 2,238,272 $ 3,460,329 $ 4,682,275 $ 6,488,915
Total assets 556,751 1,093,367 1,110,562 3,042,278 4,340,422 5,609,303 10,184,626
Long term debt and capital
lease obligations 210,289 157,323 140,423 190,013 204,560 --- ---
Minority interest --- --- --- --- --- 921,080 ---
Stockholders' investment (762,311) 218,440 (129,116) 2,347,122 3,806,028 4,241,304 10,039,950
</TABLE>
- ------------------
(1) Until April 30, 1992, substantially all of HBI's research and
development activities on the Immunotoxin (as defined below) related to a
contract performed for Houston Biotech Partners, L.P. (the "Partnership"). On
that date, HBI acquired the assets and liabilities of the Partnership in
exchange for 2,628,232 shares of HBI Common Stock (the "Combination"). On July
30, 1993, HBI consummated a rights offering (the "Rights Offering"), resulting
in the sale of 657,101 shares of HBI Common Stock and 535,087 warrants to
purchase HBI Common Stock. Additionally, to qualify the HBI Warrants for
listing on the AMEX, HBI distributed 128,422 HBI Warrants pro rata to HBI's
stockholders. On July 30, 1993, the Partnership was dissolved and 2,628,232
shares of HBI Common Stock were distributed to the partners. HBI Common Stock
and HBI Warrants commenced trading on the AMEX on August 2, 1993 under the
symbols HBI and HBIWS, respectively. The terms of the Rights Offering contained
an adjustment feature pursuant to which HBI agreed to issue one HBI Warrant to
each stockholder of record on January 26, 1994 in the event that the sum of the
closing prices of (i) one share of HBI Common
-8-
<PAGE>
Stock and (ii) one HBI Warrant averaged less than $5.00 for the 15 trading days
prior to January 26, 1994. On February 11, 1994, HBI issued an aggregate of
3,858,183 HBI Warrants to stockholders of record on January 26, 1994.
The Combination of HBI and the Partnership was accounted for as a
reverse acquisition with the Partnership treated as the acquiror of HBI. The
selected financial data of HBI for the five years in the period ended December
31, 1995 reflect the historical data of the Partnership until its dissolution on
July 30, 1993.
(2) For 1993, amounts reflect the Partnership's 82% interest in HBI
through July 30, 1993, with 18% reflected as minority interest. On that date,
the Partnership was dissolved and its shares were distributed to its partners.
Beginning August 1, 1993, amounts reflect 100% of HBI's activities with no
minority interest. Accordingly, the financial statements as of December 31,
1993 are not comparable to prior periods.
(3) For 1992, amounts reflect the Partnership's activities through
April 30, 1992 (the date of the Combination) and beginning May 1, 1992, its
approximately 82% interest in HBI. Accordingly, the financial statements as of
December 31, 1992, are not comparable to previous periods.
(4) Weighted average shares used in computing net loss per share equals
the number of shares issued to the Partnership in conjunction with the
Combination until dissolution of the Partnership on July 30, 1993. Weighted
average shares used in computing net loss per share after dissolution of the
Partnership includes all shares outstanding.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF MEDAREX
<TABLE>
<CAPTION>
Nine Months Ended September 30, Year Ended December 31,
------------------------------- --------------------------------------------
(unaudited) (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- ------- -------
STATEMENT OF OPERATIONS
DATA:
Revenues:..................
Sales................... $ 210 $ 253 $ 312 $ 378 $ 406 $ 365 $ 366
Contract and license
revenues............... 1,551 981 1,467 200 --- --- 1,309
-------- -------- -------- -------- -------- ------- -------
Total revenues.......... $ 1,762 $ 1,234 $ 1,778 $ 578 $ 406 $ 365 $ 1,675
Costs and Expenses:
Cost of sales........... $ 100 $ 94 $ 123 $ 91 $ 82 $ 66 $ 57
Research and development 5,560 4,805 6,442 5,905 3,798 2,531 1,431
General and
administrative......... 1,863 1,691 2,275 2,154 2,361 2,165 873
-------- -------- -------- -------- -------- ------- -------
Total costs and
expenses............ $ 7,522 $ 6,591 $ 8,840 $ 8,150 $ 6,240 $ 4,761 $ 2,362
Operating loss.... (5,761) (5,356) (7,062) (7,573) (5,834) (4,396) (687)
Interest and dividend
income.................... 1,091 380 561 348 421 399 318
Interest expense........... (4) (6) (8) (11) (2) --- (217)
-------- -------- -------- -------- -------- ------- -------
Net loss................... $ (4,674) $ (4,983) $ (6,509) $ (7,236) $ (5,415) $(3,997) $ (585)
======== ======== ======== ======== ======== ======= =======
Net loss per share......... $(0.32) $(0.55) $(0.69) $(1.00) $(0.86) $(0.79) $(0.15)
Weighted average common
shares outstanding........ 14,515 9,024 9,457 7,269 6,304 5,049 3,838
BALANCE SHEET DATA:
Cash, cash equivalents and
marketable securities..... $ 33,733 $ 7,490 $ 15,729 $ 9,434 $ 9,687 $15,938 $11,349
Working capital............ 33,480 6,114 14,549 8,017 8,330 15,918 11,228
Total assets............... 38,212 10,901 19,240 13,017 12,640 16,943 11,942
Long term obligations...... 116 47 40 60 78 --- ---
Accumulated deficit........ (29,297) (23,096) (24,623) (18,113) (10,877) (5,462) (1,465)
Total stockholders' equity. 36,872 8,976 17,375 11,097 10,943 16,603 11,634
</TABLE>
-9-
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA OF MEDAREX
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1996 December 31, 1995
------------------ ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:.............................. $ 2,756 $ 2,245
Costs and Expenses..................... 9,165 22,483
Net loss........................... (5,307) (19,626)
Net loss per share..................... (.34) (1.87)
Shares used in computation of
net loss per share............... 15,542 10,483
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities........................ $ 33,897
Working capital........................ 31,216
Total assets........................... 38,769
Long term obligations.................. 326
Accumulated deficit.................... (39,938)
Total stockholders' equity............. 34,735
</TABLE>
RISK FACTORS
Stockholders of HBI should consider carefully the factors discussed in detail
elsewhere in this Proxy Statement and Prospectus under the caption "Risk
Factors," which include risks related to the failure of the stockholders to
adopt and approve the Merger Agreement and the Merger and Medarex's ability to
operate the combined companies.
PRINCIPAL EXECUTIVE OFFICES
HBI's principal executive offices are located at 3608 Research Forest Drive, The
Woodlands, Texas 77381. HBI's telephone number is (713) 363-0999. Medarex's
principal executive offices are located at 1545 Route 22 East, Annandale, New
Jersey 08801. Medarex's telephone number is (908) 713-6001.
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<PAGE>
RISK FACTORS
In addition to the other information in this Proxy Statement and
Prospectus, the stockholders of HBI should consider carefully the risk factors
set forth below.
RISKS RELATED TO THE MERGER AGREEMENT AND THE MERGER
Operating Losses of HBI. During the last three years, HBI has
incurred recurring losses from operations. In addition, HBI's independent
public accountants, Arthur Andersen LLP, have included in their auditors' report
which covers HBI's financial statements for each of the fiscal years ended
December 31, 1994 and 1995, an explanatory paragraph which describes the
uncertainties that raise substantial doubt about HBI's ability to continue as a
going concern. There can be no assurance that (i) if the Merger is not
consummated, HBI will be able to continue operations or will be able to secure
financing sources, or (ii) after the Effective Time, Medarex will be able to
provide sufficient working capital to fund the operations of HBI.
Exercise of Rights under License Agreement. Medarex has made loans
aggregating $750,000 to HBI as required by the Merger Agreement. The notes
issued by HBI to Medarex to evidence such loans are secured by HBI's grant to
Medarex of an exclusive, transferable, perpetual license to use, further
develop, manufacture, sell and otherwise commercialize HBI's 4197X-RA
immunotoxin (the "Immunotoxin") in North America. If the notes are not paid in
full when due and payable, Medarex shall be able to exercise its rights under
the license. In that regard, should the HBI stockholders fail to approve and
adopt the Merger Agreement, HBI shall have 120 days in which to repay the
$750,000 principal amount plus all accrued interest. In such event, it is
unlikely that HBI could locate a financing source and HBI would lose the rights
to use and market the Immunotoxin in North America. See "The Merger Agreement--
Convertible Notes and "--License Agreement."
Additional Financing Requirements and Access to Capital Funding. The
operation of Medarex's business, including HBI, 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 36 months from the date of this Proxy Statement and Prospectus, including
the anticipated additional expenses related to HBI'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 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.
Challenges of Operating Combined Companies. Medarex's management will
face a number of challenges in combining the business of HBI with Medarex with
no assurance that such combination can be made successfully. The operations of
Medarex are located in New Jersey and the operations of HBI are located in
Texas, which presents logistical challenges in terms of consolidating
operations. 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
HBI's and Medarex's businesses is not anticipated to significantly reduce
competition.
Possible Limitation on Use of Net Operating Loss Carryforwards and
Certain Capitalized Costs. 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 HBI undergoing an
ownership change, and will limit HBI'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 1995 and 1996, 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 effect of an ownership change as a result
of the Merger has not been determined.
RISKS RELATED TO MEDAREX
History of Operating Losses and Accumulated Deficit. Medarex has
experienced operating losses in each year since its inception and, as of
September 30, 1996, had an accumulated deficit of $29,296,940. 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 prior years, a significant portion of Medarex's
revenues was generated from collaborative development agreements. Medarex
currently has three such revenue-producing agreements, and its operating results
may be adversely affected if certain required milestones are not met. There is
no assurance that Medarex will be able to meet such milestones. The ability of
Medarex to achieve a profitable level of operations is dependent in large part
on obtaining regulatory approvals
-11-
<PAGE>
for its products, entering into agreements for product development and
commercialization and making the transition to a manufacturing and marketing
company, the achievement of any of which cannot be assured.
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 sale or
licensing of its research products. As of the date of this Proxy Statement and
Prospectus, Medarex does not have any products in Phase III clinical trials and
none of the products under development by Medarex have been approved by the 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 is 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.
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 achieving certain milestones or to the satisfaction of
Medarex's collaborators with testing results of the related product. Should
these arrangements be terminated, Medarex may be required to seek additional
funding from other sources and its research and product development efforts
would be adversely affected.
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. Biotechnology firms' ability to obtain patents is generally 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 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.
Litigation 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 below). 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 members of
Medarex's Scientific Advisory Board. 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 its confidential information by such members of the Scientific
Advisory Board.
-12-
<PAGE>
Dilution. As of January 24, 1997, there were outstanding (i)
1,806,600 shares of Medarex Common Stock reserved for issuance pursuant to
options and warrants exercisable by 64 individuals who are present or former
employees, officers, directors and consultants of Medarex, at a weighted average
exercise price of $3.61 per share; and (ii) 100,000 shares of Medarex Common
Stock issuable upon the exercise of certain additional warrants at an exercise
price of $4.50 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, HBI stockholders may incur substantial dilution of their
holdings of Medarex Common Stock.
In addition, upon consummation of the Merger, the outstanding options
to purchase HBI Common Stock will be converted into options to purchase up to
150,817 shares of Medarex's Common Stock at exercise prices ranging from $3.09
to $54.95 per share and the HBI Warrants will be converted into Medarex Warrants
to purchase 822,924 shares of Medarex Common Stock at an exercise price of
$51.54 per share.
The exercise of all or a portion of such options and HBI 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, 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 Common Stock. See "--Possible Volatility of
Securities Prices."
Future Sales of Common Stock. Of the 17,594,992 shares of Medarex
Common Stock outstanding as of January 24, 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
"--Possible Volatility of Securities Prices."
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 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 shares), Amended and Restated 1991 Stock Option Plan
(250,000 shares), 1992 Stock Option Plan (250,000 shares), 1994 Stock Option
Plan (300,000 shares), 1995 Stock Option Plan (350,000 shares) and 1996 Stock
Option Plan (350,000 shares). Upon consummation of the Merger, Medarex intends
to file a registration statement on Form S-8 to register up to 145,248 shares of
Medarex Common Stock issuable upon the exercise of the outstanding options to
purchase HBI Common Stock. Shares issued under such plans other than shares
issued to affiliates of Medarex, 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
Merger have been registered pursuant to the Registration Statement and are
covered by this Proxy Statement and Prospectus. Said shares will be freely
tradeable without restrictions or further registration under the Securities Act.
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.
-13-
<PAGE>
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 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.
Medarex has obtained a substantial amount of its technology from the
Trustees of Dartmouth College ("Dartmouth"), and Dartmouth currently maintains
an equity interest in Medarex. Drs. Michael W. Fanger and Paul M. Guyre, two of
Medarex's principal founders (who, together with Dr. Edward D. Ball, formerly of
Dartmouth Medical School and now a faculty member at the University of
Pittsburgh Medical School, are Medarex's "Scientific Founders"), are members of
the faculty of Dartmouth Medical School.
Conflicts of Interest. Medarex relies on members of its Scientific
Advisory Board, which includes 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.
Possible Volatility of Securities Prices. The market prices of
securities of biotechnology companies, including Medarex, have been volatile.
Various factors and events may have a significant impact on the trading prices
of Medarex Common Stock, including announcements by Medarex or any of 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
commercial products, public concern about the safety of biotechnology in
general, or the sale or attempted sale of a large amount of Medarex Common Stock
into the market. See "Comparative Market Price Data."
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.
Anti-takeover Provisions. The New Jersey Shareholder Protection Act
(the "NJ Protection Act") may make the acquisition of control of Medarex more
difficult or expensive. Generally, the NJ Protection Act prohibits an
"interested stockholder" from engaging in certain "business combinations" with
the corporation for a period of five years, unless the board of directors
approves the business combination prior to the date the stockholder becomes an
"interested stockholder." The NJ Protection Act could discourage an acquisition
attempt or other transactions in which stockholders might receive a premium over
the then current market price for their Medarex Common Stock. See "Comparison
of Stockholder Rights."
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RISKS RELATED TO THE INDUSTRY
Government Regulation. The research and development activities of
Medarex and HBI, 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
either Medarex or HBI 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 of Medarex's or HBI's products and the ability of
Medarex and HBI to receive product revenues and royalties.
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. Neither Medarex
nor HBI can predict the outcome of health care reform proposals or the effect
any such reforms may have on the business of either Medarex or HBI. Any such
proposals, if adopted, could have a material adverse effect on Medarex or HBI.
No Assurance of Adequate Reimbursement. The success of Medarex's and
HBI'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 (i) patients will have sufficient resources to pay for the
therapy, (ii) governmental or private payors will provide reimbursement for such
therapy, or (iii) any reimbursement policies will not adversely affect Medarex's
or HBI'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
and HBI are engaged in all areas of biotechnology in the United States and
abroad and 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 and HBI's
competitors will not succeed in developing technologies and products that are
more effective than any which are being developed by Medarex and HBI or which
would render Medarex's and HBI'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 and
HBI. In addition, many of Medarex's and HBI's competitors have significantly
greater experience than Medarex and HBI 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 and HBI's competitors may succeed in obtaining FDA approval for
products more rapidly than Medarex or HBI.
-15-
<PAGE>
COMPARATIVE MARKET PRICE DATA
Medarex Common Stock has traded on Nasdaq under the symbol "MEDX" since
June 20, 1991. HBI Common Stock has traded on the American Stock Exchange (the
"AMEX") under the symbol "HBI" since August 2, 1993. The following table sets
forth the high and low sales prices for the Medarex Common Stock on Nasdaq and
for the HBI Common Stock on AMEX for the calendar quarters indicated, in each
case based on published financial sources.
<TABLE>
<CAPTION>
Medarex HBI
Common Stock Common Stock
------------------- -----------------------
High Low High Low
--------- ------- --------- ----------
<S> <C> <C> <C> <C>
Fiscal Year 1994
First Quarter.............................. $ 8 1/8 $5 3/4 $ 3 1/8 $ 1 13/16
Second Quarter............................. 7 1/4 3 7/8 2 3/8 1
Third Quarter.............................. 6 1/4 3 3/4 1 5/8 1
Fourth Quarter............................. 4 1/4 2 1/2 2 1/2 3/4
Fiscal Year 1995
First Quarter.............................. 4 1/8 2 3/8 1 1/16 5/8
Second Quarter............................. 6 1/2 2 3/4 1 5/16
Third Quarter.............................. 7 1/2 4 3/8 7/8 1/2
Fourth Quarter............................. 7 1/8 6 1/2 7/8 3/8
Fiscal Year 1996
First Quarter.............................. 7 1/8 6 1/2 2 3/16 7/16
Second Quarter............................. 12 1/4 6 1/4 2 11/16 1
Third Quarter.............................. 9 5 3/8 2 3/4
Fourth Quarter............................. 9 6 1/4 1 3/8 5/8
Fiscal Year 1997
First Quarter (through January ___, 1997).. -- -- -- -- --
</TABLE>
- ----------------
The proposed Merger was publicly announced at the commencement of
trading on December 9, 1996 after the execution of a letter of intent between
Medarex and HBI. The closing sale price of a share of Medarex Common Stock on
the Nasdaq on December 6, 1996 (the last trading day prior to such announcement)
was $ 8 3/8, and the closing sale price of a share of HBI Common Stock on AMEX
on such date was $ 15/16.
On January ___, 1997 (the last practicable date prior to the mailing
of this Proxy Statement and Prospectus), the closing sale price of a share of
Medarex Common Stock on the Nasdaq was $_____ and the closing sale price of a
share of HBI Common Stock on the AMEX was $________.
HBI STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE
MEDAREX COMMON STOCK AND THE HBI COMMON STOCK BEFORE DECIDING HOW TO VOTE.
DIVIDENDS
Medarex has not paid any cash dividends on the Medarex Common Stock
and does not anticipate paying cash dividends in the foreseeable future. Medarex
intends to retain any earnings to finance the growth of Medarex. The Medarex
Board of Directors will review its dividend policy from time to time to
determine the feasibility and desirability of paying dividends, after giving
consideration to Medarex's earnings, financial condition, capital requirements
and such other factors as the Medarex Board of Directors deems relevant. HBI
has not paid any cash dividends on the HBI Common Stock and does not intend to
pay any dividends prior to the Effective Time.
-16-
<PAGE>
MEDAREX, INC.
HOUSTON BIOTECHNOLOGY INCORPORATED
PROXY STATEMENT AND PROSPECTUS
-------------------
This Proxy Statement and Prospectus is being furnished to holders of
shares of HBI Common Stock in connection with the solicitation of proxies by the
HBI Board for use at the Special Meeting. At the Special Meeting, holders of
record of HBI Common Stock as of the Record Date will be requested to consider
and vote upon a proposal recommended by the HBI Board to approve and adopt the
Merger Agreement and the Merger pursuant to which (i) Merger Sub shall be merged
with and into HBI with HBI being the surviving corporation and resulting in HBI
being a wholly-owned subsidiary of Medarex, and (ii) each share of HBI Common
Stock shall be converted into the right to receive 0.182 shares of Medarex
Common Stock.
In addition, this Proxy Statement and Prospectus serves as the
prospectus of Medarex under the Securities Act for the issuance of up to
1,026,245 shares of Medarex Common Stock and 822,924 Medarex Warrants issuable
pursuant to the Merger Agreement as well as up to 822,924 shares of Medarex
Common Stock issuable upon exercise of the Medarex Warrants.
SPECIAL MEETING
PURPOSE OF THE MEETING
At the Special Meeting, the holders of HBI Common Stock will be asked
to consider and vote upon (i) a proposal to approve and adopt the Merger
Agreement and the Merger, and (ii) such other matters as may properly be brought
before the Special Meeting.
THE HBI BOARD UNANIMOUSLY APPROVED THE MERGER, THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT STOCKHOLDERS OF
HBI VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER PURSUANT TO THE MERGER
AGREEMENT.
See "The Merger--Background of the Merger;--Recommendation of the HBI
Board; Effects of and Reasons for the Merger."
DATE, TIME AND PLACE; RECORD DATE
The Special Meeting is scheduled to be held at 3608 Research Forest
Drive, The Woodlands, Texas, on February 27, 1997, at 10:00 a.m., local time.
The HBI Board has fixed the close of business on January 24, 1997, as the Record
Date. As of the Record Date, there were 5,638,707 shares of HBI Common Stock
issued and outstanding.
VOTING RIGHTS
The presence, in person or by proxy, of the holders of a majority of
the aggregate issued and outstanding shares of HBI Common Stock entitled to vote
at the Special Meeting is necessary to constitute a quorum to transact business.
Assuming the presence of a quorum, the affirmative vote by the holders of a
majority of the outstanding shares of HBI Common Stock entitled to vote thereon
is required to approve and adopt the Merger Agreement and the Merger.
Abstentions on a specific proposal will be considered as present, but will not
be counted as voting in favor of such proposal. Broker non-votes, however, will
be deemed shares not entitled to vote on such matters, and therefore, will not
count as votes for or against the proposal, and will not be included in
calculating the number of votes necessary for approval of such matter. However,
because the proposal to approve the Merger Agreement requires the affirmative
vote of a specified percentage of outstanding shares, the nonvoting of shares,
abstentions or broker non-votes with regard to this proposal will have the same
effect as votes against the proposal. Holders of record of HBI Common Stock on
the Record Date are entitled to one vote per share on each proposal to be
presented to HBI stockholders at the Special Meeting. Votes at the Special
Meeting will be tabulated by an Inspector of Elections appointed by HBI.
If a stockholder attends the Special Meeting, he or she may vote by
ballot. When a proxy card is returned, properly signed and dated, the shares of
HBI Common Stock represented thereby will be voted in accordance with the
instructions on the proxy card. If a stockholder does not return a signed proxy
card, his or her shares of HBI Common Stock will not be voted and thus will have
the effect of a vote against the Merger Agreement and the Merger. Stockholders
are urged to mark the box on the proxy card to indicate how their shares of HBI
Common Stock are to be voted. If a stockholder returns a signed proxy
-17-
<PAGE>
card but does not indicate how his or her shares of HBI Common Stock are to be
voted, the shares of HBI Common Stock represented by the proxy card will be
voted "FOR" approval and adoption of the Merger Agreement and the Merger. The
proxy card also confers discretionary authority on the individuals appointed by
the HBI Board and named on the proxy card to vote the shares of HBI Common Stock
represented thereby on any other matter that is properly presented for action at
the Special Meeting.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF HBI. STOCKHOLDERS ARE URGED TO READ AND
CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT AND
PROSPECTUS AND TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT
PROMPTLY TO HBI IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
MEDAREX AND HBI
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 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 HBI, which are incorporated by
reference in this Proxy Statement and Prospectus. The pro forma combined
condensed balance sheet combines Medarex's September 30, 1996 unaudited balance
sheet with HBI's September 30, 1996 unaudited balance sheet. The pro forma
combined condensed statements of operations combine Medarex's historical
condensed statements of operations for the fiscal year ended December 31, 1995
and the unaudited nine months ended September 30, 1996 with the corresponding
HBI historical condensed statements of operations for the fiscal year ended
December 31, 1995 and the unaudited nine months ended September 30, 1996,
respectively.
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.
In the opinion of management of Medarex, all adjustments necessary to
present fairly this pro forma information have been made.
-18-
<PAGE>
MEDAREX, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Acquisition
Pro Forma
Medarex HBI Adjustments Total
------------- ------------- ------------------- -------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 20,013,274 $ 163,674 $ 20,176,948
Marketable securities 13,720,034 13,720,034
Other current assets 970,392 56,819 1,027,211
------------ ------------ ------------
Total current assets 34,703,700 220,493 34,924,193
Property and equipment, net 1,221,198 324,145 1,545,343
Other assets 2,287,234 12,113 2,299,347
------------ ------------ ------------
Total assets $ 38,212,132 $ 556,751 $ 38,768,883
============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities $ 1,223,948 $ 1,108,773 $ 1,375,000(2) $ 3,707,721
Long-term debt and other long-term
obligations 116,090 210,289 326,379
Stockholders' equity:
Common Stock 175,883 56,387 (46,125)(2) 186,145
Warrants 3,795,725 (3,795,725)
Capital in excess of
par value 65,804,521 21,847,646 (13,354,509)(2) 74,297,658
Unrealized gain on
securities 188,630 188,630
Accumulated deficit (29,296,940) (26,462,069) 15,821,359(3) (39,937,650)
------------ ------------ ------------ ------------
Total stockholders' equity 36,872,094 (762,311) (1,375,000) 34,734,783
------------ ------------ ------------ ------------
Total liabilities and stockholders'
equity $ 38,212,132 $ 556,751 $ (--) $ 38,768,883
============ ============ ============ ============
</TABLE>
See notes to pro forma combined condensed financial statements
-19-
<PAGE>
MEDAREX, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Acquisition
Pro Forma
Medarex HBI Adjustments Total
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Contract and license revenues $ 1,551,191 $ 925,000 $ 2,476,191
Other revenue 210,468 69,013 279,481
----------- ----------- -----------
Total revenues 1,761,659 994,013 2,755,672
Costs and expenses
Research and development 5,559,690 1,179,757 6,739,447
General and administrative 1,862,846 462,977 2,325,823
Other 99,839 -- 99,839
----------- ----------- -----------
Operating loss (5,760,716) (648,721) (6,409,437)
Interest and dividend income, net 1,086,545 15,528 1,102,073
----------- ----------- -----------
Net loss $(4,674,171) $ (633,193) $(5,307,364)
=========== =========== ===========
Net loss per share $ (0.32) $ (0.34)
Shares used in computation
of net loss per share 14,515,314 15,541,559
</TABLE>
See notes to pro forma combined condensed financial statements
-20-
<PAGE>
MEDAREX, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Acquisition
Pro Forma
Medarex, Inc. HBI Adjustments Total
----------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Contract and license revenues $ 1,466,667 $ -- $ 1,466,667
Other revenue 311,733 466,386 778,119
------------ ------------ -------------
Total revenues 1,778,400 466,386 2,244,786
Costs and expenses
Research and development 6,442,159 2,152,390 8,594,549
General and administrative 2,274,892 849,896 3,124,788
Acquisition of in-process technology 10,640,710(3) 10,640,710
Other 123,421 -- 123,421
----------- ------------ ---------- -------------
Operating loss (7,062,072) (2,535,900) 10,640,710 (20,238,682)
Interest and dividend income, net 552,762 59,662 612,424
----------- ------------ ---------- -------------
Net loss $ (6,509,310) $ (2,476,238) $10,640,710 $ (19,626,258)
============ ============ =========== =============
Net loss per share $ (0.69) $ (1.87)
Shares used in computation
of net loss per share 9,456,763 10,483,008
</TABLE>
See notes to pro forma combined condensed financial statements
-21-
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Medarex anticipates acquiring all of the assets and liabilities of HBI in
exchange for 1,026,245 shares of Medarex Common Stock, 822,924 Medarex
Warrants and 150,817 options. The total cost of the proposed acquisition is
anticipated to be approximately $10.65 million, including assets acquired
of $556,751, liabilities assumed of $1,319,062, estimated transaction costs
of $650,000 and other estimated costs, including the consolidation of
facilities and reductions in workforce of approximately $725,000. Medarex
will record a charge to operations for the amount of in-process technology
immediately following 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 September 30, 1996 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 issuance of Medarex Common Stock as
discussed in Note 1 and the elimination of HBI's equity accounts.
These adjustments are summarized as follows:
(a) Elimination of certain HBI equity accounts:
Capital stock $ (56,787)
HBI Warrants (3,795,725)
Capital in excess of par value (21,847,646)
Accumulated deficit 26,462,069
(b) Accrual of certain acquisition related
costs $ 1,375,000
(c) Charge to operations at date of
acquisition for in-process technology $ 10,640,710
(as per an independent valuation)
(d) Issuance of Medarex Common Stock, Medarex Warrants and options as
discussed in Note 1. The value of the shares has been computed
based on the closing price of Medarex Common Stock on December 20,
1996 (date Merger Agreement was announced) of $7.75 per share. A
value of $550,000 has been assigned to the Medarex Warrants and
options.
Medarex Common Stock 10,262
Capital in excess of par value 8,493,137
(3) The pro forma combined condensed statement of operations for the year ended
December 31, 1995 and the nine months ended September 30, 1996 include all
adjustments necessary to reflect the acquisition as if it had occurred on
January 1, 1995.
The pro forma adjustments are as follows for the year ended
December 31, 1995: Charge to operations for in-process
technology (as per an independent valuation) ........... $10,640,710
The net loss per share and the shares in computing net loss per share for
the year ended December 31, 1995 and the nine months ended September 30,
1996 are based upon the historical weighted average common shares
outstanding for the respective periods adjusted to reflect, as of January
1, 1995, the issuance of up to 1,026,245 shares of Medarex Common Stock as
described in Note 1. The Medarex Common Stock issuable upon the conversion
of options and HBI Warrants is excluded as the effect would be anti-
dilutive.
-22-
<PAGE>
THE MERGER
BACKGROUND OF THE MERGER
Effective December 29, 1995, HBI and Santen Pharmaceutical Co., Ltd.
("Santen") entered into a license agreement covering the marketing in Japan of
the Immunotoxin. Scheduled payments totaled $1,250,000 from December, 1995
through June, 1996 and $500,000 from July, 1996 through December, 1996. As noted
in HBI's Annual Report on Form 10-K for the fiscal year ended December 31, 1995,
HBI's management anticipated that payments by Santen would fund HBI's activities
into the third quarter of 1996, and that additional funds would then be
required. Accordingly, HBI began seeking funds from a variety of sources and
considering its financing alternatives. Such alternatives included (i) a
license, sale or other disposition of the Immunotoxin or certain rights related
thereto, (ii) a sale of securities in a public or private offering, (iii) a sale
or other reorganization of HBI, or (iv) the combination of HBI with another
entity. As noted in the HBI's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996, HBI began to defer payment to certain vendors
in the third quarter of 1996 and anticipated that HBI would be able to continue
operations until mid-December 1996 without further funds.
In the fourth quarter of 1995, J. Russell Denson, President and Chief
Executive Officer of HBI, began discussions with Paramount Capital, Inc., a New
York based investment banking firm ("Paramount"), and in June, 1996, entered
into a letter of understanding for a proposed offering of units to consist of
preferred stock and warrants of HBI. Negotiations on the terms of such offering
continued through October 1996 at which time a Confidential Term Sheet and
Subscription Agreement were substantially completed detailing an offering of
units at a price per unit of $100,000 with a minimum offering of $1.5 million
and a maximum offering of $7.5 million (with an over-allotment of $2.5 million).
Each unit consisted of (i) 10,000 shares of preferred stock convertible into HBI
Common Stock at a price of the lesser of $0.75 or 75% of the average closing bid
price of the HBI Common Stock on the AMEX for the 20 consecutive trading days
immediately preceding the initial closing date or any other closing date for the
offering, whichever was lowest, and (ii) warrants to purchase 133,333 shares of
HBI Common Stock with an exercise price equal to the conversion price for the
preferred stock. HBI was required to enter into a Placement Agent Agreement and
Financial Advisory Agreement with Paramount, however, the terms of these
agreements were not completely negotiated. On October 1, 1996, Mr. Denson made
a presentation to Paramount's sales force based on the terms of the Confidential
Term Sheet and Subscription Agreement. Afterward, Paramount proposed that (i)
additional technology be licensed into HBI and (ii) the HBI Board and management
be restructured to enhance the offering. Discussions with Paramount continued
until November 27, 1996, when such discussions were terminated.
On October 15, 1996, Mr. Denson had an initial meeting with the CEO of
InSite Vision Incorporated ("InSite") who indicated that InSite was interested
in exploring a merger with HBI. After several due diligence meetings, InSite
delivered an outline of a letter of intent to HBI on October 24, 1996, detailing
a merger of a subsidiary of InSite with HBI. Negotiations between InSite and
HBI began with respect to a preliminary agreement and plan of reorganization
that would be amended and restated as a definitive agreement. Negotiations
continued through December 7, 1996, and resulted in a proposed preliminary
agreement that provided for (i) a loan of $400,000 upon execution of the
preliminary agreement (with additional loans totaling $600,000 to be made at
selected future dates) secured by a United States license for the Immunotoxin,
(ii) an exchange ratio of 0.25 shares of InSite common stock for each share of
HBI Common Stock (a value of $1.23 per share at that date), (iii) the
negotiation and execution of a definitive agreement by December 31, 1996,
subject to completion of due diligence and the execution of lock up and voting
agreements by affiliates of HBI, and (iv) several conditions to closing,
including execution of employment agreements by certain employees and a waiver
by Nasdaq for the issuance of InSite's common stock in the proposed merger or
the successful completion of a consent solicitation to HBI Warrant holders to
amend the warrant agreement governing the HBI Warrants. Upon the failure of the
parties to consummate the merger and, in certain instances the failure of HBI to
repay the loans within specified periods, InSite would be able to exercise its
rights under the license. As of December 7, 1996, although the majority of the
operative documents were negotiated, there were still several points that HBI
felt required further negotiation including the exchange ratio, the conditions
to the execution of the definitive agreement, the conditions to closing and the
provisions of the note whereby InSite would be able to exercise rights under the
license upon certain defaults.
On October 16, 1996, Mr. Denson was contacted by a representative of
Medarex who indicated that Medarex was interested in exploring a merger with
HBI. After several due diligence meetings and completing its initial
evaluation, Medarex delivered a letter of intent to HBI on November 20, 1996.
Such letter of intent was not binding, required HBI to suspend ongoing
discussions with Paramount and InSite and contemplated additional due diligence.
On November 21, 1996, Mr. Denson informed the President of Medarex that HBI
could not suspend other discussions without a firm letter of intent and a
meaningful cash payment. After further due diligence, Medarex delivered a
revised letter of intent on December 6, 1996. Negotiations continued through
December 7, 1996, and resulted in a letter of intent that provided for (i) a
loan of $500,000 upon execution of the letter of intent (with an additional
$250,000 loan to be made on January 15, 1997) secured by a North
-23-
<PAGE>
American license for the Immunotoxin, (ii) an exchange ratio of 0.182 shares of
Medarex Common Stock for each share of HBI Common Stock (a value of $1.52 per
share at that date), (iii) a ten-day period in which to negotiate a definitive
agreement, and (iv) other terms substantially similar to the terms of the Merger
Agreement as detailed in this Proxy Statement and Prospectus.
The HBI Board held a meeting on December 8, 1996, to discuss Medarex,
InSite and each party's respective offer, including such factors as:
. exchange ratio and value to HBI's stockholders based on recent closing
prices of each party's common stock, including certain moving stock
price averages;
. financial strength, including the ability of each party to finance
itself long-term;
. business prospects, including the merits of each party's technology;
. management;
. ability of each party to close the transaction;
. conditions to closing for each offer and timing of closing under each
offer;
. risk of actual grant of license if the transaction failed to close;
and
. necessity to obtain a waiver from Nasdaq for the issuance of InSite's
common stock in the merger or alternatively, to conduct a consent
solicitation to holders of HBI Warrants.
Based on the above factors, the HBI Board concluded that Medarex's offer was
superior to InSite's for HBI's stockholders. Before making a final decision, the
HBI Board considered whether InSite would be willing to substantially improve
its offer and the risks of not accepting Medarex's offer while further
negotiations were conducted with InSite. Factors discussed included the detail
of the negotiation process with InSite and InSite's express statements regarding
certain salient terms of its offer that could not be improved as requested by
HBI.
HBI and Medarex executed a letter of intent on December 8, 1996, that
provided for the basic terms of the Merger as detailed in this Proxy Statement
and Prospectus. Upon execution of the letter of intent, Medarex loaned $500,000
to HBI secured by an exclusive, transferable, perpetual license to use, further
develop, manufacture, sell and otherwise commercialize the Immunotoxin in North
America.
On December 13, 1996, InSite delivered a letter to Mr. Denson offering the
same terms as had existed in the preliminary merger agreement with a change in
the exchange ratio to 0.3 shares of InSite common stock for each share of HBI
Common Stock (a value of $1.73 per share at that date). The HBI Board met on
December 13, 1996, to discuss InSite's offer. After again discussing the factors
detailed above together with a detailed comparative analysis of each party's
offer based on average stock prices over various periods, the HBI Board
concluded that Medarex's offer remained superior and therefore rejected InSite's
revised offer.
On December 16, 1996, the HBI Board met and unanimously approved the form
of documentation for the transaction with Medarex and authorized Mr. Denson to
complete the negotiations and to execute and deliver the appropriate documents
and instruments. Final negotiations on the Merger Agreement continued and
Medarex and HBI executed the Merger Agreement and related documents effective as
of December 18, 1996.
RECOMMENDATION OF THE HBI BOARD; EFFECTS AND REASONS FOR THE MERGER
The HBI Board believes that the terms of the Merger are fair to, and in the
best interests of, HBI and its stockholders. Accordingly, the HBI Board has
unanimously approved the Merger Agreement, the Merger and the transactions
contemplated thereby, and recommends approval of the Merger Agreement and the
Merger by HBI stockholders.
The HBI Board believes that the Merger offers HBI stockholders 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, HBI would lack the critical mass, financial strength and other
characteristics to maximize its potential.
In reaching its conclusions, the HBI Board considered, among other things,
(i) the Merger Agreement, the Merger and the proposed specific terms thereof,
(ii) information concerning the financial condition, business operations and
prospects of each of HBI and Medarex, (iii) historical market prices and trading
information with respect to HBI Common Stock and Medarex Common Stock, (iv) the
potential efficiencies, economies of scale, and other synergies that may be
realized as a result of the combination of HBI's and Medarex's businesses, and
(v) the proposed structure of the Merger to permit HBI stockholders to receive
shares of Medarex Common Stock.
-24-
<PAGE>
THE HBI BOARD UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE MERGER AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT THE STOCKHOLDERS OF HBI
VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
FAIRNESS OPINION
Strategen was engaged to render to the HBI Board an opinion as to the
fairness to the stockholders of HBI, from a financial point of view, of the
terms of the Merger. The HBI Board selected Strategen on the basis of
Strategen's experience (i) in the life sciences industry, (ii) in the evaluation
of businesses and their securities in connection with transactions similar to
the Merger, and (iii) with HBI for which Strategen has previously acted in an
investment banking capacity by providing assistance in discussions with third
parties with respect to a strategic alliance or similar arrangement for HBI.
The terms of the Merger, including the consideration to be paid to the
stockholders of HBI in the Merger, was determined by negotiations between HBI
and Medarex, and Strategen did not participate in such negotiations nor make any
recommendations with regard thereto.
At the December 16, 1996, meeting of the HBI Board, Strategen delivered its
written opinion to the effect that the terms of the Merger are fair to the HBI
stockholders from a financial point of view. The full text of the written
opinion of Strategen, which sets forth certain assumptions, factors and
limitations on the review undertaken, is attached as Annex A to this Proxy
Statement and Prospectus and should be read carefully in its entirety.
Strategen's opinion is directed only to the fairness of the terms of the Merger
to the HBI stockholders from a financial point of view and is not intended to be
and does not constitute a recommendation to any stockholder of HBI as to how
such stockholder should vote with respect to the Merger Agreement and Merger.
In rendering its opinion, Strategen reviewed the basic terms and conditions
of the proposed documentation relating to the Merger Agreement, the Merger and
the transactions contemplated thereby, and held discussions with HBI's President
concerning the business, operations, financial resources and prospects of HBI
and with Medarex's President concerning the business, operations, financial
resources and prospects of Medarex. Strategen also reviewed (i) the reported
price and trading activity for HBI Common Stock and Medarex Common Stock and
compared such information to other biotechnology companies, (ii) the premiums
paid and the terms of other selected biotechnology merger or acquisition
transactions, and (iii) the general terms of alternative transactions proposed
to HBI prior to Medarex's offer.
HBI has paid Strategen $32,500 in consideration of the delivery of
Strategen's opinion. In addition, HBI agreed to reimburse Strategen for its
reasonable and verifiable out-of-pocket expenses and to indemnify Strategen
against certain liabilities, including liabilities under the federal securities
laws.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes certain of the principal federal income
tax considerations associated with the Merger and the resulting conversion of
HBI Common Stock into Medarex Common Stock and cash in lieu of fractional shares
under the Code. As it is not feasible to describe all of the tax consequences
associated with the Merger, each HBI stockholder should consult his or her tax
adviser with respect to the particular tax consequences of the Merger applicable
to his or her specific circumstances. The following discussion applies to HBI
stockholders who hold their HBI Common Stock as capital assets and does not
address the potential tax consequences applicable to HBI stockholders who are
dealers in securities or who acquired their HBI Common Stock through stock
option or stock purchase programs or other employee plans or otherwise as
compensation, which stockholders are subject to special treatment under the Code
(such as insurance companies, tax exempt organizations, financial institutions,
non-resident alien individuals or foreign entities).
The following summary is based on the Code, applicable Treasury
Regulations, judicial authority and administrative rulings and practice, all as
of the date of this Proxy Statement and Prospectus. There can be no assurance
that future legislative, judicial or administrative changes or interpretations
will not adversely affect the statements and conclusions set forth herein. Any
such changes or interpretations could be applied retroactively and could affect
the tax consequences of the Merger to HBI, Medarex and their respective
stockholders. The following discussion addresses only certain federal income
tax matters and does not consider any state, local or foreign tax consequences
of the Merger or other transactions described in this Proxy Statement and
Prospectus.
Neither Medarex nor HBI has requested or will request any ruling from the
Internal Revenue Service ("Service") in connection with the Merger. However,
the Merger has been structured with the intention that it qualify as a tax-free
reorganization under Code Section 368(a). Bracewell & Patterson, L.L.P., HBI's
attorneys, have delivered to HBI an opinion
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to the effect that (i) the Merger will be a reorganization for federal income
tax purposes as defined by Code Section 368(b), (ii) HBI will be a party to the
reorganization as defined under Code Section 368(b), (iii) no gain or loss will
be recognized by HBI as a result of the Merger, and (iv) no gain or loss will be
recognized by any HBI stockholder as a result of the Merger with respect to the
conversion of HBI Common Stock into the Medarex Common Stock. Such tax opinion
is subject to certain assumptions and qualifications and is based, among other
things, on representations and assumptions relating to certain facts and
circumstances of the Merger, including the intentions of the parties to the
Merger, which assumptions have been made with the consent of HBI. Such opinion
will neither be binding on the Service nor preclude it from adopting a contrary
position.
The obligation of HBI to consummate the Merger is conditioned upon the
nonwithdrawal or modification of such opinion of HBI's attorneys. Although
HBI's attorneys anticipate that the opinion shall not be withdrawn or modified,
the Merger will not be consummated unless such condition is met or waived by
HBI. HBI currently anticipates that such opinion will not be withdrawn or
modified and that HBI will not be required to waive such condition to closing.
Qualification of the Merger as a reorganization depends on compliance with
certain technical requirements of federal income tax law, including, among
others the requirement that a continuity of proprietary interest be maintained
by the stockholders of the merged corporation. To satisfy this requirement, the
stockholders of HBI must not, pursuant to a plan or intention existing at or
prior to the Merger, dispose of so much of either (i) their shares of HBI Common
Stock in anticipation of the Merger, or (ii) the Medarex Common Stock received
pursuant to the Merger such that the holders of shares of HBI Common Stock, in
the aggregate, would no longer have a significant equity interest in the HBI
business being conducted by the surviving corporation after the Merger. It is
the position of the Service that the continuity of interest requirement
generally will be considered satisfied if the stockholders of the merged
corporation receive in the aggregate (and have no plan to dispose of) stock of
the acquiring corporation equal in value to at least 50% of the value of all of
the formerly outstanding stock of the acquired corporation as of the effective
date of the reorganization, and a decision of the United States Supreme Court
indicates that continuity of interest in the range of 40% is sufficient.
With the exception of cash paid in lieu of fractional shares, the Merger
Agreement provides that all of the consideration paid by Medarex to HBI
stockholders in exchange for their HBI Common Stock pursuant to the Merger will
consist of Medarex Common Stock. However, satisfaction of the continuity of
proprietary interest requirement depends in part on actions that may be taken by
HBI stockholders either before or after the consummation of the Merger over
which neither HBI nor Medarex has any control. Accordingly, there can be no
assurance that the continuity of interest requirement will be satisfied with
respect to the Merger. If the continuity of interest (or any other requirement
for reorganization treatment under the Code) is not satisfied, the Merger will
not be treated as a tax-free reorganization and material adverse tax
consequences may result to some or all of the holders of HBI Common Stock.
Tax Consequences of Merger to HBI Stockholders. Assuming the Merger is
treated as a reorganization under the Code, the following federal income tax
consequences, among others, generally will apply to HBI stockholders:
(i) except for cash received in lieu of fractional share interests, a
holder of shares of HBI Common Stock who, pursuant to the Merger, exchanges such
shares for Medarex Common Stock will not recognize any gain or loss upon such
exchange;
(ii) the aggregate adjusted tax basis in the shares of Medarex Common
Stock received in such exchange will be equal to the aggregate adjusted tax
basis of the shares of HBI Common Stock surrendered therefor (decreased by the
amount of any tax basis allocable to fractional shares of Medarex Common Stock
in lieu of which cash will be paid);
(iii) each holder of HBI Common Stock who held such stock as a capital
asset at the Effective Time of the Merger will include in his or her holding
period for the Medarex Common Stock received in the Merger the holding period of
the shares of HBI Common Stock exchanged for such shares;
(iv) a holder of shares of HBI Common Stock who receives cash in the
Merger in lieu of a fractional share interest in Medarex Common Stock will be
treated as if the fractional share interest of Medarex Common Stock was
distributed to such holder and then redeemed by Medarex for cash. The deemed
redemption will be treated as a distribution in full payment in exchange for the
fractional share interest of the Medarex Common Stock deemed received by the
holder under Code Section 302(a). Accordingly, such holder will recognize a
gain or loss equal to the difference between the amount of cash received and the
portion of such holder's adjusted tax basis in the shares of HBI Common Stock
allocable to the fractional share interest of Medarex Common Stock. The gain or
loss will be long-term capital gain or loss provided the shares of HBI Common
Stock deemed surrendered for such fractional share interest of Medarex Common
Stock were held as a capital asset as of the Effective Time and for a period of
more than one year; and
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(v) each holder of an HBI Warrant who, pursuant to the Merger and by
operation of the warrant agreement governing such warrants, will be entitled to
purchase Medarex Common Stock, will not recognize gain or loss upon such
assumption. The aggregate adjusted basis of the HBI Warrants will not be
affected by such assumption.
Irrespective of the reorganization status of the Merger, a recipient of
shares of Medarex Common Stock will recognize income if and to the extent any
such shares are considered to be received in exchange for services or property
(other than HBI Common Stock). All or a portion of such income may be taxable
as ordinary income. Gain also will be recognized if and to the extent any HBI
stockholder is treated as receiving (directly or indirectly) consideration other
than Medarex Common Stock in exchange for his or her HBI Common Stock.
Subsequent to the Merger and upon Medarex's assumption of the HBI Warrants,
Medarex will offer to exchange Medarex Warrants for each HBI Warrant. The terms
of the Medarex Warrants will be identical to the HBI Warrants.
Tax Consequences to Medarex and HBI. Assuming the Merger is treated as a
reorganization under the Code, generally no gain or loss will be recognized by
Medarex, Merger Sub or HBI as a result of the Merger. The Merger will not have
any tax consequences to Medarex stockholders.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT A
COMPLETE DESCRIPTION OF ALL OF THE POTENTIAL TAX CONSEQUENCES THAT MAY OCCUR AS
A RESULT OF THE MERGER. HBI STOCKHOLDERS AND HBI WARRANT HOLDERS SHOULD
THEREFORE CONSULT THEIR TAX ADVISORS REGARDING THE FEDERAL TAX CONSEQUENCES OF
THE MERGER, THE EXERCISE OF ANY OPTIONS TO PURCHASE HBI COMMON STOCK ASSUMED BY
MEDAREX IN THE MERGER, THE EXCHANGE OF THE MEDAREX WARRANTS FOR THE HBI WARRANTS
AND THE TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR OTHER
JURISDICTION OF THE ABOVE-DESCRIBED TRANSACTIONS.
FEDERAL SECURITIES LAW MATTERS
The issuance of Medarex Common Stock pursuant to the Merger Agreement and
the issuance of the Medarex Warrants and the Medarex Common Stock issuable upon
exercise of the Medarex Warrants have been registered under the Securities Act.
The Medarex Common Stock and Medarex Warrants will be available 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 HBI at the time of
the Special Meeting and (ii) immediately after expiration of the Restricted
Period (as defined below) by the present holders of HBI Common Stock who are
Affiliates of HBI and who comply with the requirements of Rule 145 (d)(1) in
effecting such resales. Medarex has agreed that until the third anniversary of
the Effective Time, Medarex will ensure that Rule 144 and Rule 145 remain
available for Affiliates of HBI to resell their shares of Medarex Common Stock
and Medarex Warrants. Persons who may be deemed to be Affiliates of HBI
generally include individuals or entities that control, are controlled by, or
are under common control with, HBI, and may include certain officers and
directors of HBI as well as beneficial holders of 10 percent or more of HBI
Common Stock.
If the Merger is consummated, the HBI Common Stock and the HBI Warrants
will no longer be traded on the AMEX and will be deregistered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
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:
(i) the fair market value of the Medarex Common Stock to be issued to the
holders of HBI's securities will be determined;
(ii) the carrying value of the HBI assets acquired and the HBI 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 HBI assets and
liabilities, with any such adjustments being amortized over the expected lives
of such assets and liabilities;
(iii) the value assigned to 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; and
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(iv) Medarex will include HBI's results of operations after the Effective
Time in Medarex's consolidated statements of operations.
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 HBI Unaudited Pro Forma Combined Condensed
Financial Statements."
APPRAISAL RIGHTS
Since both HBI and Merger Sub are Delaware corporations, the DGCL applies
to whether HBI's stockholders have appraisal rights. Generally, stockholders of
a Delaware corporation who dissent from a merger or consolidation of the
corporation are entitled to appraisal rights. There are, however, no statutory
rights of appraisal with respect to stockholders of a corporation whose shares
are either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders, where such stockholders receive only (a) shares of stock of
the corporation surviving or resulting from the merger of consolidation or
shares of stock of any other corporation which, at the effective date of the
merger or consolidation, will be either listed on a national securities exchange
or designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 stockholders or (b) cash in lieu of fractional interests
therein.
Since the HBI Common Stock is listed on AMEX and such stockholders shall
receive only shares of Medarex Common Stock (which at the Effective Time will be
listed on Nasdaq) or cash in lieu of fractional shares, the exceptions from the
Delaware statutory right of appraisal apply to the Merger and HBI's stockholders
do not have statutory rights of appraisal with respect to the Merger.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement. This summary does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, which is attached to this Proxy
Statement and Prospectus as Annex B and is incorporated herein by reference.
GENERAL DESCRIPTION OF THE MERGER
Pursuant to the Merger Agreement, Merger Sub shall be merged with and into
HBI with HBI being the surviving corporation and resulting in HBI being a
wholly-owned subsidiary of Medarex. At the Effective Time, each share of HBI
Common Stock issued and outstanding immediately prior to the Effective Time will
be converted into the right to receive 0.182 shares of Medarex Common Stock.
After the Effective Time, HBI Warrants and options to acquire HBI Common Stock
will be exercisable into such number of shares of Medarex Common Stock equal to
the number of shares of HBI Common Stock subject to such option or HBI Warrant
immediately prior to the Effective Time multiplied by the Exchange Ratio and the
exercise price shall be equal to the exercise price of such option or HBI
Warrant immediately prior to the Effective Time divided by the Exchange Ratio.
Accordingly, it is not necessary for holders of options or HBI Warrants to
exercise such options or HBI Warrants prior to the Effective Time to receive the
economic equivalent of the consideration to be received by holders of HBI Common
Stock in the Merger. No fractional shares of Medarex Common Stock will be
issued in the Merger, and holders of HBI Common Stock whose shares are converted
in the Merger will be entitled to a cash payment in lieu of fractional shares of
Medarex Common Stock. See "--No Fractional Shares."
Pursuant to the Merger Agreement, the outstanding HBI Warrants currently
listed for trading on AMEX, shall be assumed by Medarex as detailed above and
shall be exchanged for Medarex Warrants. Medarex has applied for the listing
for trading of the Medarex Warrants on Nasdaq which listing application is
expected to be effective as of the Effective Time.
Medarex Common Stock is traded on the Nasdaq under the symbol "MEDX." See
"Comparison of Stockholder Rights" for a description of certain material
differences between the rights of holders of Medarex Common Stock and the rights
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of holders of HBI 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.
CLOSING; EFFECTIVE TIME
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 HBI agree. The Merger
will become effective upon the issuance of a certificate of merger by the
Secretary of State of the State of Delaware pursuant to the DGCL.
EXCHANGE OF STOCK CERTIFICATES AND WARRANTS
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 HBI Common Stock. The transmittal
instructions and the letter of transmittal will describe the procedures to
exchange certificates that prior to the Merger represented HBI Common Stock (the
"Certificates") for Medarex Common Stock. HBI STOCKHOLDERS SHOULD NOT SUBMIT
THEIR CERTIFICATES FOR EXCHANGE UNLESS AND UNTIL THEY HAVE RECEIVED THE
TRANSMITTAL INSTRUCTIONS AND LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
When a HBI stockholder 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 HBI stockholder
will receive Medarex Common Stock representing the number of shares of Medarex
Common Stock to which the HBI stockholder 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 HBI stockholder comply with applicable transfer
requirements set forth in such letter of transmittal and pay any applicable
transfer or other taxes.
HBI stockholders 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 HBI
stockholder 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.
As soon as reasonably practicable after the Effective Time, Medarex or the
Exchange Agent shall mail transmittal instructions and a letter of transmittal
to each holder of an HBI Warrant to effect the exchange of HBI Warrants for
Medarex Warrants in a similar fashion as described above.
NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Medarex Common
Stock shall be issued upon surrender for exchange of Certificates, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights as a stockholder of Medarex. Each holder of shares of HBI Common Stock
exchanged pursuant to the Merger who would have been entitled to receive a
fractional share of Medarex Common Stock (after taking into account all
Certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to the product obtained by multiplying (i)
the fractional share interest to which such holder (after taking into account
all shares of HBI Common Stock held at the Effective Time by such holder) would
otherwise be entitled by (ii) the closing price for Medarex Common Stock on
Nasdaq on the last business day immediately preceding the closing date of the
Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties by
each of Medarex and HBI relating to, among other things (i) organization and
similar corporate matters, (ii) capital structure, (iii) the authorization,
execution,
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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 required to be filed and
filed by each of them with the Commission and the accuracy of the information
contained therein, (vii) the accuracy of the information provided by each of
them with respect to the Registration Statement and Proxy Statement and
Prospectus, (viii) the absence 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. HBI has 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 Security Act of 1974, as amended, (iii) tax matters, (iv)
intellectual property rights, (v) 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) the opinion of Strategen.
HBI's representations are made only as of the date of the Merger Agreement,
while Medarex's representations are made as of that date and as of the closing
of the Merger.
CERTAIN COVENANTS
Pursuant to the Merger Agreement, during the period from the date of the
Merger Agreement until the Effective Time, HBI 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 HBI, (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 HBI has
significant business relations, (iv) preserve and maintain in effect all of
HBI'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 HBI capital stock, or purchase, redeem or otherwise acquire or
agree to acquire any shares of capital stock of HBI 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 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, (vii) except to the extent
required by existing HBI 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 HBI employee benefit plans, or establish,
adopt, enter into or amend or terminate any HBI employee benefit plan, or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
directors, officers or employees, (viii) not amend the HBI Charter or the HBI
By-Laws or alter through merger, liquidation, reorganization, restructuring or
in any other fashion the corporate structure or ownership of HBI, (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 or any corporation, partnership, joint venture,
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) except for the
Convertible Notes described in the Merger Agreement and summarized below (See
"--Convertible Notes"), 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 HBI, 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
commit to expend funds for capital expenditures other than in accordance with
current HBI 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 HBI,
(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
settle or compromise any litigation in which HBI 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 discussions with the FDA or
any other governmental entity, or (xx) not authorize
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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 HBI
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 HBI have agreed that (i) HBI
will afford Medarex access to HBI's officers, properties, offices, plants and
information as Medarex may reasonably request, (ii) Medarex and the Merger Sub
will abide by the terms of the Confidentiality Agreement dated December 18, 1995
between Medarex and HBI, and (iii) HBI 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. HBI
has agreed to use its reasonable best efforts to cause each affiliate (as
defined under Rule 144 of the Securities Act for purposes of Rule 145 of the
Securities Act) to execute prior to the closing date of the Merger a written
agreement in the form of Exhibit 4.6 to the Merger Agreement included in Annex B
attached hereto. See "The Merger--Federal Securities Law Matters." Medarex has
agreed to maintain HBI's employee benefit plans and compensation for HBI's
employees in a substantially similar fashion as previously maintained by HBI.
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 options under the former HBI stock
option plans.
NO SOLICITATIONS OF OTHER TRANSACTIONS
The Merger Agreement provides that HBI shall not nor shall HBI authorize or
permit any of its officers, directors or employees, or any investment banker,
financial advisor, attorney, accountant or other representative retained by HBI
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 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. The HBI Board may, without violating the terms of the Merger
Agreement (i) furnish information to any person 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 HBI 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 HBI's stockholders with respect to the
approval and adoption of the Merger Agreement if the HBI 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 HBI Board may, without
violating the Merger Agreement, take and disclose to HBI stockholders a position
with respect to any tender or exchange offer as contemplated by Rule 14e-2 under
the Exchange Act, or make such other disclosures to HBI stockholders as, based
upon the advice of counsel, may be required by law. HBI must immediately notify
Medarex of any negotiations, requests for information or discussions 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 HBI 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, HBI 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) 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 stock and other securities of HBI entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors of HBI ("Voting Stock"); (ii) the consolidation or merger of HBI with
or into any person (other than Medarex or any of its subsidiaries) in a
transaction in which HBI shall not be the surviving or continuing corporation;
(iii) the merger or consolidation of any person (other than Medarex or any of
its
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subsidiaries) with or into HBI in a transaction in which HBI 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; (iv) any sale or
other transfer (including by way of dividend or distribution of assets to HBI's
stockholders), in one transaction or in a series of related transactions, of all
or a substantial portion of HBI's consolidated assets or business to any person
(other than Medarex or any of its subsidiaries) or group; or (v) any licensing
or other arrangement entered into by HBI regarding the right to use, further
develop, manufacture, sell or otherwise commercialize the Immunotoxin in North
America.
INSURANCE; INDEMNIFICATION
The Merger Agreement provides that all rights to indemnification existing
in favor of the present and former officers, directors, employees and agents of
HBI as provided in the HBI Charter and the HBI By-Laws shall 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 shall 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 the individuals thereunder.
CONDITIONS TO THE MERGER
The respective obligations of Medarex and HBI 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 HBI Common Stock entitled to
vote thereon, (ii) the shares of Medarex Common Stock issuable in the Merger
shall have been authorized for listing on the Nasdaq, upon official notice of
issuance, (iii) 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 the Surviving
Corporation, shall have been filed, occurred or been obtained, (iv)
effectiveness of the Registration Statement, and (v) no injunction or other
order, legal restraint or prohibition preventing the consummation of the Merger
shall be in effect. The obligations of Medarex and Merger Sub to effect the
Merger are also subject to the conditions that (i) the representations and
warranties of HBI set forth in the Merger Agreement shall be true and correct as
of the date of the Merger Agreement except as does not have a Material Adverse
Effect (as defined below), and (ii) HBI 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 HBI. The obligation of HBI
to effect the Merger is also subject to (i) the representations and warranties
of Medarex and Merger Sub set forth in the Merger Agreement shall be true and
correct as of the date of the closing date of the Merger 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 performed and
complied with by Medarex or Merger Sub, and (iii) the opinion of counsel to HBI
to the effect that the Merger will be treated for federal income tax purposes as
a reorganization under Section 368(a) of the Code referred to in this Proxy
Statement and Prospectus shall not have been withdrawn or modified in any
material respect. For the purposes of the Merger Agreement, the term "Material
Adverse Effect" means with respect to Medarex or HBI, 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.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the stockholders of HBI (i) by mutual
consent of Medarex and HBI, (ii) by Medarex, upon any breach of any
representation, warranty, covenant or agreement of HBI 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 HBI, (iii) by HBI, 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 HBI to elect not
to consummate the Merger due to a failure of the conditions to HBI'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 HBI to Medarex, (iv) by either
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Medarex or HBI, if any permanent injunction or action by any governmental entity
shall have become final and nonappealable, (v) by either Medarex or HBI, 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 June 30, 1997, (vi) by either Medarex or HBI, if the approval of
the stockholders of HBI of the Merger Agreement and the Merger shall not have
been obtained by reason of the failure to obtain the required vote at a duly
held meeting of HBI stockholders, (vii) by either Medarex or HBI, if (a) the HBI
Board shall have approved or have recommended to the stockholders of HBI 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
of affiliates) and the HBI Board recommends that the stockholders of HBI tender
their shares in such Takeover Proposal or otherwise fails to recommend that such
stockholders 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 HBI if and only to the extent that the HBI 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 HBI
Board's fiduciary duties under applicable law, or (viii) by Medarex, in the
event of a material adverse change in the business, prospects or financial
condition of HBI caused by an event, occurrence or circumstance ("Material
Adverse Change") unanticipated and unknown by HBI as of the date of the Merger
Agreement and arising after the date of the Merger Agreement solely from facts
and circumstances not in existence as of the date of the Merger Agreement. A
Material Adverse Change shall not include any matter which Medarex knows or
should have known of or discovered or should have discovered in its due
diligence review of HBI.
In the event of termination of the Merger Agreement by either Medarex or
HBI as described above, the Merger Agreement shall become void and there will be
no liability or obligation on the part of either Medarex, HBI, 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 and the Merger failed to receive the requisite
vote for approval and adoption by the stockholders of HBI and at the time of
such meeting there shall exist a tender offer or exchange offer for not less
than a majority of the outstanding Voting Stock of HBI (a "Takeover Proposal"),
or (ii) the HBI Board approved or has recommended to the stockholders a
Transaction Proposal or has resolved to do the foregoing, or a Takeover Proposal
is commenced and the HBI Board recommends that the stockholders of HBI tender
their shares in such Takeover Proposal or has otherwise failed to recommend that
such stockholders reject such Takeover Proposal within ten business days of the
commencement thereof, then HBI shall pay to Medarex a fee of $750,000. Any cash
payment required to be made in such circumstance shall be made within sixty days
after the date that HBI enters into a definitive agreement with respect to such
Transaction Proposal or the completion of any such Takeover Proposal.
Termination of HBI's obligations shall not occur until such payment has been
made. HBI 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 HBI's payment obligations under
this provision and to pay any legal expenses incurred by Medarex in connection
with the enforcement thereof.
In addition, the Merger Agreement provides that if the Merger Agreement
shall be terminated by Medarex due to a Material Adverse Change, Medarex shall
be obligated to purchase a number of shares of HBI Common Stock having a value
equal to $750,000 at a price per share of HBI Common Stock of $.9375, payable at
the option of Medarex in cash or registered and freely tradeable shares of
Medarex Common Stock having a market value of $750,000. In the event that
Medarex elects to pay such amount in Medarex Common Stock, HBI agrees not to
transfer, convey, hypothecate, sell or otherwise dispose of more than 10,000
shares of Medarex Common Stock in any five consecutive trading days.
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 HBI; provided that, after approval
of the Merger Agreement by the stockholders of HBI, no amendment may be
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made that would reduce the amount or change the type of consideration into which
each share of HBI Common Stock shall be converted upon consummation of the
Merger. The Merger Agreement may not be amended except by an instrument in
writing signed on behalf of Medarex, Merger Sub and HBI.
At any time prior to the Effective Time, either Medarex or HBI 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 document 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.
Any such extension or waiver will only be valid if set forth in a writing signed
by the party to be bound thereby.
CONVERTIBLE NOTES
On December 9, 1996, Medarex loaned $500,000 to HBI evidenced by a
Convertible Note, which note was amended and restated as of the execution of the
Merger Agreement. Pursuant to the Merger Agreement, Medarex loaned an
additional $250,000 to HBI on January 15, 1997, evidenced by a Convertible Note
with substantially similar terms to the initial note (together, the notes are
referred to as the "Notes"). Principal and interest on the Notes are subject to
prepayment in whole or in part without penalty; however, HBI must give five days
notice to Medarex prior to any prepayment.
Based on the termination circumstances described under "The Merger
Agreement--Termination," principal and all accrued interest on the Notes are:
(i) due and payable in 60 days after termination of the Merger Agreement by
Medarex due to a breach by HBI, (ii) automatically converted into HBI Common
Stock at a rate of $1.00 per share as of the date of termination of the Merger
Agreement by HBI for a breach by Medarex, if an injunction preventing the Merger
is final and nonappealable or if the Merger is not consummated by June 30, 1997,
(iii) due and payable in full 120 days after the termination of the Merger
Agreement if the HBI stockholders do not approve the Merger Agreement at the
Special Meeting; provided, however, that if a Takeover Proposal exists at the
time of the Special Meeting, the principal and interest are due and payable at
the time the $750,000 payment is required as detailed above in the second
paragraph of "The Merger Agreement--Expenses and Termination Fee," (iv) due and
payable at the time the $750,000 payment is required as detailed above in the
second paragraph of "The Merger Agreement--Expenses and Termination Fee" after
termination of the Merger Agreement by Medarex or HBI due to the exercise of the
HBI Board's fiduciary duties, or (v) automatically converted into HBI Common
Stock at a rate of $0.9375 upon termination of the Merger Agreement by Medarex
for a Material Adverse Change.
Other than as set forth above, Medarex has the right to convert the Notes
into HBI Common Stock at a price of $1.00 per share at any time. The HBI Common
Stock issuable upon conversion of the Notes is subject to adjustment upon
certain events, including among others, a capital reorganization or
reclassification of the HBI Common Stock, declaration of a stock dividend on the
HBI Common Stock, the issuance of additional securities to all holders of HBI
Common Stock or the distribution of assets of HBI to its stockholders. In
addition, Medarex has two demand rights to require HBI to register the HBI
Common Stock issued upon conversion of the Notes and has "piggyback"
registration rights if HBI proposes to register any HBI Common Stock under the
Securities Act for sale to the public.
LICENSE AGREEMENT
The Notes are secured by the grant by HBI to Medarex of an exclusive,
transferable, perpetual license to use, further develop, manufacture, sell and
otherwise commercialize the Immunotoxin in North America. The license is held
in escrow pending the payment or conversion in full of the Notes, at which time
the license will be released to HBI, or the default under the Notes by HBI, at
which time the license will be released to Medarex. If the Notes are not paid
in full at the specified time as detailed above, Medarex shall be able to
exercise its rights under the license. In that regard, should the HBI
stockholders fail to approve and adopt the Merger Agreement, HBI shall have 120
days in which to arrange financing to repay the $750,000 principal amount of the
Notes plus all accrued interest. If the HBI stockholders fail to vote to
approve the Merger Agreement, it is unlikely that such a financing source could
be located within the specified time period and therefore, HBI would lose the
rights to use and market the Immunotoxin in North America.
THE HBI BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE
THE MERGER AGREEMENT AND THE MERGER.
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SELECTED INFORMATION CONCERNING MEDAREX
GENERAL
Medarex is an antibody-based biopharmaceutical 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 three
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 six products in human clinical trials for the treatment of
breast cancer, head and neck cancer, and a variety of other solid tumor cancers,
leukemia and AIDS. Medarex is developing three of its products through
strategic alliances with Ciba-Geigy Limited, of Basel, Switzerland ("Ciba"),
Merck KgaA, of Darmstadt, Germany ("E.Merck") and Centeon L.L.C. ("Centeon"), a
Delaware limited liability company formed as a joint venture of Hoechst AG and
Rhone-Poulenc Rorer, Inc.
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.
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 May, 1995, Medarex entered into a strategic alliance with Ciba pursuant
to which Ciba 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 and other
tumors. MDX-210 is currently in Phase I/II clinical trials. In 1994, Medarex
entered into a 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 lung and
bladder tumors. MDX-447 is currently in Phase I/II clinical trials. Medarex is
currently in discussions with biotechnology and pharmaceutical companies and
academic institutions to establish collaborations for the creation and
development of additional bispecific products. In addition, in April 1996,
Medarex entered into a strategic alliance with Centeon to develop and market
MDX-33, Medarex's product for the treatment of ITP, an autoimmune condition in
which a person's platelets are destroyed by his own immune system. MDX-33 may
diminish the triggering function on various killer cells, potentially
diminishing the autoimmune activity. MDX-33 is currently in Phase I clinical
trials. 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.
Additional information concerning Medarex and its subsidiaries is contained
in Medarex's Annual Report on Form 10-K for the year ended December 31, 1995,
its Quarterly Reports for the periods ended March 31, 1996, June 30, 1996 and
September 30, 1996 and its other public filings. See "Available Information"
and "Incorporation by Reference."
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DESCRIPTION OF MEDAREX CAPITAL STOCK
Medarex Common Stock. Medarex is authorized to issue 40,000,000 shares of
Medarex Common Stock. As of January 24, 1997, there were 17,594,992 shares of
Medarex Common Stock issued and outstanding and Medarex had approximately ____
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 stockholders. 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 liquidation, 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 and upon exercise of the Medarex Warrants) are, or will be upon
issuance, fully paid and non-assessable.
Medarex Preferred Stock. Medarex's authorized preferred stock consists 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, preferences, 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 stockholders. 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 not 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 stockholders 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
NJ Protection Act, which provides that a resident New Jersey corporation such as
Medarex may not engage in certain Business Combinations with any Interested
Stockholder, as such terms are defined therein, for a period of five years
following the date (the "Acquisition Date") that such Interested Stockholder
became 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 the Acquisition Date, or (ii) the holders of two-thirds
(66 2/3%) of the voting stock of Medarex, excluding the shares of the Interested
Stockholder, 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 Stockholder 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 of 66 2/3% of the outstanding voting stock of Medarex excluding the
shares of any Interested Stockholder, or (iii) the Board of Directors of Medarex
approved the transaction prior to such Interested Stockholder'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 Stockholder Rights--Stockholder Protection Legislation."
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SHARES ELIGIBLE FOR FUTURE SALE
As of January 24, 1997, Medarex had 17,594,992 shares of Common Stock
outstanding, without taking into account shares of Common Stock issuable upon
exercise of outstanding options and warrants. Medarex has filed registration
statements on Form S-3 under the Securities Act relating to 1,210,888 shares of
Common Stock being offered by certain selling security holders. Such shares of
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 17,594,992 shares of 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 of
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' transactions 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 Common
Stock or the average weekly trading volume of the 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 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) and 1996 Stock Option Plan (350,000 shares).
Shares issued under such plans other than shares issued to affiliates of
Medarex, will be freely tradeable in the public market. In addition, upon
completion of the Merger, Medarex intends to file a registration statement under
the Securities Act on Form S-8 to register up to 145,248 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
Merger have been registered pursuant to the Registration Statement and are
covered by this Prospectus. Said shares will be freely tradeable without
restrictions 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
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 Common
Stock and the individual circumstances of the holders thereof. Nevertheless,
sales of substantial amounts of the 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."
SELECTED INFORMATION CONCERNING HBI
GENERAL
HBI is engaged primarily in the research and development of monoclonal
antibody and other biopharmaceutical products to prevent secondary cataract and
treat glaucoma, disorders that impair or destroy human vision. HBI's principal
expertise is its monoclonal antibody-based immunoconjugate technology, which
involves the linking of a monoclonal antibody
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to another substance such as a drug or an anti-proliferative agent. HBI has no
products approved for sale by the FDA and its current product candidates are not
expected to generate significant revenues, if any, for a number of years.
HBI was incorporated in Delaware in 1984 and commenced substantial
operations in 1986. A total of approximately $38 million has been raised on
behalf of HBI and its affiliates since 1986. To date, the majority of HBI's
efforts have been directed toward development of the Immunotoxin for the
prevention of secondary cataract. A Phase I human clinical trial has been
completed for this product and patient enrollment in a Phase I/II human clinical
trial was completed in July 1994. Interim analyses of the data from the Phase
I/II clinical trial have revealed statistically significant differences in rates
of lens capsule opacification between patients receiving the 50-unit dose and
patients receiving the placebo at six and twelve months post cataract surgery.
Patient enrollment in a Phase II human clinical study of patients requiring
cataract surgery in both eyes was completed in January 1996. In addition, HBI
is researching drug-conjugates to enhance the success of glaucoma filtering
surgery. All other research activities were curtailed as a result of spending
reduction plan implemented February 1, 1995.
Effective December 29, 1995, HBI and Santen entered into a Codevelopment
and License Agreement covering the marketing in Japan of the Immunotoxin to
prevent the formation of secondary cataract. To maintain exclusive marketing
rights, Santen is required to provide $7,750,000 over the next six years to
support HBI's development of the Immunotoxin. Santen is responsible for
development costs related to obtaining Japanese regulatory approval. Once the
Immunotoxin is approved for marketing in Japan, Santen will purchase the product
from HBI and will pay royalties on sales. HBI received $250,000 in November
1995 from Santen under an Option Agreement relating to the Codevelopment and
License Agreement, and $1,750,000 of the $7,750,000 was paid as of December 31,
1996. It is expected that Santen will pay $1,000,000 of the $7,750,000 during
1997. Santen may elect not to make any scheduled payment, but in such event, the
license may be made non-exclusive or terminated by HBI.
During 1995 and 1996, payments made by Santen were funding HBI's
activities, but such payments fell short of funding requirements beginning in
the third quarter of 1996. Accordingly, HBI sought funding from a variety of
sources and considered a number of financing alternatives. In connection with
the Merger, Medarex has loaned HBI an aggregate of $750,000 to be used
exclusively for operating expenses in the ordinary course of HBI's business.
See "The Merger--Background of the Merger" for a description of HBI's efforts to
secure such financing and see "The Merger--Convertible Notes" for a description
of the loans made by Medarex to HBI pursuant to the Merger Agreement.
Additional information concerning HBI is contained in HBI's Annual Report
on Form 10-K for the year ended December 31, 1995, its Quarterly Reports for the
periods ended March 31, 1996, June 30, 1996 and September 30, 1996 and its other
public filings. See "Available Information" and "Incorporation by Reference."
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SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of January 24, 1997, the name of each
person who, to the knowledge of HBI's management, beneficially owned more than
5% of the record shares of HBI Common Stock outstanding at such date, the number
of shares owned by each such person, and the percentage of the outstanding
shares represented thereby. The number of shares shown as beneficially owned is
determined under rules of the Commission, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares as to which the person has the sole or
shared voting power or investment power and also any shares which the person has
the right to acquire within 60 days through the exercise of any stock option,
warrant or other right.
BENEFICIAL OWNERSHIP OF COMMON STOCK BY PRINCIPAL HOLDERS
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND NATURE OF
ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS
---------------- ---------- -----------
<S> <C> <C>
LBI Group, Inc.
c/o Lehman Brothers Inc.
World Financial Center
200 Vesey Street
New York, NY 10184 1,017,360(1) 16.53%
CIM Fund Managers Limited
c/o Colonial Mutual Life Assurance Society Limited
Dominican House, 4 Priory Court, Pilgrim Street
London, EC4V 6DQ England UK 771,600(2) 13.68%
Victor K. Atkins, Jr.
33 Flying Point Road
Southampton, NY 11968 628,876(3) 10.78%
</TABLE>
- ----------------------------
(1) Includes 500,341 shares of HBI Common Stock and 517,019 immediately
exercisable HBI Warrants held by LBI Group, Inc., an affiliate of Lehman
Brothers Inc.
(2) Includes 316,000 shares owned by Co-op Pension Funds, 300,000 shares owned
by Co-op Wholesale Society and 155,000 shares owned by Co-op Bank Pension
Fund.
(3) Includes (i) 434,435 shares of HBI Common Stock, (ii) 172,441 immediately
exercisable HBI Warrants; and (iii) 22,000 fully vested options to purchase
shares of HBI Common Stock.
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The following table sets forth the beneficial ownership of the HBI
Common Stock as of January 24, 1997, as to (i) all directors and nominees, (ii)
the executive officers of HBI, and (iii) the directors and executive officers as
a group. Beneficial ownership is determined in the same manner as described
above.
BENEFICIAL OWNERSHIP OF HBI COMMON STOCK BY DIRECTORS,
DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
BENEFICIAL OUTSTANDING
NAME OF OWNERSHIP OF COMMON
BENEFICIAL OWNER HBI COMMON STOCK(1) STOCK
---------------- --------------------- -----------
<S> <C> <C>
J. Russell Denson..................... 234,917(2) 4.00%
William D. Gutermuth.................. 57,500(3) 1.01%
Robert S. Lemer....................... 40,000(4) *
A. Douglas Peabody.................... 102,132(5) 1.78%
Donald S. Clark, Ph.D................. 90,320(6) 1.58%
All directors and executive officers
as a group (6 persons)............. 605,994(7) 9.74%
</TABLE>
- -------------------------
* Less than 1%
(1) Except as indicated in the footnotes to this table, the stockholders named
in the table have sole voting and investment power with respect to all
shares of HBI Common Stock shown as beneficially owned by them, subject to
community property laws where applicable.
(2) Includes (i) 300 shares of HBI Common Stock owned by family members as to
which Mr. Denson disclaims beneficial ownership; (ii) 4,517 immediately
exercisable HBI Warrants; (iii) 100 immediately exercisable warrants owned
by a family member as to which Mr. Denson disclaims beneficial ownership;
(iv) 215,000 fully vested options to purchase shares of HBI Common
Stock, and (v) 12,500 options that will vest upon consummation of the
Merger.
(3) Includes 45,000 fully vested options to purchase shares of HBI Common
Stock and 5,000 options that will vest upon consummation of the Merger.
(4) Includes 35,000 fully vested options to purchase shares of HBI Common
Stock and 5,000 options that will vest upon consummation of the Merger.
(5) Includes 13,927 immediately exercisable HBI Warrants, 75,000 fully
vested options to purchase shares of HBI Common Stock and 5,000 options
that will vest upon consummation of the Merger.
(6) Includes 3,220 immediately exercisable HBI Warrants, 77,730 fully vested
options to purchase shares of HBI Common Stock and 7,270 options
that will vest upon consummation of the Merger.
(7) Includes 22,341 immediately exercisable warrants, 518,560 fully vested
options to purchase shares of HBI Common Stock and 43,940 options
that will vest upon consummation of the Merger.
COMPARISON OF STOCKHOLDER RIGHTS
The following is a summary of material differences between the rights of
holders of Medarex Common Stock and the rights of holders of HBI Common Stock.
Medarex is incorporated under the laws of the State of New Jersey and,
accordingly, the rights of stockholders are governed by the Medarex Charter, the
Medarex By-laws and the NJCA. HBI is incorporated under the laws of the State of
Delaware and, accordingly, the rights of holders of HBI Common Stock are
governed by the HBI Charter, the HBI By-laws and the DGCL. This summary does not
purport to be complete and is qualified in its entirety by reference to the NJCA
and the DGCL, which statutes may change from time to time, and the Medarex
Charter and the Medarex By-laws, which also may be changed.
GENERAL STOCKHOLDER VOTE REQUIREMENTS
Unless otherwise specified in a Delaware corporation's certificate of
incorporation, the DGCL generally provides that an amendment to the certificate
of incorporation, a sale or other disposition of all or substantially all of a
corporation's assets,
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or a merger or consolidation of a corporation with another corporation requires
the affirmative vote of a majority of the outstanding stock entitled to vote
thereon. The Medarex Charter and the Medarex By-Laws presently do not contain a
provision specifying a greater vote in such circumstances (other than as set
forth below with respect to the NJ Protection Act).
Under the DGCL, if the shares of a corporation are divided into classes, the
holders of the outstanding shares of each class are entitled to vote as a class
upon any proposed amendment to the certificate of incorporation (whether or not
entitled to vote thereon by the provisions of the certificate of incorporation)
if the amendments increase or decrease the aggregate number of authorized shares
of such class, increase or decrease the par value of shares of such class, or
alter or change the powers, preferences, or special rights of the shares of such
class so as to adversely affect them. However, the number of authorized shares
of any such class or classes of stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
holders of a majority of the stock of the corporation entitled to vote (without
a class vote) if the certificate of incorporation so provides. Medarex's
Charter does not provide for such increase or decrease of the number of
authorized shares.
CUMULATIVE VOTING
Under both the DGCL and the NJCA, stockholders do not have cumulative voting
rights in the election of directors unless the certificate of incorporation so
provides. Neither the HBI Charter nor the Medarex Charter provide for
cumulative voting.
RIGHTS OF DISSENTING STOCKHOLDERS
Generally, stockholders of a Delaware corporation who dissent from a merger
or consolidation of the corporation are entitled to appraisal rights. There
are, however, no statutory rights of appraisal with respect to stockholders of a
corporation whose shares are either (i) listed on a national securities exchange
or designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 holders, where such stockholders receive only (a)
shares of stock of the corporation surviving or resulting from the merger of
consolidation or shares of stock of any other corporation which, at the
effective date of the merger or consolidation, will be either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 stockholders or (b) cash in
lieu of fractional interests therein. Delaware law does not provide appraisal
rights to stockholders who dissent from the sale of all or substantially all of
the corporation's assets unless the certificate of incorporation provides
otherwise. Since the exceptions from the Delaware statutory right of appraisal
apply to the Merger, stockholders of HBI do not 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.
STOCKHOLDERS' CONSENT TO CORPORATE ACTION
Unless otherwise provided in the certificate of incorporation, the DGCL
provides that any corporate action or authorization which requires the
affirmative vote of stockholders 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.
Except as otherwise provided by the certificate of incorporation (and
Medarex's Charter presently contains no such restrictions), the NJCA permits any
action required 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
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<PAGE>
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.
PREEMPTIVE RIGHTS
Under both the DGCL and the NJCA, stockholders have only such preemptive
rights as may be provided in their respective certificates of incorporation.
Neither the HBI Charter nor the Medarex Charter provide stockholders with
preemptive rights.
DIVIDENDS AND OTHER DISTRIBUTIONS
Subject to any restrictions contained in a corporation's certificate of
incorporation, the DGCL generally provides that a corporation may declare and
pay dividends out of surplus (defined as net assets minus stated capital) or,
when no surplus exists, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. The HBI Charter does not
include any such restrictions.
Unless there are other restrictions contained in a New Jersey corporation's
certificate of incorporation (and the Medarex Charter 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.
BY-LAWS
Under the DGCL, the authority to adopt, amend, or repeal the by-laws of a
Delaware corporation is held exclusively by the stockholders, unless such
authority is conferred upon the board of directors in the certificate of
incorporation. The HBI Charter confers this authority on both the board of
directors and the stockholders and the affirmative vote of at least 66 2/3
percent of the voting power of all of the then outstanding shares of HBI Common
Stock is required for such action.
The board of directors of a New Jersey corporation has the power to adopt,
amend, or repeal the corporation's by-laws, unless such powers are reserved in
the certificate of incorporation to the shareholders. The Medarex Charter does
not reserve such powers to its shareholders.
DIRECTORS
Both the HBI Charter and the Medarex Charter provide for directors to be
classified into three classes, as nearly equal in number as possible, with each
group to serve a three-year term. An HBI director may be removed for cause by
the affirmative vote of at least 80% of the outstanding HBI Common Stock or by a
majority of the HBI Board. The provisions of the HBI Charter providing for
classification and removal of directors may be amended only by the affirmative
vote of the holders of at least 80% of the HBI Common Stock unless such
amendment is declared advisable by at least 75% of the HBI Board. There are no
such restrictions on removal of directors or amendment of the classification
provision in the Medarex Charter.
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 DGCL, applies to directors, but not officers. Both
the HBI Charter and the Medarex Charter eliminate or provide for such limits to
a director's liability.
Under Delaware law, a director cannot be relieved of liability (i) for
breaches of the duty of loyalty, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
the payment of
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<PAGE>
unlawful dividends or expenditure of funds for unlawful stock purchases or
redemptions, or (iv) for transactions from which such director derived an
improper personal benefit.
Under New Jersey law, 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.
STOCKHOLDER PROTECTION LEGISLATION
Section 203 of the DGCL ("Section 203"), in general, prohibits a "business
combination" between a corporation and an "interested stockholder" within three
years of the date such stockholder became an "interested stockholder," unless
(i) prior to such date the board of directors of the corporation approved either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, or (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 35% of the voting stock of the corporation
outstanding at the time the transaction commenced, exclusive of shares owned by
directors who are also officers and by certain employee stock plans, or (iii)
after such date, the business combination is approved by the board of directors
and authorized by the affirmative vote at a stockholders' meeting of at least 66
2/3% of the outstanding voting stock which is not owned by the interested
stockholder. The term "business combination" is defined to include, among
other transactions between the interested stockholder and the corporation or any
direct or indirect majority-owned subsidiary thereof, a merger or consolidation;
a sale, pledge, transfer or other disposition (including as a part of
dissolution) of assets having an aggregate market value equal to 10% or more of
either the aggregate market value of all assets of the corporation on a
consolidated basis or the aggregate market value of all the outstanding stock of
the corporation; certain transactions that would increase the interested
stockholder's proportion of share ownership of the stock of any class or series
of the corporation or such subsidiary; and any receipt by the interested
stockholder of the benefit of any loans, advances, guarantees, pledges or other
financial benefits provided by or through the corporation or any such
subsidiary. In general, and subject to certain exceptions, an "interested
stockholder" is any person who is the owner of 15% or more of the outstanding
voting stock (or, in the case of a corporation with classes of voting stock with
disparate voting power, 15% or more of the voting power of the outstanding
common stock) of the corporation, and the affiliates and associates of such
person. The term "owner" is broadly defined to include any person that
individually or with or through its affiliates or associates, among other
things, beneficially owns such stock or has the right to acquire such stock
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement or understanding or upon the exercise of
warrants or options or otherwise or has the right to vote such stock pursuant to
any agreement or understanding, or has an agreement or understanding with the
beneficial owner of such stock for the purpose of acquiring, holding, voting or
disposing of such stock. The restrictions of Section 203 do not apply to
corporations that have elected, in the manner provided therein, not to be
subject to such Section or which do not have a class of voting stock that is
listed on a national securities exchange or authorized for quotation on an
interdealer quotation system of a registered national securities association or
held of record by more than 2,000 stockholders. The HBI Charter does make such
an election.
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 stockholder, the business
combination is approved by the board prior to the interested stockholder'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 stockholder 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
stockholder's percentage ownership in the resident domestic corporation; and any
receipt by an interested stockholder of the benefit of any loans,
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<PAGE>
advances, guarantees, pledges or certain other financial benefits provided by or
through the corporation. The NJ Protection Act also prohibits the interested
stockholder 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 Charter 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 stockholders;" 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
Charter) and the holders of a majority of the issued and outstanding voting
stock of Medarex.
LEGAL OPINION
The validity of the shares of Medarex Common Stock offered by this Proxy
Statement and Prospectus will be passed upon for Medarex by Satterlee Stephens
Burke & Burke LLP, New York, New York.
EXPERTS
The financial statements of Medarex at December 31, 1994 and 1995, and for
each of the three years in the period ended December 31, 1995 and the period
from July 15, 1987 (inception) to December 31, 1995 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 HBI appearing in the HBI Annual Report on Form
10-K for each of the three years in the period ended December 31, 1995 have been
audited by Arthur Andersen LLP, independent public accountants as set forth in
their report thereon included therein and incorporated herein by reference in
reliance upon such report of said firm and upon the authority of said firm as
experts in accounting and auditing. Reference is made to such report which
contains an explanatory paragraph that describes the uncertainties that raise
substantial doubt about HBI's ability to continue as a going concern.
SOLICITATION OF PROXIES
HBI and Medarex will share equally the expenses in connection with the
printing and mailing of this Proxy Statement and Prospectus. The costs of
solicitation of proxies will be borne by HBI. HBI will reimburse brokers,
fiduciaries, custodians and other nominees for reasonable out of pocket expenses
incurred in sending this Proxy Statement and Prospectus and other proxy
materials to, and obtaining instructions relating to such materials from,
beneficial owners of stock. HBI stockholder proxies may be solicited by
directors, officers, regular employees or agents of HBI, in person, by letter or
by telephone or by telegram.
HBI will also reimburse custodians, nominees and fiduciaries for forwarding
proxies and proxy materials to the beneficial owners of their stock in
accordance with regulations of the Commission, the AMEX and the Nasdaq.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Portions of this Proxy Statement and Prospectus include forward looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Although HBI and Medarex believe that the expectations
reflected in such forward looking statements are based upon reasonable
assumptions, they can give no assurance that their expectations will be
achieved. Important factors that could cause actual results to differ
materially from HBI's and Medarex's expectations are disclosed in conjunction
with the forward looking statements included herein ("Cautionary Disclosures").
Subsequent written and oral forward looking statements attributable to HBI,
Medarex or persons acting on their behalf are expressly qualified in their
entirety by the Cautionary Disclosures.
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AVAILABLE INFORMATION
HBI and Medarex are subject to the reporting requirements of the
Exchange Act, and in accordance therewith, are required to file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected, without charge, and copied at
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at: Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048. Additionally, copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Copies of such material may also be
accessed through the Commission's Internet web site at http://www.sec.gov.
Medarex Common Stock is listed and traded on the Nasdaq. Such reports, proxy
statements and other information of Medarex may also be inspected at the offices
of Nasdaq, 1735 K Street, N.W., Washington, D.C. 20006. HBI Common Stock is
listed and traded on the AMEX. Such reports, proxy statements and other
information of HBI may be inspected at the offices of the AMEX at 86 Trinity
Place, New York, New York 10006. If the Merger is consummated, Medarex will
continue to file reports, proxy statements and other information with the
Commission pursuant to the Exchange Act, but HBI will no longer be subject to
the reporting requirements of the Exchange Act.
Medarex has filed with the Commission the Registration Statement under
the Securities Act with respect to shares of Medarex Common Stock to be issued
pursuant to the Merger Agreement. This Proxy Statement and Prospectus, which is
filed as part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain items of which are omitted in accordance with the
rules and regulations of the Commission. Statements made in this Proxy Statement
and Prospectus concerning the contents of any contract, agreement or other
document referred to are summaries of the terms of such contract, agreement or
other document and are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is hereby made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. Copies of all or any portion of
the Registration Statement may be obtained from the Public Reference Section of
the Commission, upon payment of the prescribed fees.
A copy of HBI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 and HBI's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1996, accompany this Proxy Statement and Prospectus. Such
reports contain financial statements, prepared in conformity with generally
accepted accounting principles, for the fiscal year ended December 31, 1995 and
the fiscal quarter ended September 30, 1996, respectively, and certain other
information and should be read in connection with this Proxy Statement and
Prospectus.
A copy of Medarex's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 and Medarex's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1996, accompany this Proxy Statement and
Prospectus. Such reports contain financial statements, prepared in conformity
with generally accepted accounting principles, for the fiscal year ended
December 31, 1995 and the fiscal quarter ended September 30, 1996, respectively,
and certain other information and should be read in connection with this Proxy
Statement and Prospectus.
INCORPORATION BY REFERENCE
THIS PROXY STATEMENT AND PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS
RELATING TO HBI ARE AVAILABLE UPON REQUEST FROM HOUSTON BIOTECHNOLOGY
INCORPORATED, 3608 RESEARCH FOREST DRIVE, THE WOODLANDS, TEXAS 77381, ATTENTION:
ANN MURRAY, TELEPHONE (713) 363-0999. DOCUMENTS RELATING TO MEDAREX ARE
AVAILABLE UPON REQUEST FROM MEDAREX, INC., 1545 ROUTE 22 EAST, ANNANDALE, NEW
JERSEY 08801, ATTENTION: MICHAEL A. APPLEBAUM, TELEPHONE (908) 713-6001. TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY
FEBRUARY 15, 1997. COPIES OF DOCUMENTS THAT ARE REQUESTED WILL BE SENT BY
FIRST-CLASS MAIL, POSTAGE PAID.
Medarex and HBI hereby undertake to provide without charge to any
beneficial owner of HBI Common Stock to whom a copy of this Proxy Statement and
Prospectus 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
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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 HBI documents filed with the Commission (File No. 1-
12210) are incorporated by reference herein:
(i) HBI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 10-K, which includes the report of
independent public accountants on the financial statements
included therein, said report containing an explanatory
paragraph that describes the uncertainties that raise
substantial doubt about HBI's ability to continue as a going
concern;
(ii) HBI's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1996;
(iii) HBI's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1996;
(iv) HBI's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1996;
(v) the portions of the Proxy Statement for the Annual Meeting of
Stockholders held on June 20, 1996 that have been incorporated
by reference in HBI's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995; and
(vi) all other documents filed by HBI pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Proxy Statement and Prospectus and prior to the date of
the HBI Special Meeting.
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, 1995;
(ii) Medarex's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1996;
(iii) Medarex's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1996;
(iv) Medarex's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996;
(v) the portions of the Proxy Statement for the Annual Meeting of
Stockholders held on May 16, 1996 that have been incorporated
by reference in Medarex's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995; and
(vi) 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 Proxy Statement and Prospectus and prior to the
date of the HBI Special Meeting.
Any statement contained in this Proxy Statement and Prospectus or in a
document incorporated by reference in this Proxy Statement and Prospectus will
be deemed to be modified or superseded for purposes of this Proxy Statement and
Prospectus to the extent that a statement contained in this Proxy Statement and
Prospectus or in any other subsequently filed document which is also
incorporated by reference in this Proxy Statement and Prospectus modifies or
supersedes such statement. Any statement so modified or superseded will not be
deemed, except as modified or superseded, to constitute a part of this Proxy
Statement and Prospectus.
DATE FOR RECEIPT OF PROPOSALS
Pursuant to Rule 14a-8 under the Securities and Exchange Act of 1934,
as amended, the former stockholders of HBI (as stockholders of Medarex) may
present proper proposals for inclusion in Medarex's proxy statement for
consideration at its Annual Meeting of Stockholders by submitting proposals to
Medarex in a timely manner. To be so included for the 1998
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Annual Meeting, stockholder proposals must be received by Medarex by December 1,
1997, and must otherwise comply with the requirements of Rule 14a-8.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
One or more representatives of Arthur Andersen LLP, independent public
accountants for HBI, are expected to be present at the Special Meeting, will
have an opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
OTHER MATTERS
It is not intended that any business other than the proposals
described above will be presented at the Special Meeting. With respect, however,
to any other matters or proposals that may properly come before the Special
Meeting, it is the intention of the persons named as proxies in any proxy
solicited hereunder to vote such proxy in accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS OF
HOUSTON BIOTECHNOLOGY INCORPORATED
J. Russell Denson
President
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<PAGE>
----------------
AGREEMENT AND PLAN OF MERGER
AMONG
MEDAREX, INC.,
MEDAREX ACQUISITION CORP.
AND
HOUSTON BIOTECHNOLOGY INCORPORATED
DATED: DECEMBER 18, 1996
----------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<C> <S> <C>
AGREEMENT AND PLAN OF MERGER.......................................... A-1
Article I The Merger.................................................. 1
Section 1.1 The Merger........................................... 1
Section 1.2 Closing.............................................. 1
Section 1.3 Effective Time of the Merger......................... 1
Section 1.4 Effects of the Merger................................ 1
Section 1.5 Certificate of Incorporation; By-Laws................ 1
Section 1.6 Directors and Officers............................... 2
Article II Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates................... 2
Section 2.1 Effect on Capital Stock.............................. 2
Section 2.2 Exchange of Certificates............................. 3
Section 2.3 Assumption of Options and Warrants................... 4
Article III Representations and Warranties............................ 5
Section 3.1 Representations and Warranties of the Company........ 5
Section 3.2 Representations and Warranties of Parent and Merger
Sub.................................................. 12
Article IV Conduct of Business Pending the Merger; Other Covenants.... 16
Section 4.1 Conduct of Business of the Company Pending the
Merger............................................... 16
Section 4.2 Conduct of Business of Merger Sub.................... 17
Section 4.3 Stockholders' Meeting................................ 17
Section 4.4 Preparation of Form S-4 and the Proxy
Statement/Prospectus................................. 18
Section 4.5 Access to Information; Confidentiality............... 18
Section 4.6 Affiliates........................................... 18
Section 4.7 No Solicitation...................................... 18
Section 4.8 Employee Benefits Matters............................ 19
Section 4.9 Directors' and Officers' Indemnification and
Insurance............................................ 20
Section 4.10 Further Action; Reasonable Best Efforts.............. 20
Section 4.11 Notification of Certain Matters...................... 20
Section 4.12 Public Announcements................................. 20
Section 4.13 Tax Free Reorganization Treatment.................... 21
Section 4.14 Rule 144 Information................................. 21
Section 4.15 Loan to Company...................................... 21
Article V Conditions of Merger........................................ 21
Section 5.1 Conditions to Obligation of Each Party to Effect the
Merger............................................... 21
Section 5.2 Conditions to Obligations of Parent and Merger Sub... 21
Section 5.3 Conditions to Obligations of the Company............. 22
Article VI Termination, Amendment and Waiver.......................... 22
Section 6.1 Termination.......................................... 22
Section 6.2 Effect of Termination................................ 23
Section 6.3 Fees and Expenses.................................... 23
Section 6.4 Amendment............................................ 24
Section 6.5 Waiver............................................... 25
</TABLE>
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<TABLE>
<S> <C> <C>
Article VII General Provisions............................................. 25
Section 7.1 Non-Survival of Representations, Warranties and Agreements.. 25
Section 7.2 Notices..................................................... 25
Section 7.3 Certain Definitions......................................... 26
Section 7.4 Severability................................................ 26
Section 7.5 Entire Agreement; Assignment................................ 27
Section 7.6 Parties in Interest......................................... 27
Section 7.7 Governing Law............................................... 27
Section 7.8 Consent to Jurisdiction..................................... 27
Section 7.9 Headings.................................................... 27
Section 7.10 Counterparts................................................ 27
</TABLE>
EXHIBITS
1.3 Certificate of Merger
4.6 Affiliates Letter
ii
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<TABLE>
<CAPTION>
TERM PAGE NUMBER
---- -----------
<S> <C>
"Additional Loan".................................................. 21
"Agreement"........................................................ 1
"Business Combination"............................................. 24
"Certificate of Merger"............................................ 1
"Certificates"..................................................... 3
"Closing".......................................................... 1
"Closing Date"..................................................... 1
"Code"............................................................. 1
"Company".......................................................... 1
"Company By-laws".................................................. 2
"Company Certificate of Incorporation"............................. 2
"Company Common Stock"............................................. 2
"Company Non-Plan Options"......................................... 5
"Company Options".................................................. 4
"Company Plans".................................................... 9
"Company Preferred Stock".......................................... 5
"Company Securities"............................................... 6
"Company Warrants"................................................. 4
"Confidentiality Agreement"........................................ 18
"Consents"......................................................... 21
"Convertible Note"................................................. 6
"DGCL"............................................................. 1
"Effective Time"................................................... 1
"Environmental Laws"............................................... 12
"ERISA"............................................................ 9
"Exchange Act"..................................................... 7
"Exchange Agent"................................................... 3
"Exchange Fund".................................................... 3
"Exchange Ratio"................................................... 2
"FDA".............................................................. 7
"Form S-4"......................................................... 7
"Fractional Share Payment"......................................... 2
"Governmental Entity".............................................. 7
"Hazardous Substance".............................................. 12
"Indemnified Parties".............................................. 20
"Intellectual Property"............................................ 11
"License Agreement"................................................ 21
"Material Adverse Change".......................................... 23
"Material Adverse Effect" (For the Company)........................ 5
"Material Adverse Effect" (For Parent and Merger Sub).............. 13
"Merger"........................................................... 1
"Merger Consideration"............................................. 2
"Merger Sub"....................................................... 1
"NASD"............................................................. 14
"NASDAQ"........................................................... 2
"Notes"............................................................ 6
"Parent"........................................................... 1
"Parent Common Shares"............................................. 2
"Parent Preferred Shares".......................................... 13
"Parent SEC Reports"............................................... 14
"Plans"............................................................ 4
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE NUMBER
---- -----------
<S> <C>
"Proxy Statement/Prospectus"....................................... 7
"Purchase Price"................................................... 24
"Requisite Regulatory Approvals"................................... 21
"Returns".......................................................... 10
"Representatives".................................................. 18
"SEC".............................................................. 7
"SEC Reports"...................................................... 7
"Securities Act"................................................... 7
"Specified Contracts".............................................. 12
"Stockholder's Meeting"............................................ 17
"Surviving Corporation"............................................ 1
"Takeover Proposal"................................................ 23
"Tax".............................................................. 11
"Transaction Proposal"............................................. 19
"Voting Stock"..................................................... 24
"1996 10-Q's"...................................................... 7
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated December 18, 1996 (the "Agreement"),
among Medarex, Inc., a New Jersey corporation (the "Parent"), Medarex
Acquisition Corp., a Delaware corporation and a direct wholly-owned subsidiary
of Parent ("Merger Sub"), and Houston Biotechnology Incorporated, a Delaware
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 in 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, 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:
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 General Corporation Law of
the State of Delaware (the "DGCL"), at the Effective Time (as defined in
Section 1.3 below), the Merger Sub shall be merged with and into the Company.
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 Houston Biotechnology
Incorporated.
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 filing a
certificate of merger (the "Certificate of Merger") in substantially the form
attached hereto as Exhibit 1.3 with the Secretary of State of the State of
Delaware, in such form as required by, and executed in accordance with the
relevant provisions of, the DGCL (the date and time of the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware (or
such later time as is specified in the Certificate of Merger) being the
"Effective Time").
Section 1.4 Effects of the Merger. The Merger shall have the effects set
forth in Sections 259, 260 and 261 of the DGCL.
Section 1.5 Certificate of Incorporation; By-Laws. (a) At the Effective
Time, the Certificate of Incorporation of the Surviving Corporation shall be
the Restated Certificate of Incorporation, as amended, of the
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Company, as in effect immediately prior to the Effective Time (the "Company
Certificate of Incorporation"), as amended by the Certificate of Merger.
(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 Certificate 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 Certificate 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
Common Stock, par value $.01 per share, of the Company (the "Company Common
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 remain issued, outstanding and unchanged as
validly issued, fully paid and nonassessable shares of Common Stock of the
Surviving Corporation, which shall be all of the issued and outstanding
capital stock of the Surviving Corporation as of the Effective Time;
(b) Conversion of Company Common Stock. Except as otherwise provided
herein and subject to Section 2.1(c), each issued and outstanding share of
Company Common Stock shall be converted into the (the "Merger
Consideration") right to receive from Parent 0.182 of a share of Parent
common stock, $.01 par value per share (the "Parent Common Shares") (said
0.182 hereinafter the "Exchange Ratio"). If Parent declares or effects a
stock dividend, reclassification, recapitalization, split-up, combination
of shares or similar transaction between the date of this Agreement and the
Effective Time, the Exchange Ratio set forth herein shall be appropriately
adjusted for purposes of this Section 2.1(b).
(c) No Fractional Shares. (i) Notwithstanding any other provision of this
Agreement, no certificates or scrip representing fractional Parent Common
Shares shall be issued upon the surrender for exchange of certificates
representing shares of Company Common Stock, and such fractional share
interests will not entitle the owner thereof to vote or to any rights as a
shareholder of Parent.
(ii) Notwithstanding any other provision of this Agreement, each
holder of shares of Company Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of
a Parent Common Share (after taking into account all shares of Company
Common Stock held by such holder at the Effective Time) shall receive,
in lieu thereof, an amount in cash ("Fractional Share Payment")
(payable in dollars, without interest) equal to the product obtained by
multiplying (A) the fractional share interest to which such holder
(after taking into account all shares of Company Common Stock held at
the Effective Time by such holder) would otherwise be entitled by (B)
the closing price for a Parent Common Share on The Nasdaq National
Market ("NASDAQ") on the last business day immediately preceding the
Closing Date.
(d) Cancellation and Retirement of Common Stock. As of the Effective
Time, all shares of Company Common 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
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certificate representing any such shares of Company Common Stock shall
cease to have any rights with respect thereto, except the right to receive
the Merger Consideration and any Fractional Share Payment.
(e) Prior to the mailing of the Proxy Statement/Prospectus (as defined in
Section 3.1(e)(ii)), Parent shall appoint Continental Stock Transfer &
Trust Company to act as exchange agent (the "Exchange Agent") for the
payment of the Merger Consideration and any Fractional Share Payment.
Section 2.2 Exchange of Certificates.
(a) Exchange Agent. At or prior to the Effective Time, Parent shall deposit
with the Exchange Agent, for the benefit of the holders of shares of Company
Common Stock, the estimated aggregate Fractional Share Payment (the "Exchange
Fund") and will authorize the Exchange Agent to issue Parent Common Shares
constituting the Merger Consideration, for exchange in accordance with this
Article II. Parent shall deposit with the Exchange Agent any additional funds
in excess of the Exchange Fund necessary to pay any Fractional Share Payment
required to be paid under this Agreement.
(b) Exchange Procedures. Promptly after the Effective Time, Parent shall
cause the Exchange Agent to mail to each record holder, as of the Effective
Time, of an outstanding certificate or certificates that immediately prior to
the Effective Time represented shares of Company Common Stock (the
"Certificates"), a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of the
Certificate(s) and payment therefor. Upon surrender to the Exchange Agent of
such Certificates, together with such letter of transmittal duly executed, and
acceptance thereof by the Exchange Agent, the holder of a Certificate shall be
entitled to a certificate or certificates representing the number of full
Parent Common Shares and the Fractional Share Payment, if any, into which the
Certificates surrendered shall have been converted pursuant to this Agreement.
The Exchange Agent shall accept such Certificates upon compliance with such
reasonable terms and conditions as the Exchange Agent may impose in order to
effect an orderly exchange thereof in accordance with normal exchange
practices. After the Effective Time, there shall be no further transfer on the
records of the Company or its transfer agent of certificates representing
shares of Company Common Stock and if such certificates are presented to the
Company for transfer, they shall be cancelled against delivery of the
certificate or certificates for Parent Common Shares and Fractional Share
Payment as hereinabove provided. If any certificate for such Parent Common
Shares is to be issued to a person other than the registered holder of a
Certificate surrendered for exchange, it shall be a condition of such exchange
that the Certificate so surrendered shall be properly endorsed, with signature
guaranteed, or otherwise in proper form for transfer and that the person
requesting such exchange shall pay to Parent or the Exchange Agent any
transfer or other taxes required by reason of the issuance of certificates for
such Parent Common Shares in a name other than that of the registered holder
of the Certificate(s) surrendered, or establish to the satisfaction of parent
or the Exchange Agent that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.2(b), each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration and Fractional Share
Payment, if any, as contemplated by Section 2.1. No interest will be paid or
will accrue on any Fractional Share Payment.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Parent Common Shares with a record date after
the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the Parent Common Shares issuable in respect
thereof and no Fractional Share Payment shall be paid to any such holder until
the surrender of such Certificate in accordance with this Article II. Subject
to the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the holder of the Certificate, without interest, the
amount of any Fractional Share Payment to which such holder is entitled and
the amount of dividends or other distributions with a record date after the
Effective Time but prior to such surrender and a payment date subsequent to
such surrender payable with respect to such Certificate.
(d) No Further Ownership Rights in Company Common Stock. All Parent Common
Shares issued upon the surrender for exchange of Certificates in accordance
with the terms of this Article II (including any Fractional
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<PAGE>
Share Payment) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of Company Common Stock
heretofore represented by such Certificates, subject, however, to the
Surviving Corporation's obligation, with respect to shares of Company Common
Stock outstanding immediately prior to the Effective Time, to pay any
dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by the Company on such
shares of Company Common Stock in accordance with the terms of this Agreement
or prior to the date of this Agreement and which remain unpaid at the
Effective Time.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for twelve months
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of shares of Company Common Stock who have not theretofore complied
with this Article II shall thereafter look only to Parent and only as general
creditors thereof for payment of their claim for Parent Common Shares, any
Fractional Share Payment and any dividends or distributions with respect to
Parent Common Shares to which such holders may be entitled.
(f) 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 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(e).
Section 2.3 Assumption of Options and Warrants. (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 1992 Subordinated Stock Option Plan, 1994 Replacement Stock Option
Plan and 1994A Stock Option Plan (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 Exchange Ratio. The
exercise price per share of Parent Company Shares for such Company Options
shall be the exercise price per share under such Company Option divided by the
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.
At the Effective Time, Parent shall also assume all of the Company's
obligations under the Plans. Parent shall take all corporate and other action
necessary to reserve and make available sufficient shares of Parent Common
Shares for issuance upon exercise of all such Company Options and shall
prepare and file with the SEC as promptly as practical after the Effective
Time the appropriate registration statements relating to the issuance of such
shares upon exercise of such options and maintain the effectiveness of such
registration statements.
(b) As of the Effective Time, Parent shall assume each of the outstanding
warrants to purchase an aggregate of 4,521,558 shares of Company Common Stock
outstanding at the Effective Time (the "Company Warrants"), and each Company
Warrant shall entitle the holder thereof to purchase the number of shares of
Parent Common Shares equal to the number of shares of Company Common Stock
subject to such Company Warrant immediately prior to the Effective Time
multiplied by the Exchange Ratio and the exercise price per share of Parent
Company Shares pursuant to such Company Warrant shall be the exercise price
per Company Common Share under such Company Warrant divided by the Exchange
Ratio, rounded to the nearest $.01. Parent will take all corporate and other
action necessary to reserve and make available sufficient shares of Parent
Common Stock for issuance upon exercise of such Company Warrants. At the
Effective Time, Parent shall assume all of the Company's obligations
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<PAGE>
under the warrant agreement under which the Company Warrants were issued and
shall use its best efforts to comply with the terms of such warrant agreement
with respect to causing such Company Warrants to be listed on NASDAQ as of the
Effective Time.
(c) As of the Effective Time, Parent shall assume the options to purchase an
aggregate of 30,600 shares of Company Common Stock issued in favor of Dr.
David W. Parke, INCO Venture Capital, Louis Rose and The Woodlands Corporation
(the "Company Non-Plan Options"). Each Company Non-Plan 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 Non-
Plan Option immediately prior to the Effective Time multiplied by the Exchange
Ratio. The exercise price per share of Parent Common Shares for such Company
Non-Plan Options shall be the exercise price per share under such Company Non-
Plan Option divided by the Exchange Ratio, rounded to the nearest $.01. At the
Effective Time, Parent shall also assume all of the Company's obligations
under the agreements containing the Company Non-Plan Options. Parent shall
take all corporate and other action necessary to reserve and make available
sufficient shares of Parent Common Shares for issuance upon exercise of all
such Company Non-Plan Options.
ARTICLE III
Representations and Warranties
Section 3.1 Representations and Warranties of the Company. 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 Delaware 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 Certificate of Incorporation and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of the Company
Certificate of Incorporation and the Company By-Laws. The Company is not in
violation of any of the provisions of the Company Certificate of
Incorporation or the Company By-Laws.
(c) Capitalization. The authorized capital stock of the Company consists
of 40 million shares of Company Common Stock and 15 million shares of
preferred stock, par value $.01 per share (the "Company Preferred Stock").
As of the date hereof, (i) 5,638,707 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 stockholder of the Company; (ii) no shares of
preferred stock were issued and outstanding; (iii) no shares of Company
Common Stock were held in the treasury of the Company; (iv) 876,814 shares
of Company Common Stock were reserved for issuance and issuable upon or
otherwise deliverable in connection with the exercise of outstanding
Company Options issued pursuant to the Plans; (v) 4,521,558 shares of
Company Common Stock were reserved for issuance and issuable upon
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exercise of Company Warrants and payment of the applicable exercise price;
(vi) 30,600 shares of Company Common Stock were reserved for issuance and
issuable upon or otherwise deliverable in connection with the exercise of
outstanding Company Non-Plan Options; and (vii) up to 800,000 shares of
Company Common Stock plus such number of shares to be issued upon the
conversion of any accrued interest were reserved for issuance and issuable
upon or otherwise deliverable in connection with the conversion of the
Convertible Note dated the date hereof issued by the Company to Parent (the
"Convertible Note") or the Additional Note (as defined herein) to be issued
by the Company to Parent pursuant to Section 4.15 hereof (the Convertible
Note and the Additional Note are sometimes hereinafter collectively
referred to as the "Notes"). Since November 30, 1996, 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 or upon the exercise of Company Warrants.
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.
(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 and this Agreement by the holders of a majority of
the outstanding shares of Company Common Stock). 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.
(e) No Conflict; Required Filings and Consents. (i) The execution,
delivery and performance of this Agreement by the Company does not (A)
conflict with or violate the Company Certificate 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,
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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 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 Securities and
Exchange Commission (the "SEC") and the American Stock Exchange of (1)
a registration statement on Form S-4 (the "Form S-4") under the
Securities Act of 1933, as amended (the "Securities Act"), in
connection with the issuance of Parent Common Shares in the Merger and
pursuant to which the Company Warrants, as converted and assumed, shall
be registered, including therein a combined proxy statement and
prospectus as amended or supplemented from time to time, (the "Proxy
Statement/Prospectus") and (2) such other filings under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as may be
required in connection with this Agreement and the transactions
contemplated hereby 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 and recordation of the
Certificate of Merger as required by the DGCL; 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 Food and Drug Administration ("FDA") and U.S.
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) SEC Filings; Financial Statements. (i) The Company 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 Exchange Act (collectively, the "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. The Company has delivered to Parent, 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, 1993, 1994 and 1995, and the Quarterly Report on Form 10-Q for
the quarters ended March 31, June 30, September 30, 1996 (the "1996 10-
Q's"); (B) all definitive proxy statements relating to the Company's
meetings of stockholders (whether annual or special) held since January 1,
1993; and (C) all other SEC Reports or registration statements filed by the
Company 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 the Company contained, when
filed (in
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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 the Company (including, in each case, any related notes
thereto) included in its 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 the Company
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).
(iii) Except as and to the extent set forth on the balance sheet of
the Company at December 31, 1995, including the notes thereto, included
in the Company's Annual Report on Form 10-K for the year ended December
31, 1995, 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, except for liabilities or obligations incurred in the
ordinary course of business since December 31, 1995, 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 (i) 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
(ii) the Proxy Statement/Prospectus will not, at the date it is first
mailed to the Company's stockholders or at the time of the Stockholders'
Meeting (as defined herein), 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 proxy for the
Stockholders' Meeting or any amendment or supplement thereto. The Proxy
Statement/Prospectus will comply as to form in all material respects with
the requirements of the Exchange Act and the rules and regulations
promulgated thereunder, 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 inclusion
or incorporation by reference in the Proxy Statement/Prospectus.
(i) Absence of Certain Changes or Events. Since January 1, 1996, except
as disclosed in the SEC Reports filed since that date, the Company 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 SEC Reports or in the ordinary course of business and consistent with
past practice, there has not been (A) any change, event or development in
or affecting the Company that constitutes or would reasonably be expected
to have either individually or in the aggregate a Material Adverse Effect
(provided that for the purposes of this clause (A) changes caused by
changes in stock market conditions in the United States that generally
affect companies in the biotechnology industry shall not be deemed to
constitute a Material Adverse Effect); (B) any change by the Company in its
accounting methods or principles except as recommended by the Company's
independent accountants prior to such change; (C) any declaration, setting
aside or payment of any dividends or distributions in respect of any series
of capital stock of the Company; (D) any increase in or establishment of
any bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option (including without limitation the
granting of stock options, stock appreciation rights, performance awards,
or restricted stock awards), stock purchase or other employee benefit plan
or agreement or arrangement, or any other increase in the compensation
payable or to become payable to any present or
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former directors, officers above the rank of Vice President of the Company,
except for increases in base compensation and annual cash bonuses; or (E)
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 the SEC Reports or in this Agreement or the
Disclosure Schedule, as of the date hereof the Company does not know or have
reason to know 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 in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, 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 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 June 30, 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 June
30, 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 (ii) 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 present or future right to benefits or
under which the Company has any 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 or 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 for a determination letter as to its
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
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(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 thereto;
(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 the SEC Reports filed prior
to the date of this Agreement or 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 (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
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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 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, the Notes and the
License Agreement (as defined below) or as set forth in Section 3.1(n) of
the Disclosure Schedule; (iii) to the best of 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.
(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,
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judgments, injunctions, licenses, permits or regulations relating to
environmental matters (collectively, the "Environmental Laws"), except to
the extent that failure to comply with such Environmental Laws would not
have a Material Adverse Effect. 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. (i) Section 3.1(q) of the
Disclosure Schedule sets forth a list of all 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.
(ii) 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.
(r) Transactions with Affiliates. Except as disclosed in the SEC Reports
filed prior to the date of this Agreement, 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) 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 the SEC Reports. 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
that are described in the SEC Reports or the results of which are referred
to in the SEC Reports.
(t) Opinion of Financial Advisor. The Company has received the opinion of
Strategen, L.L.C., to the effect that the Merger is fair to the holders of
the Company Common Stock from a financial point of view.
(u) Brokers. No broker, finder or investment banker 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 the Company.
(v) 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:
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(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 Delaware, 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 Preferred Shares, without par
value (hereinafter referred to as "Parent Preferred Shares"). As of
November 30, 1996, (i) 17,592,992 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 at the Effective Time 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.
(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 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
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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, and federal, state or local
Governmental Entity, except for: (A) the filing 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 Certificate of Merger as required by the DGCL; and
(D) applicable filings under state anti-takeover 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 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 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, 1993, 1994 and
1995, and the Quarterly Report on Form 10-Q for the quarters ended March
31, June 30, and September 30, 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, 1995, including the notes thereto, included in
Parent's Annual Report on Form 10-K for the year ended December 31,
1995, 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 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 Proxy
Statement/Prospectus will, at the date the Proxy Statement/Prospectus is
first mailed to the Company's stockholders or at the time of the
Stockholders' Meeting, 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 proxy for the Stockholders' Meeting or
any amendment or supplement thereto. The Form S-4 will comply as to form in
all material respects 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
or 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, 1995, 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 June 30, 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 expected to have, a Material Adverse Effect or to delay or
prevent the consummation of the transactions contemplated hereby beyond
June 30, 1997.
(k) Brokers. No broker, finder or investment banker (other than Smith
Barney 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) 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.
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ARTICLE IV
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.
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;
(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);
(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 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 Certificate 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;
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(g) (i) except for the Notes, 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;
(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) 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 discussions with the FDA or any other
Governmental Entity; or
(p) 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.
In addition to the foregoing, the Company hereby further covenants and
agrees that during the period from the date hereof to the Effective Time, the
Company will only use monies received by it from Parent pursuant to the Notes
in consultation with Parent.
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 Stockholders' Meeting. The Company will take all action
necessary in accordance with and subject to applicable law and the Company
Certificate of Incorporation and the Company By-Laws to convene a meeting of
its stockholders (the "Stockholder's Meeting") as soon as practicable after
the date of this Agreement 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, together with a copy of the
opinion referred to in Section 3.1(t), shall be included in the Proxy
Statement/Prospectus. The Board of Directors of the Company may fail to make
such
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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 Preparation of Form S-4 and the Proxy
Statement/Prospectus. Promptly following the date of this Agreement, the
Company and Parent shall prepare and file with the SEC the Proxy
Statement/Prospectus, and Parent shall prepare and file with the SEC the Form
S-4, in which the Proxy Statement/Prospectus will be included as a prospectus.
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 Proxy Statement/Prospectus to be mailed to the Company's
stockholders as promptly as practicable after the Form S-4 is declared
effective under the Securities Act. 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 Merger, and the Company shall furnish all information
concerning the Company and the holders of the Company Common 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 date of the Stockholder's Meeting referred to above, 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 4.5 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 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 4.5
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 4.5(a)(i) which is nonpublic in confidence to the extent required
by, and in accordance with, the provisions of the letter dated December 18,
1995 between Parent and the Company (the "Confidentiality Agreement").
Section 4.6 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 Stockholders Meeting, "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 4.6 hereto.
Section 4.7 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
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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 4.7 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 4.7 as is necessary, 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 use 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 below, 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. This
section shall not prohibit accurate disclosure by the Company in any document
that is required to be filed by the Company with the SEC, including without
limitation any filings made in compliance with Rule 14e-2 promulgated under
the Exchange Act.
Section 4.8 Employee Benefits Matters. (a) Except as otherwise provided in
this Section 4.8, 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 4.8, on and after the
Effective Time, Parent shall, or shall cause Surviving Corporation to maintain
compensation for Company employees, 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 4.8 (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.
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(e) Neither the Company nor Parent will terminate the employment of any
employee of the Company, unless for cause, prior to April 9, 1997, and Parent
agrees to enter into reasonable severance arrangements with any Company
employee terminated after such date in accordance with its current practice.
Section 4.9 Directors' and Officers' Indemnification and Insurance. 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, indemnify and hold harmless, each
present and former employee, agent, director and officer of the Company (the
"Indemnified Parties") to the full extent required or permitted under (a)
Delaware 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 Certificate 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 Certificate 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 4.9.
Section 4.10 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 (i)
cooperating in the preparation and filing of the Proxy Statement/Prospectus
and Form S-4, and any amendments to any thereof and (ii) 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.
Section 4.11 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 4.11 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
Section 4.12 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.
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Section 4.13 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, which would
disqualify the Merger as a tax-free reorganization within the meaning of
Section 368 of the Code.
Section 4.14 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 4.15 Loan to Company. On January 15, 1997, Parent will make a loan
(the "Additional Loan") in the amount of $250,000 to the Company to be used by
the Company exclusively for operating expenses in the ordinary course. The
Company shall use such funds in consultation with Parent. The Additional Loan
will be evidenced by a promissory note in substantially the form of the
Convertible Note and will be secured by that certain License Agreement dated
of even date herewith between the Company and Parent (the "License
Agreement").
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) Stockholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of the
outstanding shares of Company Common Stock entitled to vote thereon.
(b) Other Approvals. Other than the filing 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 Restrains; 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) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order, and any "blue sky" and other state
securities laws applicable to the issuance of Parent Common Shares in the
Merger shall have been complied with.
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 except to the extent such
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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.
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) Tax Opinion. The opinion, based on appropriate representations of the
Company, Parent and others, of Bracewell & Patterson, L.L.P., counsel to
the Company, to the effect that 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
Proxy Statement/Prospectus as first mailed to stockholders of the Company,
shall not have been withdrawn or modified in any material respect.
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 (A) such breach cannot be cured prior to the Closing Date, or (B)
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 (A) such breach cannot be cured prior to the Closing Date, or (B)
has not been cured within 45 days after the date on which
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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
June 30, 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 reason of the
failure to obtain the required vote at a duly held meeting of stockholders
or at any adjournment thereof;
(g) by either Parent or the Company, if (i) the Board of Directors of the
Company shall have approved or have recommended to the stockholders of the
Company a Transaction Proposal or shall have resolved to do the foregoing;
or (ii) a Takeover Proposal (as defined herein) is commenced (other than by
Parent or any of its subsidiaries or affiliates), and the Board of
Directors of the Company recommends that the stockholders of the Company
tender their shares in such Takeover Proposal or otherwise fails to
recommend that such stockholders 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; or
(h) by Parent in the event of a material adverse change in the business,
prospects or financial condition of the Company caused by an event,
occurrence or circumstance (a "Material Adverse Change"), unanticipated and
unknown by the Company as of the date of this Agreement and arising after
the date hereof solely from facts and circumstances not in existence as of
the date hereof. Without limiting the generality of the foregoing, a
Material Adverse Change shall not include any matter which Parent knows or
should have known of or discovered or should have discovered in its due
diligence review of the Company.
Notwithstanding the foregoing, a Material Adverse Change shall include a
determination made in good faith by Medarex prior to the earlier of the date
that the Proxy Statement/Prospectus is first mailed to the stockholders of the
Company or January 31, 1997 that both (A) a license related to the patent
referred to in Section 3.1(n)(iii) of the Disclosure Schedule is required in
order to continue development of the Company's secondary cataract product, and
(B) such license is not available, and will not be available, on commercially
reasonable terms.
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 liability on the part of any party hereto except as set
forth in Section 4.5(b), Section 6.3, if applicable, and Section 7.1;
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 Fees and Expenses. (a) The Company agrees that if this Agreement
shall be terminated pursuant to:
(i) Section 6.1(f) because the Agreement and the Merger shall fail to
receive the requisite vote for approval and adoption by the stockholders of
the Company at a meeting of stockholders of the Company called to vote
thereon and at the time of such meeting there shall exist 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"); or
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(ii) Section 6.1(g);
then in any such case, the Company shall pay to Parent $750,000.
(b) Any cash payment required to be made pursuant to Section 6.3(a) shall be
made upon the date which is 60 days after the date the Company enters into a
definitive agreement with respect to such Transaction Proposal or the
completion of any such Takeover Proposal, by wire transfer of immediately
available funds to an account designated by Parent, and termination of the
Company's obligations under Section 6.3(a) 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(a) unless the other party or parties thereto agree
unconditionally in 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.
(c) For purposes of this Section 6.3:
(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; (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; or (E) any licensing or other arrangement
entered into by the Company regarding the right to use, further develop,
manufacture, sell or otherwise commercialize the Company's 4197X-RA
immunotoxin product in North America; 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.
(d) In the event this Agreement shall be terminated pursuant to Section 6.1
(h), then within fifteen (15) days of such termination Parent shall be
obligated to purchase a number of shares of Company Common Stock having a
value equal to $750,000 (or $1,000,000 if the Additional Loan has not been
made), at a price per share of $.9375 (the "Purchase Price") for, at the sole
option of Parent, cash or registered and freely tradeable Parent Common Shares
having a market value, calculated as the average closing price of Parent
Common Shares for the twenty (20) trading days prior to the date such payment
is made, of $750,000 or $1,000,000, as applicable. In the event Parent shall
pay the Purchase Price in Parent Common Shares, the Company hereby agrees that
it shall not transfer, convey, hypothecate, sell or otherwise dispose of more
than 10,000 shares in any five (5) consecutive trading days.
(e) 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
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the Effective Time; provided, however, that, after approval of the Merger by
the stockholders of the Company, no amendment may be made which would reduce
the amount or change the type of consideration into which each share of the
Company Stock shall be converted upon consummation of the Merger. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
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
General Provisions
Section 7.1 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 2.2, 2.3, Section 4.5(b),
Section 4.8, Section 4.9, Section 4.10, Section 4.14, Section 6.3 and this
Article VII shall survive termination indefinitely (or to such earlier date as
shall be specified by the terms of such provisions).
Section 7.2 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 cable,
telecopy, telegram or telex 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:
Houston Biotechnology Incorporated
3608 Research Forest Drive
The Woodlands, Texas 77381
Attention: J. Russell Denson--President
Phone: 713-363-6999
Fax: 713-363-3715
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with a copy to:
Bracewell & Patterson L.L.P.
South Tower Pennzoil Place
711 Louisiana Street
Suite 2900
Houston, Texas 77002-2781
Attention: David Ronn, Esq.
Phone: 713-223-2900
Fax: 713-221-1212
Section 7.3 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
means a person who shall be deemed to be the beneficial owner of such
shares of Company Common 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 are required or
permitted to be closed;
(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 knowledge after reasonable inquiry 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;
(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 7.4 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.
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Section 7.5 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 Notes, the Escrow Agreement dated the date hereof among the
Company, Parent and Satterlee Stephens Burke & Burke LLP, the License
Agreement and 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 7.6 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 7.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
Section 7.8 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 Delaware for the purpose of any action, suit or
proceeding arising out of or based upon this 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 Delaware, 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 7.8 does not constitute good and sufficient service of process. The
provisions of this Section 7.8 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 Delaware.
Section 7.9 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 7.10 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed by their respective officers thereunto duly
authorized, all as of the date written above.
Medarex, Inc.
By: /s/ Donald L. Drakeman
-------------------------------
Name: Donald L. Drakeman
Title: President
Medarex Acquisition Corp.
By: /s/ Michael A. Appelbaum
-------------------------------
Name: Michael A. Appelbaum
Title: Vice President
Houston Biotechnology Incorporated
By: /s/ J. Russell Denson
-------------------------------
Name: J. Russell Denson
Title: President
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EXHIBIT 1.3
CERTIFICATE OF MERGER
OF
MEDAREX ACQUISITION CORP.
WITH AND INTO
HOUSTON BIOTECHNOLOGY INCORPORATED
Pursuant to Section 251(c) of the Delaware General Corporate Law, Houston
Biotechnology Incorporated, the surviving corporation in a merger with Medarex
Acquisition Corp. certifies as follows:
1. Houston Biotechnology Incorporated and Medarex Acquisition Corp. are
both Delaware corporations.
2. An Agreement and Plan of Merger dated as of December 18, 1996 (the
"Merger Agreement"), providing for the merger of Medarex Acquisition Corp.
with and into Houston Biotechnology Incorporated (the "Merger") has been
approved, adopted, certified, executed and acknowledged by Houston
Biotechnology Incorporated and Medarex Acquisition Corp. in accordance with
Section 251 of the Delaware General Corporation Law.
The stockholders of Houston Biotechnology Incorporated approved the
Merger of the corporations in a meeting duly called and convened, a quorum
being present in person and by proxy, and acting throughout. The sole
stockholder of Medarex Acquisition Corp. approved the Merger of the
corporations by written consent in lieu of meeting pursuant to Section 228
of the Delaware General Corporation Law.
3. The surviving corporation in the Merger is Houston Biotechnology
Incorporated.
4. Pursuant to the Merger, the Certificate of Incorporation of Houston
Biotechnology Incorporated is amended and restated in the form attached
hereto as Exhibit A.
5. The executed Merger Agreement is on file at the principal place of
business of the surviving corporation, the address of which is
Houston Biotechnology Incorporated
3608 Research Forest Drive
The Woodlands, Texas 77381
6. A copy of the Merger Agreement will be furnished by the surviving
corporation, on request and without cost, to any stockholder of Houston
Biotechnology Incorporated or Medarex Acquisition Corp.
IN WITNESS WHEREOF, the surviving corporation has caused this certificate of
merger to be signed and attested by its duly authorized officers.
Dated: , 1996
By: _________________________________
President
Attested:
By: _________________________________
, Secretary
<PAGE>
EXHIBIT A
TO CERTIFICATE OF MERGER
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HOUSTON BIOTECHNOLOGY INCORPORATED
First: The name of the Corporation is:
HOUSTON BIOTECHNOLOGY INCORPORATED
Second: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle 19801. The name of its registered agent at such address is The
Corporation Trust Company.
Third: The nature of the business and the purposes for which the Corporation
is organized are:
To engage in any business and in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware
and to possess and employ all powers and privileges now or hereafter
granted or available under the laws of the State of Delaware to such
corporations.
Fourth: The total number of shares of stock which the Corporation shall have
authority to issue is Three Thousand (3,000) shares all of which are to be
Common Stock with a par value of one cent ($.01) per share.
Fifth: The board of directors of the Corporation is authorized to make,
alter or repeal by-laws of the Corporation, but the stockholders may make
additional by-laws and may alter or repeal any by-law whether adopted by them
or otherwise.
Sixth: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
an improper personal benefit. If the Delaware General Corporation Law
hereafter is amended to eliminate or limit further the liability of a
director, then, in addition to the elimination of liability provided by the
preceding sentence, the liability of each director shall be eliminated or
limited to the fullest extent provided or permitted by the Delaware General
Corporation Law. Any repeal or modification of this Article SIXTH shall not
adversely affect any right or protection of a director under this Article
SIXTH, as in effect immediately prior to such repeal or modification, with
respect to any liability that would have accrued, but for this Article SIXTH,
prior to such repeal or modification.
<PAGE>
EXHIBIT 4.6
FORM OF COMPANY AFFILIATE LETTER
Gentlemen:
The undersigned, a holder of shares of common stock, par value $.01 per
share ("Company Stock"), of Houston Biotechnology Incorporated, Inc., a
Delaware corporation (the "Company"), may be entitled to receive in connection
with the merger (the "Merger") of the Company with Medarex Acquisition Corp.,
a Delaware corporation, securities (the "Parent Securities") of Medarex, Inc.,
a Delaware corporation ("Parent"). 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.
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.
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 1
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 merger of Medarex Acquisition Corp., a
Delaware corporation, with and into Houston Biotechnology Incorporated.
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>
[LETTERHEAD OF STRATEGEN]
[LOGO]
December 16, 1996
Board of Directors
Houston Biotechnology Incorporated
3608 Research Forest Drive
The Woodlands, TX 77381
Gentlemen:
We understand that Houston Biotechnology Incorporated ("HBI" or the "Company")
is considering an acquisition proposal made by Medarex, Inc. ("Medarex"). HBI
shareholders will receive 0.182 shares of Medarex common stock in exchange for
each share of HBI common stock. Our firm has been asked by HBI for its opinion
(the "Opinion") as to the fairness of the terms of the acquisition proposal,
from a financial point of view, to the shareholders of the Company.
Strategen, L.L.C. ("Strategen") is a merchant banking firm specializing in the
life sciences located in New York City engaged in the evaluation of businesses
and their securities in connection with private placements, mergers and
acquisitions and valuations for corporate and other purposes. Strategen has
been acting in an investment banking capacity for HBI since March, 1995. Our
financial advisory services for the Company have included assistance in
discussions with third parties with respect to a strategic alliance or similar
arrangement with the Company.
In arriving at our Opinion, Strategen reviewed the basic terms and conditions of
the acquisition proposal and held discussions with HBI and Medarex senior
management concerning the business, operations, financial resources and
prospects for the Company. In addition, Strategen reviewed the reported price
and trading activity for HBI and Medarex common shares and compared certain
financial and stock market information for certain other biotechnology companies
with this information. Strategen also reviewed premiums paid in selected merger
and acquisition transactions involving biotechnology companies and compared the
terms of this acquisition proposal with such data. In arriving at its Opinion,
Strategen relied upon and assumed the accuracy and completeness of all financial
and other information publicly available or furnished to or otherwise reviewed
by or discussed with us and did not independently verify such information.
<PAGE>
The Board of Directors
Houston Biotechnology Incorporated
December 16, 1996
Page Two
Our advisory services and Opinion expressed herein are provided for the
information of the Board of Directors of HBI in its evaluation of the
acquisition proposal. Our Opinion may be published or otherwise used or
referred to in documents relating to this acquisition and public reference to
Strategen may be made in such documents.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion on the date hereof that the terms of the acquisition proposal are fair
to the shareholders of the Company from a financial point of view.
Very truly yours,
STRATEGEN, L.L.C.
By: /s/ James B. Dwyer III
----------------------
James B. Dwyer III
Managing Director
<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 preceeding 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
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<PAGE>
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, 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>
/17/2.1 Agreement and Plan of Merger among Medarex, Inc., Medarex Acquisition Corp.
and Houston Biotechnology Incorporated dated December 18, 1996, 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.
4.2 Form of Warrant Agreement between Houston Biotechnology Incorporated and
Mellon Securities Trust Company.
4.3 Form of Specimen of Warrant Certificate (included as Exhibit A to Warrant
Agreement filed as Exhibit 4.2).
/*/5.1 Opinion of Satterlee Stephens Burke & Burke LLP re: legality of securities being
registered.
/*/8.1 Opinion of Bracewell & Patterson, L.L.P. as to federal income tax matters.
/4/10.1 Lease of the Registrant's executive offices dated August 1, 1992.
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
/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.
/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.
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
/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.
/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.
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
/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.
/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.
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
/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
/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, 1996 executed by Houston Biotechnology
Incorporated in favor of the 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.
10.69 Convertible Note dated January 15, 1997 executed by Houston Biotechnology
Incorporated in favor of the Registrant.
/4/11 Statement re: computation of per share earnings.
13.1 Registrant's Annual Report on Form 10-K filed on March 14, 1996.
13.2 Registrant's Quarterly Report on Form 10-Q filed on November 14, 1996.
13.3 Annual Report on Form 10-K filed on April 1, 1996 for Houston Biotechnology
Incorporated.
13.4 Quarterly Report on Form 10-Q filed on November 14, 1996 for Houston
Biotechnology Incorporated.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
/21/21 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
/*/23.3 Consent of Satterlee Stephens Burke & Burke LLP (included in their opinion filed
as Exhibit 5.1.)
/*/23.4 Consent of Bracewell & Patterson, L.L.P. (included in their opinion filed as
Exhibit 8.1).
23.5 Consent of Stratagen, L.L.C. (included in their opinion which is attached as Annex
A to the Proxy Statement and Prospectus).
24.1 Power of Attorney (included in signature page).
99.1 Form of Proxy Card for Houston Biotechnology Incorporated.
- ---------------
</TABLE>
/*/ To be filed by amendment.
/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 14, 1996.
/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.
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<PAGE>
/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).
(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
The opinion of Stratagen, L.L.C. is included as Annex A to the Proxy
Statement and Prospectus included in Part I of this Registration Statement.
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.
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<PAGE>
(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 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 filed 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."
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<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 THE 20TH DAY OF JANUARY, 1997.
MEDAREX, INC.
By:/s/ Charles R. Schaller
-------------------------------------
Charles R. Schaller
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and directors of
Medarex, Inc., a New Jersey corporation, do hereby constitute and appoint Donald
L. Drakeman and Michael A. Appelbaum, and either of them, the lawful attorney
and agent, with power and authority to do any and all acts and things and to
execute any and all instruments which said attorney and agent, determine may be
necessary or advisable, or required to enable said corporation to comply with
the Securities Act of 1933, as amended, and any rules or regulations or
requirements of the Securities and Exchange Commission in connection with this
Registration Statement. Without limiting the generality of the foregoing power
of authority, the powers granted include the power and authority to sign the
names of the undersigned officers and directors in the capacities indicated
below to this Registration Statement, to any and all amendments, post-effective
amendments and supplements thereof, and to any and all instruments or documents
filed as part of or in connection with such Registration Statement, and each of
the undersigned hereby certifies and confirms all that said attorney and agent,
shall do or cause to be done by virtue hereof. The Power of Attorney may be
signed in several counterparts.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of the dates indicated below.
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/ Charles R. Schaller Chairman of the Board January 20,1997
Charles R. Schaller
- --------------------------------------------
/s/ Donald L. Drakeman President, Chief Executive Officer and January 20,1997
Donald L. Drakeman Director (Principal Executive Officer)
- --------------------------------------------
/s/ Michael A. Appelbaum Senior Vice President - Finance and January 20,1997
Michael A. Appelbaum Administration, Secretary, Treasurer, Chief
- -------------------------------------------- Financial Officer and Director (Principal
Financial and Accounting Officer)
/s/ Michael W. Fanger Director January 20,1997
Michael W. Fanger
- --------------------------------------------
/s/ Julius A. Vida Director January 20,1997
Julius A. Vida
- --------------------------------------------
/s/ Irwin Lerner Director January 20,1997
Irwin Lerner
- --------------------------------------------
/s/ W. Leigh Thompson Jr. Director January 1, 1997
W. Leigh Thompson Jr.
- --------------------------------------------
/s/ Robert Iggulden Director January 2, 1997
Robert Iggulden
- --------------------------------------------
</TABLE>
<PAGE>
INDEX TO EXHIBITS
Location of
Exhibit in
Sequential
Exhibit No. Description of Document Numbering System
- ----------- ------------------------ -----------------
4.2 Form of Warrant Agreement between Houston
Biotechnology Incorporated and Mellon
Securities Trust Company.
10.69 Convertible Note dated January 15, 1997
executed by Houston Biotechnology
Incorporated in favor of the Registrant.
13.1 Registrant's Annual Report on Form 10-K
filed on March 14, 1996.
13.2 Registrant's Quarterly Report on Form 10-Q
filed on November 14, 1996.
13.3 Annual Report on Form 10-K filed on April 1,
1996 for Houston Biotechnology Incorporated.
13.4 Quarterly Report on Form 10-Q filed on
November 14, 1996 for Houston
Biotechnology Incorporated.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Arthur Andersen LLP.
99.1 Form of Proxy Card for Houston
Biotechnology Incorporated.
<PAGE>
EXHIBIT 4.2
EXECUTION COPY
--------------
July 13, 1993
HOUSTON BIOTECHNOLOGY
INCORPORATED
AND
MELLON SECURITIES TRUST COMPANY
AS WARRANT AGENT
_____________________________
WARRANT AGREEMENT
Dated as of May 24, 1993
_____________________________
<PAGE>
WARRANT AGREEMENT
TABLE OF CONTENTS/*/
RECITALS................................................... 1
SECTION 1. Appointment of Warrant Agent............... 1
SECTION 2. Form and Execution of Warrant
Certificates............................... 2
SECTION 3. Registration; Countersignature............. 3
SECTION 4. Registration of Transfers; Exchanges
of Warrant Certificates.................... 3
SECTION 5. Term of Warrants; Exercise of
Warrants; Exercise Price................... 4
SECTION 6. Payment of Taxes........................... 6
SECTION 7. Mutilated or Missing Warrant
Certificates............................... 6
SECTION 8. Reservation of Warrant Shares.............. 7
SECTION 9. Obtaining Stock Exchange Listings.......... 8
SECTION 10. Adjustments................................ 8
SECTION 11. No Impairment.............................. 17
SECTION 12. Fractional Interests....................... 18
SECTION 13. Notices to Warrant Holders................. 18
SECTION 14. Reports to Warrant Holders................. 19
SECTION 15. Merger, Consolidation or Change of
Name of Warrant Agent...................... 20
SECTION 16. Concerning the Warrant Agent............... 20
SECTION 17. Change of Warrant Agent.................... 22
- ------------------
/*/ This Table of Contents does not constitute a part of this Agreement or
have any bearing upon the interpretation of any of its terms or
provisions.
<PAGE>
SECTION 18. Identity of Transfer Agent................. 23
SECTION 19. Notices to Company and Warrant Agent....... 23
SECTION 20. Supplements and Amendments................. 24
SECTION 21. Successors................................. 24
SECTION 22. Termination................................ 24
SECTION 23. Governing Law.............................. 24
SECTION 24. Benefits of this Agreement................. 24
SECTION 25. Counterparts............................... 25
SECTION 26. Attorneys' Fees............................ 25
SECTION 27. Severability of Provisions................. 25
Form of Warrant Certificate................................ 1
<PAGE>
EXHIBIT 4.2
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of May 24, 1993 (the "Agreement") between
HOUSTON BIOTECHNOLOGY INCORPORATED, a Delaware corporation (the "Company"), and
MELLON SECURITIES TRUST COMPANY, a New York trust company, as Warrant Agent (the
"Warrant Agent").
RECITALS:
WHEREAS, the Company proposes to issue Warrants, as hereinafter described
(the "Warrants"), to purchase up to 3,000,000 shares of common stock, par value
$.01 per share (the "Common Stock"), of the Company, subject to increase in the
number of shares sufficient to implement the Adjustment Feature described in the
Company's Registration Statement on Form S-1 (Registration No. 33-56236), and
further subject to increase in and further subject to adjustment as provided in
Section 10 hereof; the shares of Common Stock, or pursuant to Section 10 hereof,
other securities issuable upon the exercise of the Warrants, are referred to
herein as the "Warrant Shares"; each Warrant entitles the holder thereof to
purchase one share of Common Stock, subject to adjustment as provided in Section
10 hereof; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, transfer, exchange and exercise of Warrants and other matters as
provided herein; and
WHEREAS, the Company and the Warrant Agent wish to define the terms and
provisions of the Warrants and the respective rights and obligations thereunder
of the Company and the registered holders of the Warrants (the "Holders");
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1. Appointment of Warrant Agent. The Company hereby appoints the
----------------------------
Warrant Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
<PAGE>
SECTION 2. Form and Execution of Warrant Certificates.
------------------------------------------
2.1 Form of Warrant Certificates. The certificates evidencing the
----------------------------
Warrants (the "Warrant Certificates") shall be in registered form only and shall
be substantially in the form set forth in Exhibit A attached hereto, shall be
dated the date on which countersigned by the Warrant Agent, and may have such
letters, numbers or other marks of identification or designation and such
legends, summaries or endorsements printed, lithographed, engraved or otherwise
affixed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Warrants may from time to time be
listed, or to conform to usage.
2.2 Execution of Warrant Certificates. Warrant Certificates shall
---------------------------------
be executed on behalf of the Company by its President or any Vice President and
signed by its Secretary and have affixed thereon a facsimile of the Company's
seal. Each such signature upon the Warrant Certificates may be manual or
facsimile.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before countersignature and
delivery by the Warrant Agent, such Warrant Certificates, nevertheless, may be
countersigned, issued and delivered with the same force and effect as though
such person had not ceased to be such officer of the Company; and any Warrant
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Warrant Certificate, shall be a proper
officer of the Company to sign such Warrant Certificate, although at the date of
the execution of this Agreement any such person was not such officer. Upon
countersignature by the Warrant Agent and delivery, the Warrant Certificate
shall be valid and binding upon the Company and the Holder thereof shall be
entitled to all of the benefits of this Agreement.
2.3 Temporary Certificates. Until definitive Warrant Certificates
----------------------
are ready for delivery, the Company may prepare and the Warrant Agent may
countersign temporary Warrant Certificates. Temporary Warrant Certificates
shall be substantially in the form of the definitive Warrant Certificates but
may have variations that the Company considers appropriate for temporary Warrant
Certificates. Upon the listing of the Warrants as described in Section 9(a), the
Company shall prepare and the Warrant Agent shall countersign definitive Warrant
Certificates in exchange for
<PAGE>
temporary Warrant Certificates. Until so exchanged the temporary Warrant
Certificates shall in all respects be entitled to the same benefits under this
Agreement as definitive Warrant Certificates.
SECTION 3. Registration; Countersignature.
------------------------------
3.1 Registration. The Warrant Agent, on behalf of the Company,
------------
shall number and register the Warrant Certificates in a register (the "Warrant
Register") maintained at the corporate trust office or agency of the Warrant
Agent (the "Office") as they are issued by the Company. The Company and the
Warrant Agent may deem and treat the Holder of any Warrant as the absolute owner
thereof (notwithstanding any notation of ownership or other writing thereon made
by anyone), for all purposes, and neither the Company nor the Warrant Agent
shall be bound to recognize any equitable or other claim to or interest in such
Warrant on the part of any other person, notwithstanding any notice to the
Company or the Warrant Agent to the contrary.
The Warrant Agent shall keep copies of this Agreement and any notices
given or received hereunder available for inspection by the Holders during
normal business hours at the Office. The Company shall supply the Warrant
Agent from time to time with such number of copies of this Agreement as the
Warrant Agent may request.
3.2 Countersignature. The Warrant Certificates shall be manually
----------------
countersigned by the Warrant Agent and shall not be valid for any purpose unless
so countersigned. The Warrant Agent shall, upon written instructions of the
President, a Vice President or the Treasurer of the Company, initially
countersign, issue and deliver Warrant Certificates entitling the Holders
thereof to purchase not more than the number of Warrant Shares referred to above
in the first recital hereof and shall countersign and deliver Warrant
Certificates as otherwise provided in this Agreement.
SECTION 4. Registration of Transfers; Exchanges of Warrant Certificates.
------------------------------------------------------------
4.1 Registration of Transfers. Subject to compliance with the
-------------------------
restrictions on transfer in this Agreement and subject to Section 6 hereof, the
Warrant Agent shall from time to time register the transfer of any outstanding
Warrant Certificate on the Warrant Register maintained at the Office, upon
surrender thereof accompanied by a written instrument or instruments of transfer
in form satisfactory to the Warrant
<PAGE>
Agent, duly endorsed by the Holder thereof or by such Holder's appointed legal
representative or attorney-in-fact, or accompanied by proper evidence of
succession, assignment or authority to transfer. The signature of such Holder,
legal representative or attorney-in-fact shall be guaranteed by a qualified
Medallion Guarantee member. In all cases of transfer by an attorney, the
original power of attorney, duly approved, or an official copy thereof, duly
certified, shall be deposited and remain with the Warrant Agent. In case of
transfer by executors, administrators, guardians or other legal representatives,
duly authenticated evidence of their authority shall be produced, and may be
required to be deposited and remain with the Warrant Agent in its discretion.
Upon any such registration of transfer in such name or names as may be directed
in writing by the Holder, the Warrant Agent shall countersign and deliver a new
Warrant Certificate(s) without charge to such Holder, except as set forth in
Section 7 hereof, to the person or persons entitled to receive the same and the
surrendered Warrant Certificate shall be cancelled by the Warrant Agent.
Cancelled Warrant Certificates shall thereafter be disposed of in a manner
satisfactory to the Company.
4.2 Exchanges of Warrant Certificates. Each Warrant Certificate
---------------------------------
may be exchanged at the option of the Holder without charge to such Holder
thereof when surrendered to the Warrant Agent at the Office properly endorsed in
the manner described in subsection 4.1 hereof for another Warrant Certificate(s)
of like tenor and representing in the aggregate a like number of Warrants.
Thereupon, the Warrant Agent shall countersign and deliver to the person(s)
entitled thereto a new Warrant Certificate(s) as so requested. Warrant
Certificates surrendered for exchange shall be cancelled by the Warrant Agent.
Such cancelled Warrant Certificates shall then be disposed of by such Warrant
Agent in a manner satisfactory to the Company.
SECTION 5. Term of Warrants; Exercise of Warrants; Exercise Price.
------------------------------------------------------
5.1 Term of Warrants. Subject to the provisions of this Agreement,
----------------
each Holder shall have the right, which may be exercised during the period (the
"Exercise Period") commencing at the time of original issuance of the Warrants
and ending at 5:00 p.m., New York City time, on June 30, 1998 (the "Expiration
Time"), to purchase from the Company the number of fully paid and nonassessable
Warrant Shares which the Holder may at the time be entitled to purchase on
exercise of such Warrants and payment of the Exercise Price (as defined below)
for such Warrant Shares. Each Warrant not exercised
<PAGE>
prior to the Expiration Time shall automatically become void and no longer
outstanding.
5.2 Exercise of Warrants. During the Exercise Period (and provided
--------------------
that a current prospectus is on file with the Securities and Exchange
Commission, and an exemption is available therefor under applicable state
securities laws or, if required, the Warrant Shares have been registered or
qualified under applicable state securities laws), a Warrant may be exercised in
whole or in part upon surrender to the Warrant Agent at the Office of the
Warrant Certificate(s) evidencing the Warrants to be exercised, together with
the form of election to purchase on the reverse thereof (the "Purchase Form")
duly completed and signed, which signature shall be guaranteed by a qualified
Medallion Guarantee member, and upon payment to the Warrant Agent, for the
account of the Company, of the Exercise Price for the number of Warrant Shares
in respect of which such Warrants are then exercised. Payment of the aggregate
Exercise Price shall be made by certified check payable to the order of the
Company. The Company agrees to use its reasonable best efforts to maintain on
file (at any time when the Market Price of the Common Stock exceeds the Exercise
Price then in effect) a prospectus relating to the issuance and sale of Warrant
Shares pursuant to the exercise of the Warrants.
Subject to the provisions of Section 6 hereof, upon due exercise of
the Warrants and surrender of the Warrant Certificate with the Purchase Form and
payment of the Exercise Price as aforesaid, the Company shall cause to be issued
and delivered with all reasonable dispatch to or upon the written order of the
Holder and in such name or names as the Holder may designate a certificate(s)
for the number of full Warrant Shares so purchased, together with cash in
respect of any fractional Warrant Shares otherwise issuable upon exercise. Such
certificate(s) shall be deemed to have been issued, and any person so designated
to be named therein shall be deemed to have become a holder of record of such
Warrant Shares, as of the latest of the date of the surrender of such Warrant
Certificate, surrender of the Purchase Form and payment of the Exercise Price.
The Warrants shall be exercisable as provided herein during the
Exercise Period at the election of the Holder either in whole or from time to
time in part. Only whole numbers of Warrants may be exercised. In the event
that prior to the Expiration Time the Holder of the Warrant Certificate shall
exercise fewer than all of the Warrants evidenced thereby, a new Warrant
Certificate(s) evidencing the remaining unexercised Warrant(s) will be issued to
such
<PAGE>
Holder, and the Warrant Agent is hereby irrevocably authorized to countersign
and to deliver the required new Warrant Certificate(s) pursuant to the
provisions of this Section 6 and of subsection 3.2 hereof, and the Company,
whenever required by the Warrant Agent, will supply the Warrant Agent with
Warrant Certificates duly executed on behalf of the Company for such purpose.
All Warrant Certificates surrendered upon exercise of Warrants shall
be cancelled by the Warrant Agent. Such cancelled Warrant Certificates shall
then be disposed of by the Warrant Agent in a manner satisfactory to the
Company. The Warrant Agent shall account promptly to the Company with respect to
Warrants exercised and concurrently pay to the Company all monies received by
the Warrant Agent for the purchase of the Warrant Shares through the exercise of
such Warrants.
5.3 Exercise Price. The price per share at which each Warrant Share
--------------
shall be purchased upon exercise of each Warrant shall be (i) $5.00 during the
period commencing at the time of original issuance of the Warrants and ending at
5:00 p.m., New York City time on June 30, 1995 and (ii) $10.00 during the period
commencing July 1, 1995 and ending at the Expiration Time, in each case subject
to adjustment pursuant to Section 10 hereof (the "Exercise Price").
SECTION 6. Payment of Taxes. The Company covenants and agrees that it
----------------
will pay when due and payable all documentary, stamp and other taxes
attributable to the issuance or delivery of the Warrant Certificates or of the
Warrant Shares purchasable upon the exercise of Warrants; provided, however,
-------- -------
that the Company shall not be required to pay any tax or taxes which may be
payable in respect of any transfer involving the issue of any Warrant
Certificate(s) or any certificate(s) for Warrant Shares in a name other than
that of the Holder of such transferred Warrant Certificate(s) or of the
registered holder of such transferred certificate(s) for Warrant Shares and the
Company shall not be required to issue or deliver such Warrant Certificate(s) or
such certificate(s) for Warrant Shares unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the reasonable satisfaction of the Company
that such tax has been paid.
SECTION 7. Mutilated or Missing Warrant Certificates. In the event that
-----------------------------------------
any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company may, in its discretion, issue and the Warrant Agent countersign and
deliver in exchange and substitution for and upon cancellation of the
<PAGE>
mutilated Warrant Certificate, or in lieu of and substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor
and representing an equivalent number of Warrants, but only, in case of a lost,
stolen or destroyed certificate, upon receipt of evidence satisfactory to the
Company and the Warrant Agent of such loss, theft or destruction. A Holder
applying for such substitute Warrant Certificate shall also comply with such
other reasonable requests (including, without limitation, in the case of a lost,
stolen or destroyed Warrant Certificate, a request to provide a letter of
indemnification or an indemnity bond sufficient in the reasonable judgment of
the Company and the Warrant Agent to protect the Company and the Warrant Agent
from any loss that either of them may suffer if a Warrant Certificate is
replaced) and pay such other reasonable charges as the Company or the Warrant
Agent may reasonably prescribe.
SECTION 8. Reservation of Warrant Shares. (a) The Company shall at all
-----------------------------
times keep reserved, free from preemptive rights, out of its authorized Common
Stock or other securities of the Company issuable upon the exercise of the
Warrants, a number of shares of Common Stock or such other securities sufficient
to provide for the exercise of the right of purchase represented by the
outstanding Warrants.
A transfer agent, if appointed, for the Warrant Shares (the "Transfer
Agent") will be irrevocably authorized and directed at all times to reserve such
number of Warrant Shares as shall be required for such purpose. The Company
shall keep a copy of this Agreement on file with the Transfer Agent. The
Warrant Agent is hereby irrevocably authorized to requisition from time to time
from the Company or such Transfer Agent the certificates representing Warrant
Shares required to honor outstanding Warrants upon exercise thereof in
accordance with the terms of this Agreement. The Company shall supply such
Transfer Agent with such duly executed certificates for such purposes and shall
provide or otherwise make available any cash which would be payable as provided
in Section 12 hereof. Whenever the Warrant Agent countersigns and delivers
certificates representing Warrant Shares pursuant to this Agreement, the Warrant
Agent will promptly provide written notice thereof to the Transfer Agent. The
Company shall furnish such Transfer Agent a copy of all notices of adjustments
and certificates related thereto which are delivered to the Warrant Agent or
transmitted to each
<PAGE>
Holder pursuant to subsection 10.2 and Section 13 hereof.
(b) Before taking any action which would cause an adjustment pursuant to
Section 10 hereof to reduce the Exercise Price below the then par value, if any,
of the Warrant Shares, the Company will take any and all corporate action in
compliance with all applicable laws which may, in the opinion of its counsel
(including in-house or special counsel), be necessary in order that the Company
may validly and legally issue fully paid and nonassessable Warrant Shares at the
Exercise Price as so adjusted.
(c) The Company covenants that all Warrant Shares will, upon issuance, be
fully paid, nonassessable, free of preemptive rights and free from all taxes
payable by the Company, liens, charges and security interests (except any liens,
charges or security interests created or suffered to be created by any of the
Holders) and will not be subject to any restrictions on voting or transfer
thereof that are created by the Company except for such restrictions on voting
or transfer provided in this Agreement, the Restated Certificate of
Incorporation or Bylaws of the Company, as they may be amended from time to time
or as otherwise provided by law.
SECTION 9. Obtaining Stock Exchange Listings. The Company will from time
---------------------------------
to time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed on
the principal securities exchanges and markets within the United States of
America, if any, on which other shares of Common Stock or other securities
issuable upon the exercise of the Warrants are then listed.
SECTION 10. Adjustments.
-----------
10.1 The number and kind of Warrant Shares purchasable upon the
exercise of each Warrant and the Exercise Price shall be subject to adjustment
(provided, that in no event may the Exercise Price be less than the par value of
- ---------
a share of Common Stock) from time to time upon the happening of certain events
occurring on or after the date of original issue of the Warrants as follows:
(a) In case of any reclassification or change of outstanding securities
issuable upon exercise of the Warrants (other than a change in par
<PAGE>
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another entity (other than a merger with
another entity in which the Company is the surviving entity and which does not
result in any reclassification or change -- other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination -- of outstanding securities issuable
upon exercise of the Warrants) or in the case of a sale or conveyance in a
single transaction or in a series of related transactions with the same
purchaser or affiliates thereof of all or substantially all the assets of the
Company as an entity, the Holders shall have, and the Company, or such successor
entity or purchaser, shall covenant in the constituent documents effecting any
of the foregoing transactions that the Holders do have, the right to obtain upon
the exercise of the Warrants, in lieu of each share of Common Stock theretofore
issuable upon exercise of the Warrants, the kind and amount of shares of stock,
other securities, money and property receivable, upon such reclassification,
change, consolidation or merger, or conveyance or sale of assets, by a holder of
one share of Common Stock issuable upon exercise of the Warrants as if they had
been exercised immediately prior to such reclassification, change, consolidation
or merger, or conveyance or sale of assets. The constituent documents effecting
any reclassification, change, consolidation or merger, or conveyance or sale of
assets shall provide for any adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided in this paragraph (a). The
provisions of this paragraph (a) shall similarly apply to successive
reclassifications, changes, consolidations or mergers, or conveyances or sales
of assets.
(b) If the Company at any time while any of the Warrants are outstanding
shall subdivide or combine its Common Stock, the Exercise Price shall be
proportionately reduced, in case of subdivision of shares, as at the effective
date of such subdivision, or if the Company shall take a record of holders of
its Common Stock for the purpose of so subdividing, as at such record date,
whichever is earlier, or shall be proportionately increased, in the case of
combination of shares, as at the effective date of such combination or, if the
Company shall take a record of holders of its
<PAGE>
Common Stock for the purpose of so combining, as at such record date, whichever
is earlier.
(c) If the Company at any time while any of the Warrants are outstanding
shall pay to any holders of securities of the Company a dividend payable in, or
make any other distribution of, Common Stock, the Exercise Price shall be
adjusted, as at the date the Company shall take a record of the holders of its
Common Stock for the purpose of receiving such dividend or other distribution
(or if no such record is taken, as at the date of such payment or other
distribution), to that price determined by multiplying the Exercise Price in
effect immediately prior to such record date (or if no such record is taken,
then immediately prior to such payment or other distribution) by a fraction (1)
the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (2) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution (plus in the event
that the Company paid cash for fractional shares, the number of additional
shares which would have been outstanding had the Company issued fractional
shares in connection with said dividend, except to the extent such payment of
cash is treated as a dividend payable out of profits or surplus legally
available for the payment of dividends under the laws of the State of Delaware).
(d) If the Company at any time while any of the Warrants are outstanding
shall issue any additional shares of Common Stock (otherwise than as provided in
paragraphs (a) through (c) of this subsection 10.1) at a price per share less
than the average Price per share of Common Stock for the 20 trading days
immediately preceding the date of the authorization of such issuance (the
"Market Price") by the Board of Directors of the Company (the "Board of
Directors"), then the Exercise Price upon each such issuance shall be adjusted
to that price determined by multiplying the Exercise Price by a fraction:
(i) the numerator of which shall be the sum of (1) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock multiplied by the Market Price, and (2) the
consideration, if any, received and deemed received by the Company
<PAGE>
upon the issuance of such additional shares of Common Stock, and
(ii) the denominator of which shall be the Market Price multiplied by
the total number of shares of Common Stock outstanding immediately after the
issuance of such additional shares of Common Stock.
No adjustment of the Exercise Price shall be made in an amount less than
1%, but any such lesser adjustment shall be carried forward and shall be made at
the time of the next subsequent adjustment which, together with any adjustments
so carried forward, shall amount to 1% or more. Further, no adjustments of the
Exercise Price shall be made under this paragraph (d) upon the issuance of any
additional shares of Common Stock that (x) are issued pursuant to thrift plans,
stock purchase plans, stock bonus plans, stock option plans, employee stock
ownership plans and other incentive or profit sharing arrangements for the
benefit of employees or scientific or business consultants (including directors)
("Employee Benefit Plans") that otherwise would cause an adjustment under this
paragraph (d); (y) are issued pursuant to any Common Stock Equivalent (i) which
was outstanding on the date of this Agreement or (ii) if upon the issuance of
any such Common Stock Equivalent, any such adjustments shall previously have
been made pursuant to paragraph (e) of this subsection 10.1 or (iii) if no
adjustment was required pursuant to paragraph (e) of this subsection 10.1; or
(z) are Warrant Shares.
The Price per share of Common Stock on any day means the average (mean) of
the reported "high" and "low" sales prices for such shares as reported in The
---
Wall Street Journal's American Stock Exchange-Composite Transactions listing for
- -------------------
such day (corrected for obvious typographical errors), or if such shares are not
reported in such listing, then the average of the reported "high" and "low"
sales prices on the largest national securities exchange (based on the aggregate
dollar value of securities listed) on which such shares are listed or traded, or
if such shares are not listed or traded on any national securities exchange,
then the average of the reported "high" and "low" sales prices for such shares
in the over-the-counter market, as reported on the National Association of
Securities Dealers Automated Quotations System, or, if such prices shall not be
reported thereon, the average of the
<PAGE>
closing bid and asked prices so reported, or, if such prices shall not be
reported, then the average of the closing bid and asked prices reported by the
National Quotation Bureau Incorporated, or, in all other cases, the value
established by the Board of Directors in good faith. The "average" Price per
share of the Common Stock for any period shall be determined by dividing the sum
of the Prices determined for the individual trading days in such period by the
number of trading days in such period.
(e) In case the Company shall issue any security or evidence of
indebtedness which is convertible into or exchangeable for Common Stock
("Convertible Security"), or any warrant, option or other right to subscribe for
or purchase Common Stock or any Convertible Security, other than pursuant to
Employee Benefit Plans (together with Convertible Securities, "Common Stock
Equivalent"), or if, after any such issuance, the price per share for which
additional shares of Common Stock may be issuable thereunder is amended, then
the Exercise Price upon each such issuance or amendment shall be adjusted as
provided in paragraph (d) of this subsection 10.1 hereof on the basis that (i)
the maximum number of additional shares of Common Stock issuable pursuant to all
such Common Stock Equivalents shall be deemed to have been issued as of the
earlier of (a) the date on which the Company shall enter into a firm contract
for the issuance of such Common Stock Equivalent, or (b) the date of actual
issuance of such Common Stock Equivalent; and (ii) the aggregate consideration
for such maximum number of additional shares of Common Stock shall be deemed to
be the minimum consideration received and receivable by the Company for the
issuance of such additional shares of Common Stock pursuant to such Common Stock
Equivalent; provided, however, that no adjustment shall be made pursuant to this
--------
paragraph (e) unless the consideration received and receivable by the Company
per share of Common Stock for the issuance of such additional shares of Common
Stock pursuant to such Common Stock Equivalent is less than the Market Price.
No adjustment of the Exercise Price shall be made under this paragraph (e) upon
the issuance of any Convertible Security which is issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefor, if
any adjustment shall previously have been made in the Exercise Price then in
effect upon the issuance of such warrants or other rights pursuant to this
paragraph (e).
<PAGE>
(f) The following provisions shall be applicable to the making of
adjustments in the Exercise Price hereinbefore provided in this subsection 10.1:
(i) The consideration received by the Company shall be deemed to be
the following: to the extent that any additional shares of Common Stock or any
Common Stock Equivalent shall be issued for cash consideration, the
consideration received by the Company therefor, or, if such additional shares of
Common Stock or Common Stock Equivalent are offered by the Company for
subscription, the subscription price, or, if such additional shares of Common
Stock or Common Stock Equivalent are sold to underwriters or dealers for public
offering without a subscription offering, the initial public offering price, in
any such case excluding any amounts paid or receivable for accrued interest or
accrued dividends and without deduction of any compensation, discounts,
commissions or expenses paid or incurred by the Company for and in the
underwriting of, or otherwise in connection with, the issue thereof; to the
extent that such issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the fair value of such
consideration at the time of such issuance as determined in good faith by the
Board of Directors, as evidenced by a certified resolution of the Board of
Directors delivered to the Warrant Agent setting forth such determination. The
consideration for any additional shares of Common Stock issuable pursuant to any
Common Stock Equivalent shall be the consideration received by the Company for
issuing such Common Stock Equivalent, plus the additional consideration payable
to the Company upon the exercise, conversion or exchange of such Common Stock
Equivalent. In case of the issuance at any time of any additional shares of
Common Stock or Common Stock Equivalent in payment or satisfaction of any
dividend upon any class of stock other than Common Stock, the Company shall be
deemed to have received for such additional shares of Common Stock or Common
Stock Equivalent (which shall not be deemed to be a dividend payable in, or
other distribution of, Common Stock under Section (c)(i) above) a consideration
equal to the amount of such dividend so paid or satisfied.
<PAGE>
(ii) Upon the expiration of the right to convert, exchange or exercise
any Common Stock Equivalent the issuance of which effected an adjustment in the
Exercise Price, if any such Common Stock Equivalent shall not have been
converted, exercised or exchanged, the number of shares of Common Stock deemed
to be issued and outstanding by reason of the fact that they were issuable upon
conversion, exchange or exercise of any such Common Stock Equivalent shall no
longer be computed as set forth above, and the Exercise Price shall forthwith be
readjusted and thereafter be the price which it would have been (but reflecting
any other adjustments in the Exercise Price made pursuant to the provisions of
paragraph (d) of this subsection 10.1 after the issuance of such Common Stock
Equivalent) had the adjustment of the Exercise Price made upon the issuance or
sale of such Common Stock Equivalent been made on the basis of the issuance only
of the number of additional shares of Common Stock actually issued upon
exercise, conversion or exchange of such Common Stock Equivalent and thereupon
only the number of additional shares of Common Stock actually so issued shall be
deemed to have been issued and only the consideration actually received by the
Company (computed as in subparagraph (i) of this paragraph (f)) shall be deemed
to have been received by the Company.
(iii) The number of shares of Common Stock at any time
outstanding shall not include any shares thereof then directly or indirectly
owned or held by or for the account of the Company or its subsidiaries.
(iv) For the purposes of this subsection 10.1, the term "shares of
Common Stock" shall mean shares of (i) the class of stock designated as the
Common Stock of the Company at the date hereof or (ii) any other class of stock
resulting from successive changes or reclassifications of such shares consisting
solely of changes in par value, or from par value to no par value, or from no
par value to par value. In the event that at any time, as a result of an
adjustment made pursuant to paragraph (a) of this subsection 10.1, the Warrants
shall entitle the Holders to purchase any securities other than shares of Common
Stock, thereafter the number of such other securities so
<PAGE>
purchasable upon exercise of each Warrant and the Exercise Price of such
securities shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Warrant Shares contained in this subsection 10.1, and the provisions of Section
6 and subsections 10.2 through 10.6, inclusive, with respect to the Warrant
Shares shall apply on like terms to any such other securities.
(g) The Exercise Price in effect from time to time shall be calculated to
four decimal places and rounded to the nearest thousandth.
10.2 Notice of Adjustment to Exercise Price. Whenever the Exercise
--------------------------------------
Price is required to be adjusted as provided in this Section 10, the Company
shall forthwith compute the adjusted Exercise Price and shall prepare a
certificate setting forth such adjusted Exercise Price and showing in reasonable
detail the facts upon which such adjustment is based. A copy of such certificate
shall forthwith be filed with the Warrant Agent and the Transfer Agent; and
thereafter, until further adjusted, the adjusted Exercise Price shall be as set
forth in such certificate, provided that the computation of such adjusted
Exercise Price shall be reviewed at least annually by the independent public
accountants regularly employed by the Company and said accountants shall file a
corrected certificate, if required, with the Warrant Agent and the Transfer
Agent. The Company shall mail or cause to be mailed to the Holders at least
semi-annually, a statement setting forth the adjustments, if any, made in the
applicable Exercise Price and not theretofore reported to the Holders, and the
reasons for such adjustment.
10.3 Voluntary Reduction. (a) The Company may at its option, but
-------------------
shall not be obligated to, at any time during the term of the Warrants provided
for in subsection 5.1 hereof, reduce the then current Exercise Price by any
amount selected by the Board of Directors; provided that if the Company elects
--------
so to reduce the then current Exercise Price, such reduction shall be
irrevocable during its effective period and remain in effect for a minimum of 20
days following the date of such election, after which time the Company may, at
its option, reinstate the Exercise Price in effect prior to such reduction.
Whenever the Exercise Price is reduced, the Company shall mail to the Holders a
notice of the reduction at least 15 days before the date the reduced Exercise
Price takes effect, stating the reduced Exercise Price and the period for which
such reduced Exercise Price will be in effect.
<PAGE>
(b) The Company may make such decreases in the Exercise Price, in
addition to those required or allowed by this Section 10, as shall be determined
by it, as evidenced by a certified resolution of the Board of Directors
delivered to the Warrant Agent, to be advisable in order to avoid or diminish
any income tax to Holders resulting from any dividend or distribution of stock
or issuance of rights or warrants to purchase or subscribe for stock or from any
event treated as such for income tax purposes.
10.4 Deferral of Issuance or Payment. In any case in which
-------------------------------
subsection 10.1 hereof shall require that an adjustment in the Exercise Price be
made effective as of a record date for a specified event, the Company may elect
to defer until the occurrence of such event (i) issuing to the Holder of any
Warrant exercised after such record date the Warrant Shares and other capital
stock of the Company, if any, issuable upon such exercise over and above the
Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise on the basis of the Exercise Price prior to such adjustment and
(ii) paying to such Holder any amount in cash in lieu of a fractional share
pursuant to Section 12 hereof; provided, however, that the Company shall deliver
--------- -------
to such Holder a due bill or other appropriate instrument evidencing such
Holder's right to receive such additional Warrant Shares, other capital stock
and cash upon the occurrence of the event requiring such adjustment.
10.5 Form of Warrant Certificates. Irrespective of any adjustments
----------------------------
in the Exercise Price or the kind of Warrant Shares purchasable upon the
exercise of the Warrants, Warrant Certificates evidencing such Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of Warrant Shares as are stated in the Warrant Certificates
initially issuable pursuant to this Agreement.
10.6 Adjustment of Number of Shares. (a) Upon each adjustment of
------------------------------
the Exercise Price pursuant to paragraph (b), (c), (d) or (e) of subsection 10.1
hereof, each Warrant shall thereupon evidence the right to purchase that number
of shares of Common Stock (calculated to four decimal places and rounded to the
nearest thousandth of a share) obtained by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment upon exercise of
the Warrant by the Exercise Price in effect immediately prior to such adjustment
and dividing the product so obtained by the Exercise Price in effect immediately
after such adjustment.
(b) The Company may elect on or after the date of any adjustment of
the Exercise Price, in lieu of making any
<PAGE>
adjustment in the number of Warrant Shares purchasable upon the exercise of a
Warrant as provided in paragraph (a) above, to issue additional Warrants
representing the right to purchase the number of additional Warrant Shares
purchasable upon the exercise of a Warrant as provided in paragraph (a) above
resulting from such adjustment of the Exercise Price. Each of the Warrants
outstanding after such election shall be exercisable for the number of Warrant
Shares for which a Warrant was exercisable immediately prior to such adjustment.
The Company shall make a public announcement of its election to issue additional
Warrants, indicating the record date for such issuance of additional Warrants,
and, if known at the time, the number of additional Warrants to be issued. This
record date may be the date on which the Exercise Price is adjusted or any day
thereafter, but shall be at least ten days later than the date of the public
announcement. Upon each adjustment of the number of Warrants pursuant to this
paragraph (b), the Company shall, as promptly as practicable, cause to be
distributed to Holders of Warrant Certificates on such date, Warrant
Certificates evidencing, subject to paragraph (c) below, the additional Warrants
to which such Holders shall be entitled as a result of such adjustment or, at
the option of the Company, shall cause to be distributed to such Holders in
substitution and replacement for the Warrant Certificates held by such Holders
prior to the date of such adjustment, and upon surrender thereof, if required by
the Company, new Warrant Certificates evidencing all the Warrants to which such
Holders shall be entitled after such adjustment. Warrant Certificates to be so
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Exercise
Price) and shall be registered in the names of the Holders of Warrant
Certificates on the record date specified in the public announcement.
(c) The Company shall not be required to issue fractions of Warrants,
or to distribute Warrant Certificates or scrip evidencing fractional Warrants.
In lieu of such fractional Warrants, there shall be paid to the Holders of the
Warrant Certificates with regard to which such fractional Warrants would
otherwise be issuable, an amount in cash equal to the same fraction of the price
of one Warrant (determined in the manner analogous to that provided in Section
10.1(c) for a share of Common Stock), computed as of the trading day immediately
prior to the date on which such fractional Warrants would have been otherwise
issuable.
SECTION 11. No Impairment. Without limiting the generality of the
-------------
foregoing, the Company (i) will take all such action as may be necessary or
appropriate in order that
<PAGE>
the Warrant Shares to be issued upon the exercise of the Warrants from time to
time outstanding will, when issued be fully paid and nonassessable, and (ii)
will not take any action which results in any adjustment if the total number of
shares of Common Stock issuable after the action upon the exercise of all of the
Warrants would exceed the total number of shares of Common Stock then authorized
by the Company's articles of incorporation and available for the purpose of
issuance upon such exercise.
SECTION 12. Fractional Interests. The Company shall not issue
--------------------
fractional Warrant Shares on the exercise of Warrants. If more than one Warrant
shall be presented for exercise at the same time by the same Holder, the number
of full Warrant Shares which shall be issuable upon the exercise thereof shall
be computed on the basis of the aggregate number of Warrant Shares purchasable
on exercise of the Warrants so presented. If any fraction of a Warrant Share
would be issuable on the exercise of any Warrants, the Company shall pay to the
Holder an amount in cash equal to the Price per share of Common Stock (or other
securities issuable upon the exercise of the Warrants) (as defined in paragraph
(d) of subsection 10.1 hereof) computed as of the trading day immediately
preceding the date the Warrant is presented for exercise, multiplied by such
fraction (but in no event less than an amount equal to such fraction multiplied
by the Exercise Price in effect at such time).
SECTION 13. Notices to Warrant Holders. In the event:
--------------------------
(i) of any consolidation or merger to which the Company is a party and
for which approval of any stockholders of the Company is required, or of the
conveyance or sale of all or substantially all of the assets of the Company, or
of any reclassification or change of the Common Stock or other securities
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a result
of a subdivision or combination), or a tender offer or exchange offer for shares
of Common Stock (or other securities issuable upon the exercise of the
Warrants); or
(ii) the Company shall declare any dividend (or any other
distribution), other than regular cash dividends, on the Common Stock; or
<PAGE>
(iii) the Company shall authorize the granting to the holders
of Common Stock of rights or warrants to subscribe for or purchase any shares of
any class or series of capital stock; or
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then the Company shall cause to be filed with the Warrant Agent and shall cause
to be sent to each Holder at such Holder's address appearing on the Warrant
Register, at least 30 days prior to the applicable record date hereinafter
specified, or promptly in the case of events for which there is no record date,
by first-class mail, postage prepaid, a written notice stating (x) the date for
the determination of the holders of record of shares of Common Stock (or other
securities issuable upon the exercise of the Warrants) entitled to receive any
such dividends or other distribution, (y) the initial expiration date set forth
in any tender offer or exchange offer for shares of Common Stock (or other
securities issuable upon the exercise of the Warrants), or (z) the date on which
any such consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of shares of Common Stock (or other
securities issuable upon the exercise of the Warrants) shall be entitled to
exchange such shares for securities or other property, if any, deliverable upon
such reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. Failure to give such notice or any defect therein
shall not affect the legality or validity of any distribution, right, option,
warrant, issuance, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
Nothing contained in this Agreement or in any of the Warrant Certificates
shall be construed as conferring upon the Holder thereof any rights of a
stockholder of the Company, including, without limitation, the right to vote, to
consent or to receive notice in respect of the meetings of stockholders or the
election of the Board of Directors or any other matter.
SECTION 14. Reports to Warrant Holders. The Company will cause to be
--------------------------
delivered, by first-class mail, postage prepaid, to each Holder at such Holder's
address appearing on the Warrant Register, a copy of any reports
<PAGE>
delivered by the Company to the holders of Common Stock of the Company.
SECTION 15. Merger, Consolidation or Change of Name of Warrant Agent.
--------------------------------------------------------
Any entity into which the Warrant Agent may be merged or with which it may be
consolidated, or any entity resulting from any merger or consolidation to which
the Warrant Agent shall be a party, or any entity succeeding to the business of
the Warrant Agent shall be the successor to the Warrant Agent hereunder without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided that such entity would be eligible for appointment
--------
as a successor to the Warrant Agent under the provisions of Section 17 hereof.
In case at the time such successor to the Warrant Agent shall succeed to the
agency created by this Agreement and any of the Warrant Certificates shall have
been countersigned but not delivered, any such successor to the Warrant Agent
may adopt the countersignature of the original Warrant Agent; and in case at
that time any of the Warrant Certificates shall not have been countersigned, any
successor to the Warrant Agent may countersign such Warrant Certificates either
in the name of the predecessor Warrant Agent or in the name of the successor to
the Warrant Agent; and in all such cases, such Warrant Certificates shall have
the full force and effect provided in the Warrant Certificates and in this
Agreement.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrant Certificates shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior
name; and in case at that time any of the Warrant Certificates shall not have
been countersigned, the Warrant Agent may countersign such Warrant Certificates
either in its prior name or in its changed name; and in all such cases, such
Warrant Certificates shall have the full force and effect provided in the
Warrant Certificates and in this Agreement.
SECTION 16. Concerning the Warrant Agent. The Warrant Agent
----------------------------
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the Holders, by
their acceptance of the Warrants, shall be bound:
16.1 Correctness of Statements. The statements contained herein and
-------------------------
in the Warrant Certificates shall be taken as statements of the Company, and the
Warrant Agent assumes no responsibility for the correctness of any of the same
except such as describe the Warrant Agent or action taken or to be taken by it.
Unless otherwise provided in this
<PAGE>
Agreement, the Warrant Agent assumes no responsibility with respect to the
distribution of the Warrant Certificates.
16.2 Breach of Covenants. The Warrant Agent shall not be
-------------------
responsible for any failure of the Company to comply with any of the covenants
contained in this Agreement or in the Warrant Certificates to be complied with
by the Company.
16.3 Reliance on Counsel. The Warrant Agent may consult at any time
-------------------
with counsel satisfactory to it (who may be counsel for the Company) and the
Warrant Agent shall incur no liability or responsibility to the Company or to
any Holder in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel.
16.4 Reliance on Documents. The Warrant Agent shall incur no
---------------------
liability or responsibility to the Company or to any Holder for any action taken
in reliance on any Warrant Certificate, certificate representing shares of
capital stock of the Company, notice, resolution, waiver, consent, order,
certificate, or other paper, document or instrument believed by it to be genuine
and to have been signed, sent or presented by the proper party or parties.
16.5 Compensation. The Company agrees to pay to the Warrant Agent
------------
reasonable compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, to reimburse the Warrant Agent for all expenses,
taxes and governmental charges and other charges of any kind and nature incurred
by the Warrant Agent in the execution of this Agreement, and to indemnify the
Warrant Agent and save it harmless against any and all liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of this Agreement except as a result of its negligence or
bad faith.
16.6 Other Transactions in Securities of the Company. Except as
-----------------------------------------------
prohibited by law, the Warrant Agent, and any stockholder, director, officer or
employee of it, may buy, sell or deal in any of the Warrants or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not the Warrant Agent under
this Agreement. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
<PAGE>
16.7 Liability of Warrant Agent. The Warrant Agent shall act
--------------------------
hereunder solely as agent for the Company, and its duties shall be determined
solely by the provisions hereof. The Warrant Agent shall not be liable for
anything which it may do or refrain from doing in connection with this Agreement
except for its own negligence or bad faith.
16.8 Adjustments to Exercise Price or Number of Warrant Shares. The
---------------------------------------------------------
Warrant Agent shall not at any time be under any duty or responsibility to any
Holder to make or cause to be made any adjustment of the Exercise Price or
number of the Warrant Shares deliverable as provided in this Agreement, or to
determine whether any facts exist which may require any of such adjustments, or
with respect to the nature or extent of any such adjustments, when made, or with
respect to the method employed in making the same. The Warrant Agent shall not
be accountable with respect to the validity or value or the kind or amount of
any Warrant Shares or of any securities or property which may at any time be
issued or delivered upon the exercise of any Warrant or with respect to whether
any such Warrant Shares or other securities will when issued be validly issued
and fully paid and nonassessable, and makes no representation with respect
thereto.
SECTION 17. Change of Warrant Agent. The Warrant Agent may
-----------------------
resign and be discharged from its duties under this Agreement by giving to the
Company notice in writing, specifying a date when such resignation shall take
effect, which notice shall be sent at least 30 days prior to the date so
specified, except that such shorter notice may be given as the Company shall, in
writing, accept as sufficient in the exercise of its sole discretion. Upon such
resignation, the Warrant Agent shall give notice in writing by first-class mail,
postage prepaid, to each Holder of a Warrant Certificate at his address
appearing in the Warrant Register. The Company may remove the Warrant Agent or
any successor warrant agent upon 30 days' notice in writing, mailed to the
Warrant Agent or any successor warrant agent and to the Transfer Agent by
registered or certified mail, and to the holders of Warrant Certificates by
first-class mail at their addresses appearing in the Warrant Register. If the
Warrant Agent shall resign, be removed or otherwise become incapable of acting
as Warrant Agent, the Company shall appoint a successor to such Warrant Agent.
If the Company shall fail to make such appointment within a period of 30 days
after it has been notified in writing of such incapacity by the Warrant Agent or
by a Holder, then any Holder may apply to any court of competent jurisdiction
for the appointment of a successor to the Warrant Agent. Pending appointment of
a successor to such Warrant Agent, either by the Company or by such a court,
<PAGE>
the duties of the Warrant Agent shall be carried out by the Company. Not later
than the effective date of any appointment, the Company shall give notice
thereof to the predecessor Warrant Agent and the Transfer Agent, and shall
forthwith publish a copy of such notice once in a newspaper customarily
published on each business day, printed in the English language and of general
circulation in The City of New York. The Holders of a majority of the
unexercised Warrants shall be entitled at any time to remove the Warrant Agent;
thereafter the Company shall appoint a successor to such Warrant Agent. Any
successor to the Warrant Agent need not be approved by the former Warrant Agent.
After appointment, the successor to the Warrant Agent shall thereupon be the
Warrant Agent and shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed; but the former Warrant Agent shall deliver and transfer to
the successor Warrant Agent any property at the time held by it hereunder and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Failure to give any notice provided for in this Section 17,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Warrant Agent or the appointment of the successor
warrant agent, as the case may be.
SECTION 18. Identity of Transfer Agent. Forthwith upon the
--------------------------
appointment of any Transfer Agent for the Common Stock or any other securities
of the Company issuable upon the exercise of the Warrants or any successor
thereto, the Company shall file with the Warrant Agent a statement setting forth
the name and address of such Transfer Agent.
SECTION 19. Notices to Company and Warrant Agent. Any notice
------------------------------------
or demand authorized by this Agreement to be given or made by the Warrant Agent
or by any Holder to or on the Company shall be delivered in person or by
facsimile transmission, by courier guaranteeing overnight delivery or mailed by
first-class mail or registered mail, postage prepaid, (i) to the Company (until
another address is filed in writing by the Company with the Warrant Agent) as
follows:
Houston Biotechnology Incorporated
3608 Research Forest Drive
The Woodlands, Texas 77381
Telecopy: (713) 363-3715
Attention: Chief Financial Officer
and (ii) to the Warrant Agent (until another address is filed in writing by the
Warrant Agent with the Company) as follows:
<PAGE>
Mellon Securities Trust Company
120 Broadway, 33rd Floor
New York, New York 10271
Any notice pursuant to this Agreement by the Company or the Warrant Agent
to any Holder shall be in writing and shall be mailed by first-class mail,
postage prepaid, or otherwise delivered to such Holder at its address on the
Warrant Register.
Notices delivered personally shall be effective at the time delivered by
hand, notices sent by mail shall be effective four days after mailing, notices
sent by facsimile transmission shall be effective when receipt is acknowledged
and notices sent by courier guaranteeing next day delivery shall be effective on
the next business day after timely delivery to such courier.
SECTION 20. Supplements and Amendments. The Company and the Warrant
--------------------------
Agent may from time to time supplement or amend this Agreement without the
approval of any Holders in order to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provision herein, or to make any other provisions in regard to
matters in questions arising hereunder which the Company and the Warrant Agent
may deem necessary or desirable and which shall not in any way adversely affect
the interests of the Holders. Otherwise, the Company, when authorized by its
Board of Directors, and the Warrant Agent, together with the written consent of
the holders of at least 66-2/3% of the outstanding Warrants may amend or
supplement this Agreement.
SECTION 21. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 22. Termination. This Agreement shall terminate on the
-----------
fifteenth day following the later to occur of (i) the Expiration Time and (ii)
the date on which Warrant Shares have been issued upon the exercise of all
Warrants pursuant hereto.
SECTION 23. Governing Law. The laws of the State of Texas shall
-------------
govern this Agreement and the Warrant Certificates without regard to principles
of conflicts of law.
SECTION 24. Benefits of this Agreement. Nothing in this Agreement
--------------------------
shall be construed to give to any person or
<PAGE>
entity other than the Company, the Warrant Agent and the Holders any legal or
equitable right, remedy or claim under this Agreement; this Agreement shall be
for the sole and exclusive benefit of the Company, the Warrant Agent and the
Holders.
SECTION 25. Counterparts. This Agreement may be executed in any
------------
number of counterparts, and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
SECTION 26. Attorneys' Fees. In any action or proceeding brought by
---------------
the Company, the Warrant Agent or the Holders to enforce any provision of this
Agreement or the Warrant Certificates, or where any provision hereof or thereof
is validly asserted as a defense, the successful party shall be entitled to
recover reasonable attorneys' fees in addition to any other available remedy.
SECTION 27. Severability of Provisions. Any provision of this
--------------------------
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
HOUSTON BIOTECHNOLOGY
INCORPORATED
By:_____________________________
J. Russell Denson
President
MELLON SECURITIES TRUST
COMPANY
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE>
EXHIBIT A TO
WARRANT AGREEMENT
[ Form of Warrant Certificate]
[Face]
VOID AFTER 5:00 P.M.
NEW YORK CITY TIME ON June 30, 1998
No. __________ __________ Warrants
HOUSTON BIOTECHNOLOGY INCORPORATED
WARRANT CERTIFICATE
This Warrant Certificate ("Warrant Certificate") certifies that, for value
received, _____________________________________, or its registered assigns (the
"Holder"), is the registered owner of the number of Warrants ("Warrants") set
forth above, each expiring at 5:00 p.m. New York City time on June 30, 1998 (the
"Expiration Time") and entitling the owner hereof to purchase prior to the
Expiration Time, as set forth in the Warrant Agreement referred to on the
reverse hereof, the number of fully paid and nonassessable shares of common
stock, par value $.01 per share (the "Common Stock"), of Houston Biotechnology
Incorporated, a Delaware corporation (the "Company"), which is equal to the
number of Warrants set forth above, at the initial exercise price of $5.00 per
share, increasing to $10.00 per share after June 30, 1995 (the "Exercise
Price"). The Warrants evidenced hereby may be exercised in whole or in part by
surrender of this Warrant Certificate with the Purchase Form on the reverse
hereof duly completed and signed and the simultaneous payment of the Exercise
Price at the corporate trust office or agency of Mellon Securities Trust Company
or any successor thereto (the "Warrant Agent"), subject to the conditions set
forth herein and in the Warrant Agreement. The Exercise Price and number and
kind of Warrant Shares (as defined in the Warrant Agreement) issuable upon
exercise of the Warrants are subject to adjustment upon the occurrence of
certain events set forth in the Warrant Agreement.
No Warrant may be exercised after the Expiration Time, and each Warrant not
exercised prior to the Expiration Time shall automatically become void and no
longer outstanding.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof, and
A-2
<PAGE>
such further provisions shall for all purposes have the same effect as though
fully set forth herein.
This Warrant Certificate shall not be valid for any purpose unless
countersigned by the Warrant Agent, as such term is used in the Warrant
Agreement.
The laws of the State of Texas shall govern this Warrant Certificate
without regard to principles of conflicts of law.
IN WITNESS WHEREOF, Houston Biotechnology Incorporated has caused this
Warrant Certificate to be signed by its President and by its Secretary and has
caused its corporate seal to be affixed hereunto or imprinted hereon.
Houston Biotechnology Incorporated
[Corporate Seal]
By:_______________________
J. Russell Denson
President
____________________________________
Secretary
Dated:
Countersigned: Mellon Securities Trust Company
(New York, New York)
__________________________________
as Warrant Agent
By: ________________________________
Authorized Officer
A-2
<PAGE>
[Form of Warrant Certificate]
[Reverse]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants exercisable prior to 5:00 p.m. New York City time
on June 30, 1998 (the "Expiration Time"), entitling the holder on exercise to
receive shares of common stock, par value $.01 per share (the "Common Stock"),
of Houston Biotechnology Incorporated (the "Company") and are issued pursuant to
the certain Warrant Agreement dated as of May 24, 1993 (the "Warrant
Agreement"), by and between the Company and Mellon Securities Trust Company, as
warrant agent (such warrant agent, or any successor thereto, hereinafter
referred to as the "Warrant Agent"), which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitations of rights, obligations,
duties and immunities thereunder of the Warrant Agent, the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants. A copy of the Warrant Agreement may be
obtained without charge by the holder hereof upon written request to the Company
or the Warrant Agent.
Warrants may be exercised, as provided in the Warrant Agreement, at any
time in whole or in part from time to time prior to the Expiration Time at the
initial exercise price of $5.00 per share, increasing to $10.00 per share after
June 30, 1995 (the "Exercise Price"). The holder of Warrants evidenced by this
Warrant Certificate may exercise such Warrants by surrendering this Warrant
Certificate, with the Purchase Form set forth hereon properly completed and
signed, together with payment of the Exercise Price, at the corporate trust
office or agency of the Warrant Agent.
Payment of the Exercise Price shall be made by certified check payable to
the order of the Company.
In the event that upon any exercise of Warrants evidenced hereby the number
of Warrants exercised shall be less than the total number of Warrants evidenced
hereby, there shall be issued to the holder hereof a new Warrant Certificate
evidencing the number of Warrants not exercised. Only whole numbers of Warrants
may be exercised.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the number or kind of Warrant Shares purchasable upon the
exercise of a Warrant may, subject to certain conditions, be adjusted. The
Board of
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<PAGE>
Directors of the Company, in its discretion, may reduce the Exercise Price. No
fractional shares of Common Stock may be issued upon the exercise of any
Warrant(s) evidenced hereby; in lieu thereof, a cash payment will be made as
provided in the Warrant Agreement.
Warrant Certificates, when surrendered at the corporate trust office or
agency of the Warrant Agent by the holder thereof in person or by legal
representative or attorney-in-fact duly authorized in writing, may be exchanged,
in the manner and subject to the limitations provided in the Warrant Agreement,
but without payment of any service charge, for new Warrant Certificate(s) of
like tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the corporate trust office or agency of the Warrant Agent, a new
Warrant Certificate(s) of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferee(s) in exchange for this
Warrant Certificate, subject to the limitations provided in the Warrant
Agreement, without charge except for any tax or other governmental charge
imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered holder
hereof as the absolute owner of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, of any distribution to the holder hereof, and for all
other purposes, and neither the Company nor the Warrant Agent shall be affected
by any notice to the contrary. Neither the Warrant Agreement, the Warrants nor
this Warrant Certificate entitles any holder hereof to any rights of a
stockholder of the Company.
For residents of the State of Ohio, Warrants may not be exercised unless at
the time of exercise the underlying shares of Common Stock are exempt or are the
subject matter of an exempt transaction or are registered by description,
coordination or qualification, or, at the time of such exercise, are the subject
matter of a transaction which has been registered by description.
A-4
<PAGE>
PURCHASE FORM
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise _________
Warrants evidenced by this Warrant Certificate, and herewith tenders in payment
for such exercise payment of the Exercise Price in full, in the form of a
certified check payable to the order of Houston Biotechnology Incorporated in
the amount of $_______, all in accordance with the terms hereof. The
undersigned requests that the Warrant Shares or other securities receivable upon
exercise be in fully registered form and registered in such name and delivered,
together with any other property receivable upon exercise, as specified below.
If said number of Warrants exercised is less than all of the Warrants evidenced
hereby, the undersigned requests that a new Warrant Certificate representing the
remaining Warrants evidenced hereby be issued and delivered as set forth below.
Issue to:
______________________________________________
(Name)
______________________________________________
(Address, including zip code)
______________________________________________
(Social security or other identifying number)
Deliver to:
______________________________________________
(Name)
______________________________________________
(Address, including zip code)
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<PAGE>
Dated: ___________________
____________________________________
(Insert social security or other
identifying number of Holder)
Signature: ____________________
NOTE: Signature must conform in all
respects to name of Holder as
specified on the face of this Warrant
Certificate in every particular,
without alteration or enlargement or
any change whatsoever, unless this
Warrant Certificate has been
assigned.
Signature Guarantee: ______________________
Signature(s) must be guaranteed by a
qualified Medallion Guarantee member
A-6
<PAGE>
ASSIGNMENT
(To be executed only upon assignment of the Warrant Certificate)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto _________________________________ (name and address of assignee
must be printed or typewritten) the within Warrant Certificate, together with
all right, title and interest therein, and does hereby irrevocably constitute
and appoint ____________________________ Attorney-in-fact, to transfer said
Warrant Certificate on the books of the Company with full power of substitution
in the premises.
Dated: ________________________
______________________________
Signature of Registered Holder
NOTE: The above signature must correspond with
the name as written on the face of this
Warrant Certificate in every particular,
without alteration or enlargement or any
change whatever.
Signature Guarantee: _______________________
Signature(s) must be guaranteed by a
qualified Medallion Guarantee member
A-7
<PAGE>
EXHIBIT 10.69
The within Note and the shares of common stock of the Company issuable upon
conversion thereof ("Conversion Stock") have not been registered under the
United States Securities Act of 1933, as amended (the "Act"), or under the
securities laws of any state and the transfer of the within Note and the
Conversion Stock is subject to the restrictions specified in Section 3 of the
within Note. By purchasing or otherwise acquiring an interest in the within
Note or the Conversion Stock, each holder hereof or thereof agrees to become
bound by such restrictions on transfer and no transfer of this Note and such
Conversion Stock shall be valid or effective unless and until the terms and
conditions of said Section 3 have been complied with.
HOUSTON BIOTECHNOLOGY INCORPORATED
Convertible Note
$250,000.00 Houston, Texas
January 15, 1997
HOUSTON BIOTECHNOLOGY INCORPORATED (the "Company"), a Delaware
corporation, for value received, hereby promises to pay to Medarex, Inc.
("Medarex") or order, the principal amount of $250,000.00, with interest from
the date hereof (computed on the basis of a 365 or 366 day year and actual
number of days elapsed) on the unpaid balance of such principal amount at the
90-day U.S. Treasury Bill rate as of the date hereof, payable all as more fully
set forth herein. This Convertible Note (the "Note") is issued in connection
with that certain Agreement and Plan of Merger dated the date hereof among
Medarex, Medarex Acquisition Corp. and the Company (the "Merger Agreement").
1. PAYMENT OF NOTE
1.1 Prepayments Generally. The unpaid principal amount
---------------------
of the Note shall be subject to prepayment in whole or in part without penalty.
The Company shall give five (5) days notice to Medarex prior to any prepayment
of this Note to allow Medarex the opportunity to convert the Note prior to such
prepayment.
1.2 Payments of Principal and Interest. The principal
----------------------------------
amount of and interest on the Note shall be due and payable as follows:
(a) If the Merger Agreement is terminated pursuant to
Section 6.1(b) thereof, then the principal of and accrued interest on the Note
shall become due and payable in full on the date which is 60 days following the
date of such termination.
1
<PAGE>
(b) If the Merger Agreement is terminated pursuant to
Section 6.1(c), 6.1(d) or 6.1(e) thereof, then the principal of and interest on
the Note shall be automatically converted into Common Stock all as of the date
of such termination in accordance with the terms of Section 2 hereof.
(c) If the Merger Agreement is terminated pursuant to
Section 6.1(f) thereof, then the principal of and accrued interest on the Note
shall become due and payable in full on the date which is 120 days following
the date of such termination; provided, however, that if the provisions of
Section 6.3(a)(i) of the Merger Agreement also apply, then the principal of and
accrued interest on the Note shall become due and payable in full on the date
the Company is required to make the cash payment as specified in Section 6.3(b)
of the Merger Agreement.
(d) If the Merger Agreement is terminated pursuant to
Section 6.1(g) thereof, then the principal of and accrued interest on the Note
shall become due and payable in full on the date the Company is required to
make the cash payment as specified in Section 6.3(b) of the Merger Agreement.
(e) If the Merger Agreement is terminated pursuant to
Section 6.1(h), then the principal of and accrued interest on the Note shall be
automatically converted into Common Stock all as of the date of such
termination in accordance with the terms of Section 2 hereof.
2. CONVERSION OF NOTE
2.1 Right to Convert. Subject to and upon compliance
----------------
with the provisions hereof, the holder of the Note shall have the right, at
such holder's option to convert all, but not a part of the unpaid principal
amount of and accrued interest on the Note into Common Stock of the Company at
a price per share initially equal to $1.00 (herein called the "Initial
Conversion Price", provided, however, that if the conversion is pursuant to
Section 1.2(e) above, then such Initial Conversion Price shall be $0.9375 per
share), or, if an adjustment of such price has taken place pursuant to the
further provisions of this Section 2, then at the price as last adjusted and in
effect on the date the Note is surrendered for conversion (the Initial
Conversion Price or such price as last adjusted, as the case may be, being
referred to herein as the "Conversion Price"). In order to exercise such
conversion privilege, the holder hereof shall surrender the Note to the Company
at its office in Houston, Texas (or such other office or agency of the Company
as the Company may designate by notice in writing to the holder of the Note).
2.2 Issue of Common Stock; Continuing Obligation. As
--------------------------------------------
promptly as practicable after surrender of the Note as aforesaid, the Company
shall issue and deliver to the holder hereof (hereafter in this section the
term "holder" shall include the nominee or designee of any holder), registered
in the name of such holder, a certificate or certificates for the number
2
<PAGE>
of full shares of Conversion Stock, bearing the restrictive legend required by
Section 3 hereof. To the extent permitted by law, such conversion shall be
deemed to have been effected and the Conversion Price shall be determined as of
the close of business on the date on which the Note shall have been surrendered
as aforesaid, and at such time the rights of the holder of the Note as such
holder shall cease, and the person or persons in whose name or names any
certificate or certificates for shares of Conversion Stock shall be issuable
upon such conversion shall be deemed to have become the holder or holders of
record of the shares represented thereby. The shares of Conversion Stock
issued on any such conversion shall rank pari passu with all
---- -----
outstanding shares of Common Stock and, in particular, will be entitled to
participate in all dividends and distributions in respect of such outstanding
Common Stock, which were declared for payment to holders of Common Stock of
record as of a date occurring after (but not before) such conversion takes
place.
2.3 Fractional Shares; Dividends and Interest. The
-----------------------------------------
Company shall not be required to issue fractional shares upon conversion of the
Note and no payment or adjustment shall be made upon any conversion on account
of any cash dividends on the Conversion Stock issued. In the event any
fractional interest in a share of Common Stock would be deliverable upon any
conversion of the Note, the Company may, at its option, in lieu of delivering
such fractional interest, pay a cash adjustment in respect of such fractional
interest in an amount equal to the market value of such fractional interest.
In such event, the market value of a share of Conversion Stock shall be deemed
to be the Conversion Price. If the Company shall not elect to pay such cash
adjustment, the person entitled to such fractional interest may elect to
purchase the additional fractional interest required to make up a full share of
Conversion Stock or to sell the fractional interest to which the person is
entitled, in accordance with procedures established by the Company's Board of
Directors.
2.4 Anti-Dilution Provisions. The Conversion Price
------------------------
shall be subject to adjustment from time to time as follows:
(a) If the Company shall at any time or from time to time
pay a dividend or other distribution on its outstanding shares of Common Stock
in shares of Common Stock, sub-divide its outstanding shares of Common Stock
into a larger number of shares or combine its outstanding shares of Common
Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to the record date for such dividend or the effective date
for such subdivision or combination shall be adjusted so that each Note shall
thereafter be convertible into the number of shares of Common Stock which the
holder of a Note would have been entitled to receive after the happening of any
of the events described above had such Note been converted immediately prior to
the happening of such event. An adjustment made pursuant to this subparagraph
(a) shall become effective immediately after the close of business on such a
record date in the case of a dividend and shall become effective on the close
of business on the day immediately prior to the effective date in the case of a
sub-division or combination.
(b) If the Company shall issue rights or warrants to all
holders of Common Stock (expiring within 45 days after the record date for
determining stockholders
3
<PAGE>
entitled to receive them) for the purpose of entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the average of
the Closing Prices (as defined in Section 7 hereof) per share for the 30
consecutive Trading Days (as defined in Section 7 hereof) ending on the record
date for the determination of the stockholders entitled to receive such rights
or warrants, then at the discretion of the Board of Directors, either (i) the
Company shall make a like issue at the same time to the holder of the Note as
if its conversion rights had been exercisable in full on the record date for
such issue on the basis of the Conversion Price; or (ii) the number of shares
of Common Stock into which the Note shall thereafter be convertible shall be
adjusted by multiplying the number of shares of Common Stock into which the
Note was convertible on the day immediately preceding such record date by a
fraction the numerator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of additional
shares of Common Stock so offered for subscription or purchase, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding on such record date and the number of shares of Common Stock which
the aggregate offering price of the total number of shares so offered would
purchase at such average of the Closing Prices for such 30 Trading Days. Such
adjustment shall become effective immediately after the close of business on
such record date. Notwithstanding anything in the foregoing to the contrary,
no such issue or adjustment shall be made in respect of the shares of Common
Stock issuable upon exercise of any stock options granted pursuant to the
Company's stock option plans approved by shareholders (provided that option
exercise price shall not be less than the market value of the Common Stock on
the date of grant of the options).
(c) If the Company makes any offer or invitation by way of
rights or otherwise (not being an offer or invitation to which the provisions
of Section 2.4(b) apply) to all the stockholders of the Company, the Company
shall make or, so far as it is able, cause that there be made a like offer at
the same time to the holder of the Note as if its conversion rights had been
exercisable and had been exercised in full on the record date for such offer or
invitation on the basis of the Conversion Price.
(d) If the Company shall distribute to all holders of
Common Stock any assets (other than any ordinary dividend payable solely in
cash in an amount not excessive in comparison to its current earnings), any
rights to subscribe (other than those referred to in Section 2.4(b) above) or
any evidence of indebtedness or other securities (other than Common Stock or
securities which are subordinated in right of payment to the Note), then in
each such case the number of shares of Common Stock into which the Note shall
thereafter be convertible shall be adjusted by multiplying the number of shares
of Common Stock into which the Note was convertible on the date immediately
preceding the record date for the determination of the stockholders entitled to
receive such distribution by a fraction the numerator of which shall be the
average of the Closing Prices per share of Common Stock for the thirty (30)
consecutive Trading Days ending on such record date and the denominator of
which shall be such average of the Closing Prices per share less the then fair
market value (as determined in a resolution adopted by the Board and reviewed
and approved by the Company's auditors for the time being) of the portion of
the assets or evidences of indebtedness or securities so distributed or of such
4
<PAGE>
subscription rights applicable to one share of Common Stock. Such adjustment
shall become effective immediately after the close of business on such record
date.
(e) Whenever the Conversion Price is adjusted as herein
provided, the Company shall forthwith note in its books and records the
adjusted Conversion Price determined as provided in this Section 2.4. Such
notation shall show in detail the facts requiring such adjustment. Whenever
the Conversion Price is adjusted, the Company will forthwith cause a notice
stating the adjustment and the resulting Conversion Price to be mailed to the
holder of the Note.
(f) No adjustment shall be made hereunder unless by reason
of the happening of any one or more of the events herein specified, the
Conversion Price then in effect would be changed by 1% or more, but any
adjustment of less than 1% that would otherwise be required to be made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, together with any adjustment or adjustments so
carried forward, amounts to 1% or more, provided that such adjustment shall be
made in any case (regardless of whether or not the amount thereof or the
cumulative amount thereof amounts to 1% or more) upon the happening of one or
more of the events specified in Section 2.5 hereof.
2.5 Effect of Reorganization and Asset Sales. If any
----------------------------------------
capital reorganization or reclassification of the capital stock of the Company,
or consolidation or merger of the Company with another corporation, or the sale
of all or substantially all of its assets to another person, shall be effected
in such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as
a condition of such reorganization, reclassification, consolidation, merger, or
sale, lawful and adequate provision shall be made whereby the holder of the
Note shall thereafter have the right to receive, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of the Common
Stock of the Company immediately theretofore receivable upon the conversion of
the Note, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such stock immediately
theretofore so receivable had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of such holder
to the end that the provisions hereof (including without limitation, provisions
for adjustment of the Conversion Price and of the number of shares issuable
upon conversion) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights. The Company shall not effect any
such consolidation, merger or sale unless prior to or simultaneously with the
consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the person purchasing such
assets shall assume by written instrument executed and mailed or delivered to
the holder of the Note, the obligation to deliver to such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to receive, and containing the express assumption
of such successor corporation of the due and punctual performance and
observance of every provision of this Note to be
5
<PAGE>
performed and observed by the Company and of all the liabilities and
obligations of the Company hereunder.
2.6 Notice of Certain Events. In case at any time:
------------------------
(1) the Company shall pay any dividend payable in
stock upon the Common Stock to the holders of the Common
Stock;
(2) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another
corporation, or sale of all or substantially all of its
assets to another person; or
(3) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the holder of the Note of the date on which (a) the books of the Company
shall close or a record shall be taken for such dividend, or (b) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Common Stock of record
shall participate in such dividend, or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be. Such written notice shall be
given not less than thirty (30) and not more than sixty (60) days prior to the
action in question and not less than thirty (30) and not more than sixty (60)
days prior to the record date or the date on which the Company's transfer books
are to be closed in respect thereto and such notice may state that the record
date is subject to the effectiveness of a registration statement under the Act,
if any is required.
2.7 Definition of Common Stock. For the purposes of
--------------------------
this Note, the term "Common Stock" shall mean and include the Company's
authorized common stock, $.01 per value per share, as constituted on the date
hereof, and shall also include any capital stock of any class of the Company
hereafter authorized resulting from any reclassification or reclassifications
thereof which are not limited to any such fixed sum or percentage of par value
and are not subject to redemption by the Company.
2.8 Shares Issuable Upon Conversion. The Company
-------------------------------
covenants and agrees that all shares of Common Stock which may be issued upon
the conversion of the Note in accordance with the terms hereof will, upon
issuance, be duly and validly issued and fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof. The
Company further covenants and agrees that it will at all times have authorized,
and reserved and keep available solely for the purpose of issue upon the
conversion of the Note as
6
<PAGE>
herein provided, a sufficient number of shares of its Common Stock as shall
then be issuable upon the conversion of the outstanding Note.
2.9 Issuance Tax and Expenses. The Company shall pay
-------------------------
all expenses, taxes and other charges payable in connection with the
preparation, execution and delivery of certificates for Common Stock issuable
upon conversion of the Note, except that, in case any such certificate shall be
registered in name or names other than the name of the holder of the Note,
funds sufficient to pay all stock transfer or other taxes, duties or charges
which shall be payable upon the execution and delivery of such certificate
shall be paid by such holder to the Company at the time of the surrender of
such Note for conversion.
2.10 Demand Registration. (a) The Company agrees that
-------------------
the holders of outstanding shares of Conversion Stock (hereinafter "Conversion
Stockholders") shall have two demand rights to require that the Company prepare
and promptly file a registration statement, as may be required under the Act,
in connection with the public offering, on a time-to-time basis or otherwise
(as long as the Common Stock is registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended), of no less than 25% of the then
outstanding shares of Conversion Stock, such rights to be exercisable only upon
written notice to the Company; provided that the Conversion Stockholders shall
pay one half of the reasonable expenses incurred by the Company in connection
with the preparation and filing of any such registration statement. Such
demand registration rights shall run from the date hereof until the Conversion
Stock is first transferable without registration under the Act pursuant to Rule
144 or any comparable rule then in effect. In connection therewith, the
Company shall be obligated to prepare and file such registration statement
within sixty (60) days of receipt of any such initial notice, unless legally
precluded from doing so, and shall be further obligated to use its reasonable
best efforts, including the filing of any amendments or supplements thereto, to
have any such registration statement declared effective under the Act and the
rules and regulations promulgated thereunder as soon as practicable after the
filing date thereof. The Company shall also use its best efforts to keep any
such registration statement, and the accompanying prospectus, effective and
current under the Act at its expense until such Stock can be freely sold under
the Act or has been disposed of in accordance with the intended method of
disposition but in no event no longer than (i) nine months, or (ii) if such
registration statement is on Form S-3 or its equivalent, two years.
(b) "Piggyback" Registration. If at any time the
------------------------
Company proposes to register any of its Common Stock under the Act for sale to
the public (such sale being hereinafter referred to as a "Public Offering"),
except with respect to registration statements on Forms S-4, S-8 or their then
equivalents, each such time it will give written notice to the Conversion
Stockholders of its intention so to do. Upon the written request of a
Conversion Stockholder, received by the Company within 30 days after the giving
of any such notice by the Company, to include in such Public Offering any of
its Conversion Stock (which request shall state the intended method of
disposition thereof), the Company will use its reasonable best efforts to cause
the Conversion Stock to be included in the securities to be sold in such Public
Offering, all to the extent requisite to permit the sale or other disposition
by such Conversion
7
<PAGE>
Stockholder (in accordance with its written request) of such Conversion Stock.
If the Public Offering is an underwritten public offering and the managing
underwriter determines in good faith and advises in writing that the number of
shares of Common Stock which the Company proposes to offer under such
registration statement, together with the number of shares of Conversion Stock
and other shares of Common Stock requested to be included in such registration
statement by the holders of securities having registration rights similar to
those of this Section 2.10(b), exceeds the number of shares of equity
securities it is advisable to offer and sell at such time, then the number of
shares to be sold by the Company, the Conversion Stockholders and such other
shareholders after such reduction shall be allocated among the Company, the
Conversion Stockholders and such other shareholders such that the Company shall
have the right to have offered no less than 75% of the original number of
shares proposed or requested by the Company to be registered. Notwithstanding
the foregoing provisions, the Company may withdraw any registration statement
referred to in this Section 2.10(b) without thereby incurring any liability to
the Conversion Stockholders.
(c) As a condition to the inclusion of shares of Conversion
Stock in any registration statement, the Conversion Stockholders will furnish
to the Company such information with respect to them and their plan of
distribution of such shares as is required to be disclosed in the registration
statement (and the prospectus and all amendments thereto included therein) by
the applicable rules, regulations and guidelines of the Securities and Exchange
Commission ("Commission").
(d) In connection with the Company's obligation to use its
reasonable best efforts to effect the registration of shares of Conversion
Stock under the Act, the Company shall:
(i) prepare and file with the Commission such
amendments and supplements (including post-effective
amendments and supplements) to the registration statement
covering such Conversion Stock and the prospectus used in
connection therewith as may be necessary to keep such
registration statement effective and to comply with any
applicable provisions of the Act with respect to the
disposition of all such Conversion Stock covered by such
registration statement until such time as all of such
Conversion Stock registered thereunder has been disposed of
in accordance with the intended method of disposition of the
Conversion Stockholders set forth therein or until such
Conversion Stock can be freely sold under the Act, but in no
case longer than 270 days;
(ii) furnish to the Conversion Stockholders such
number of copies of a prospectus and preliminary prospectus
in conformity with the requirements of the Act, and such
other documents as the Conversion Stockholders may reasonably
request, in order to facilitate the public sale or other
disposition of such Conversion Stock;
8
<PAGE>
(iii) notify the Conversion Stockholders if, at any
time when a prospectus relating to such Conversion Stock is
required to be delivered under the Act, any event shall have
occurred as a result of which the prospectus then in use with
respect to such Conversion Stock includes an untrue statement
of a material fact or omits to state a material fact
necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading,
or for any other reason it shall be necessary to amend or
supplement such prospectus in order to comply with the Act,
and prepare and furnish to the Conversion Stockholders a
reasonable number of copies of a supplement to or an
amendment of such prospectus which will correct such
statement or omission or effect such compliance;
(iv) use its reasonable best efforts to register or
qualify such Conversion Stock under such other securities or
blue sky laws of such jurisdictions as the Conversion
Stockholders shall reasonably request and do any and all
other acts and things which may be necessary or desirable to
enable the Conversion Stockholders to consummate the public
sale or other disposition in each such jurisdiction of such
Conversion Stock owned by them; provided, however,
-------- -------
that the Company shall not be required to consent to the
general service of process or to qualify to do business in
any jurisdiction where it is not then qualified;
(v) use its reasonable best efforts to keep the
Conversion Stockholders informed of the Company's best
estimate of the earliest date on which such registration
statement or any post-effective amendment or supplement
thereto will become effective and will promptly after receipt
of such information notify the Conversion Stockholders of the
following: (A) when such registration statement or any
post-effective amendment or supplement thereto becomes
effective or is approved; (B) of the issuance by any
competent authority of any stop order suspending the
effectiveness or qualification of such registration statement
or the prospectus then in use or the initiation or threat of
any proceeding for that purpose; and (C) of the suspension of
the qualification of any such Conversion Stock included in
such registration statement for sale in any jurisdiction;
(vi) use its reasonable best efforts to furnish on the
date that Conversion Stock is delivered to the underwriters
for sale pursuant to such registration: (i) copies of an
opinion dated such date of counsel representing the Company
for the purposes of such registration, addressed to the
underwriters, and (ii) copies of letters from the independent
public accountants who have certified the Company's financial
statements included in the registration statement, addressed
to the underwriters, in
9
<PAGE>
either case delivered in connection with the closing under
the underwriting agreement for such underwritten offering;
(vii) make available for inspection by the Conversion
Stockholders, and any attorney, accountant or other agent
retained by the Conversion Stockholders, all financial and
other records, pertinent corporate documents and properties
of the Company, and cause the Company's officers, directors
and employees to supply all information reasonably requested
by the Conversion Stockholders, or any attorney, accountant
or agent in connection with such registration statement; and
(viii)except as otherwise stated herein, pay all costs
and expenses incident to the performance and compliance by
the Company of this Section 2.10, including, without
limitation, (1) all registration and filing fees; (2) all
printing expenses; (3) all fees and disbursements of counsel
and independent public accountants for the Company; (4) all
blue sky fees and expenses (including fees and expenses of
counsel for the Company in connection with blue sky surveys);
and (5) the entire expense of any special audits required by
the rules and regulations of the Commission; provided,
--------
however, that the Company shall have no obligation to pay
-------
or otherwise bear any portion of the fees and disbursements
of counsel and accountants for the Conversion Stockholders
and the underwriters' fees, out-of-pocket costs, commissions
or discounts attributable to the Conversion Stock being
offered and sold by the Conversion Stockholders, all of which
shall be paid or otherwise borne by the Conversion
Stockholders.
(e) The Company and the Conversion Stockholders agree, if a
registered offering is to be underwritten, to enter into a written
agreement with the managing underwriter in such form and containing
such provisions as are customary in the securities business for
such an arrangement between such underwriter and companies of the
Company's size and investment stature and their shareholders.
(f) (i) The Company will indemnify and hold harmless the
Conversion Stockholders and each other person, if any who controls
the Conversion Stockholders within the meaning of the Act from and
against any and all losses, claims, damages, liabilities and legal
and other expenses including costs of investigation caused by any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement under which the Conversion
Stock was registered under the Act, any prospectus or preliminary
prospectus contained therein or any amendment, post-effective
amendment or supplement thereto, or caused by any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
10
<PAGE>
misleading, in light of the circumstances then existing, except
insofar as such losses, claims, damages, liabilities or expenses
are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to the
Conversion Stockholders and furnished to the Company in writing by
the Conversion Stockholders expressly for use therein.
(ii) It shall be a condition to the obligation of the
Company to effect a registration of the Conversion Stock under the
Act pursuant hereto, that the Conversion Stockholders jointly and
severally indemnify and hold harmless the Company and, in
connection with an underwritten public offering, each underwriter
and each person, if any, who controls the Company or the
underwriter, within the meaning of the Act, to the same extent as
the indemnity from the Company in the foregoing paragraph, but only
with reference to information relating to the Conversion
Stockholders furnished to the Company or the underwriter in writing
by the Conversion Stockholders expressly for use in the
registration statement, any prospectus or preliminary prospectus
contained therein or any amendment, post-effective amendment or
supplement thereto.
(iii) In case any claim shall be made or any proceeding
(including any governmental investigation) shall be instituted
involving any indemnified party in respect of which indemnity may
be sought pursuant to this Section 2.10(f), such indemnified party
shall promptly notify the indemnifying party in writing of the
same; provided that failure to notify the indemnifying party
--------
shall not relieve it from any liability it may have to an
indemnified party otherwise than under this Section 2.10(f). The
indemnifying party, upon request of the indemnified party, shall
retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party in such proceeding and shall pay
the fees and disbursements of such counsel. In any such
proceeding, any indemnified party shall have the right to retain
its own counsel, but the fees and disbursements of such counsel
shall be at the expense of such indemnified party unless (A) the
indemnifying party shall have failed to retain counsel for the
indemnified party as aforesaid, (B)the indemnifying party and such
indemnified party shall have mutually agreed to the retention of
such counsel or (C) representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate
due to differing interests between such indemnified party and any
other party represented by such counsel in such proceeding;
provided that the Company shall not be liable for the fees and
--------
disbursements of more than one additional counsel for all
indemnified parties. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
11
<PAGE>
3. RESTRICTIONS ON CONVERSION AND TRANSFER.
3.1 Legend. Each certificate for Conversion Stock
------
actually issued pursuant to Section 2 shall be stamped or otherwise imprinted
with a legend in substantially the following form:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as amended
(the "Act"), or the securities laws of any states of the
United States of America and may not be sold or otherwise
transferred in the absence of such registration or an
exemption therefrom under the Act and under any such
applicable state law."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution under a registration statement of the
securities represented thereby pursuant to the Act) shall also bear such legend
unless in the opinion of counsel for the Company and the holder thereof, the
securities represented thereby need no longer be subject to the restrictions
contained in this Section 3. The provisions of this Section 3 shall be binding
upon all subsequent holders of certificates bearing the above legend, and shall
also be applicable to all subsequent holders of the Note.
3.2 Restrictions on Transfer. The Note and the Conversion
------------------------
Stock (collectively, the "Securities") shall not be transferable except upon
the conditions specified in this Section 3. The holder of any Note or
certificate for Conversion Stock bearing the aforesaid legend, by acceptance
thereof, agrees, prior to any transfer of such Securities, to give written
notice to the Company expressing such holder's intention to effect such
transfer and describing briefly the manner of the proposed transfer (and the
intended method thereof), together with an opinion of such holder's counsel
satisfactory to the Company and its counsel that the proposed transfer of such
Securities may be effected without registration of such Securities under the
Act, otherwise the holder hereof shall not transfer the same except pursuant to
a definitive prospectus included in a registration statement under the Act
covering such Securities.
4. AMENDMENTS AND WAIVERS. This Note may only be amended or
any of the restrictions or provisions may only be waived with the written
consent of the Company and the holder of the Note.
5. EVENTS OF DEFAULT AND REMEDIES.
5.1 Events of Default. If one or more of the events
-----------------
described in this Section 5.1 shall happen and be continuing, each of such
events being herein termed an "Event of Default," that is to say:
(a) default shall be made in the payment of principal under
any Note when and as the same shall become due and payable; or
12
<PAGE>
(b) default shall be made by the Company in the payment of
interest on any Note after the same shall become due and payable;
or
(c) default shall be made by the Company in the performance
of any other obligation hereunder and such default shall continue
for a period of sixty (60) days after written notice of such
default to the Company; or
(d) the Company shall (i) apply for or consent to the
appointment of a receiver, trustee, or liquidator of the Company or
any of its assets, (ii) make a general assignment for the benefit
of creditors, (iii) be adjudicated a bankrupt or insolvent or (iv)
file a voluntary petition in bankruptcy, or a petition or answer
seeking reorganization or an arrangement with creditors to take
advantage of any bankruptcy, reorganization, insolvency,
readjustment of debt, moratorium, dissolution, liquidation, or
debtor relief law, or any chapter of any such law, or an answer
admitting the material allegations of a petition filed against it
in any proceeding under any such law or chapter, or corporate
action shall be taken by the Company for the purpose of effecting
any of the foregoing or an order, judgment, or decree shall be
entered, without the application, approval, or consent of the
Company, by any court or competent jurisdiction, which is not
stayed within 120 days, approving a petition seeking liquidation or
reorganization of the Company or of all or a substantial part of
the assets of the Company.
then the entire unpaid principal balance of the Note and all accrued unpaid
interest hereon thereupon at once shall mature and become due and payable
without presentment, demand, protest or notice of any kind (including, but not
limited to, notice of intention to accelerate or notice of acceleration), all
of which hereby are expressly waived by the Company;
5.2 Costs of Collection. If any Event of Default occurs
-------------------
hereunder (whether or not suit is filed), or if the Notes are collected by suit
or legal proceedings or through the probate court or bankruptcy proceedings,
the Company agrees to pay all reasonable attorneys' fees and all expenses of
collection and costs of court.
5.3 Security for Payment of Note. As security for the
----------------------------
payment of the principal amount of and accrued interest on the Note, the
Company and Medarex have entered into that certain License Agreement dated
December 18, 1996 (the "License Agreement"). The License Agreement shall be
held in escrow pursuant to that certain Escrow Agreement dated December 18,
1996 among Medarex, the Company and Satterlee Stephens Burke & Burke LLP and
shall be subject to disbursement in accordance with the terms of such escrow
agreement.
6. REPORTS. So long as the Note is outstanding:
6.1 Financial Statements, etc. The Company will
--------------------------
delivery to the holder hereof as soon as practicable after the close of each
fiscal year of the Company, a copy of (1) the consolidated balance sheet of the
Company and its subsidiaries as of the end of such fiscal
13
<PAGE>
year, (2) consolidated statements of operations of the Company and its
subsidiaries for such fiscal year, and (3) consolidated statements of changes
in financial position of the Company and its subsidiaries for such fiscal year,
setting forth in each case in comparative form the corresponding figures for
the previous fiscal year, all in reasonable detail, prepared in accordance with
generally accepted accounting principles.
7. DEFINITIONS. In addition to terms defined elsewhere in
this Agreement, the following terms shall have the following respective
meanings:
"Business Day" shall mean any day when commercial banks in
New York, New York are not required or permitted by law to close.
"Closing Price" of a security on any day means the last sales
price, regular way, per share of such security on such day as
reported in the principal consolidated reporting system with
respect to such security listed on the principal stock exchange on
which such security was listed for trading or, if the shares of
such security are not listed or admitted to trading on a stock
exchange, the last sales price as reported, in the National Market
System ("NMS") of the National Association of Securities Dealers
Inc. Automated Quotation System ("NASDAQ"), or if the shares of
such security are not listed or admitted to trading in NMS, the
average of the high bid and low asked prices in the
over-the-counter market as reported by NASDAQ, or if the bid and
asked prices on each such day shall not have been reported through
NASDAQ, the average of the bid and asked prices for such day as
furnished by any stock exchange member firm regularly making a
market in such security selected for such purpose by the Board of
Directors or a committee thereof on each Trading Day or, if the
shares of such security are not regularly traded then the price
determined by the Board of Directors or a committee thereof in good
faith.
"Indebtedness" shall mean and include, as to a particular
person, (i) all items which in accordance with generally accepted
accounting principles would be included in determining total
liabilities as shown on the liability side of a balance sheet as of
the date at which Indebtedness is to be determined; (ii)
indebtedness secured by any mortgage, security interest, pledge or
lien whether or not the indebtedness secured thereby shall have
been assumed; and (iii) guarantees, enforcements and other
contingent obligations in respect of indebtedness of others.
"person" shall include an individual, a corporation,
association, partnership, trust or other entity, or a government,
foreign or domestic, or any agency or political subdivision
thereof.
"subsidiary" shall mean any corporation organized under the
laws of any state of the United States or the District of Columbia,
which conducts the major
14
<PAGE>
portion of its is business in the United States and in which at
least 50% of all of the stock of each class having ordinary voting
power shall, at the time as of which any determination is being
made, be owned by the Company.
"Trading Day" shall mean a day on which the market used for
calculating the Closing Price is open for the transaction of
business or, if the shares of such security are not so listed or
admitted to trading, a Business Day.
8. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered, or mailed,
by telecopy(with a copy also sent by hand delivery or air courier, which shall
not alter the time at which the telecopier notice is deemed received), hand
delivery, air courier service, registered mail, postage prepaid, (a) if to the
holder hereof, addressed to such address as may have been furnished to the
Company by the holder in writing, or (b) if to any other holder of a Note or
any Conversion Stock, to such address as may have been furnished to the Company
in writing by such holder, or, until any such holder so furnishes an address to
the Company, then to and at the address of the last holder of such Note or
Conversion Stock who has so furnished an address to the Company, or (c) if to
the Company, to it at 3608 Research Forest Drive, The Woodlands, Texas 77381,
Attention: J. Russell Denson-President, or at such other address as may have
been furnished to the holder hereof by the Company in writing. Notice shall be
deemed given when received.
9. LAW GOVERNING. This Note shall be construed in accordance
with and governed by the laws of the State of New Jersey regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
10. HEADINGS. The headings in this Note are inserted for
convenience purposes only and shall not affect the interpretation or
enforcement hereof.
IN WITNESS WHEREOF, the Company has executed this Note as of the
date first above written
[Corporate Seal]
HOUSTON BIOTECHNOLOGY INCORPORATED
Attest:
- ------------------ By:
-------------------------------------
J. Russell Denson - President
15
<PAGE>
EXHIBIT 13.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission File No. 0-19312
----------------- ---------------------------
MEDAREX, INC.
-------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2822175
---------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1545 Route 22 East, Annandale, New Jersey 08801-0953
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 713-6001
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock ($0.01 par value) The Nasdaq Stock Market under symbol MEDX
Redeemable Warrants to purchase The Nasdaq Stock Market under symbol MEDXW
Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
X
---
As of December 31, 1995, the registrant had outstanding 11,858,626 shares of
Common Stock, $0.01 par value ("Common Stock"), which is registrant's only class
of Common Stock.
The aggregate market value of registrant's Common Stock held by non-affiliates
based on the closing price of $6.25 per share on February 21, 1996 was
approximately $52,671,000.
DOCUMENTS INCORPORATED BY REFERENCE
(Specific pages incorporated are identified under the applicable item herein)
Portions of the registrant's definitive Proxy Statement for the annual meeting
of stockholders to be held on May 16, 1996 (the "Proxy Statement") are
incorporated by reference in Part III of this Report. Other documents
incorporated by reference in this report are listed in the Exhibit Index.
<PAGE>
PART I
ITEM 1. BUSINESS[PRIVATE]
GENERAL
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. The Company's broad
technology platform has led to several products now in clinical trials and to
two strategic alliances and has the potential to provide the foundation for new
products and new strategic alliances in various therapeutic areas. At present,
the Company has five products in ten human clinical trials for the treatment of
breast cancer, head and neck cancer and a variety of other solid tumor cancers,
leukemia and AIDS. The Company is developing two of its products through
strategic alliances with Ciba-Geigy, Limited, of Basel Switzerland ("Ciba") and
Merck KGaA, of Darmstadt, Germany ("E. Merck").
The Company'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.
The Trigger portion of the Company'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, the Company believes
that its Bispecifics may be designed for the treatment of a wide range of
cancers, viruses, bacteria and parasites. The Company has patented the Trigger
molecule and has obtained licenses to a number of targeting mechanisms.
In May 1995, the Company entered into a strategic alliance with Ciba pursuant
to which Ciba obtained a worldwide exclusive license to MDX-210, the Company's
Bispecific therapeutic for tumors that overexpress an antigen known as HER-2.
These tumors include a significant number of breast, ovarian, prostate and other
tumors. MDX-210 is currently in Phase I/II clinical trials. In 1994, the Company
entered into a collaborative arrangement with E. Merck pursuant to which the
Company 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 lung and
bladder tumors. MDX-447 is currently in Phase I/II clinical trials. Medarex is
currently in discussions with biotechnology and pharmaceutical companies and
academic institutions to establish collaborations for the creation and
development of additional Bispecific products.
The Company 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. In addition, Medarex is
developing a product, MDX-33, that may be useful to treat patients with certain
autoimmune diseases. This product may diminish the triggering function on
various killer cells, potentially diminishing the autoimmune activity. Medarex
is actively seeking a corporate partner for the development of MDX-33.
TECHNOLOGY OVERVIEW
One of the body's natural defenses against disease is the creation of
antibodies by the body's immune system. Based on immune responses over one's
lifetime either to infections or vaccinations, adults typically
<PAGE>
have a large number of antibodies (exceeding 1020) present in their bodies.
These antibodies are proteins that seek out, recognize and bind to a particular
site on cells, viruses and other organisms (each, an "antigen") in a highly
specific manner, one that can be likened to a key fitting into a lock. Each
antibody detects and binds to a particular antigen. It is this specificity that
makes antibodies potentially useful in various therapeutic applications.
A monoclonal antibody is a type of antibody produced from a single cell known
as a hybridoma. The growth of a hybridoma allows the continuous production of a
single type of monoclonal antibody over an indefinite period of time. All
antibodies produced by the same hybridoma are identical; they bind to the same
antigen in exactly the same way. The advent of monoclonal antibodies in 1975
created interest among scientists and physicians who believed that this new
development could be used to treat cancer and other illnesses by directing
therapy to tumor cells as well as viruses, bacteria and parasites. Since that
time, scientists have attempted to design therapeutic products based upon
monoclonal antibodies, and researchers have produced a number of these
monoclonal antibodies that bind to tumors or pathogens. The results of numerous
clinical trials, however, have demonstrated that simply injecting monoclonal
antibodies into the bloodstream of cancer patients has not often had meaningful
therapeutic effects.
To create a therapeutic effect, an antibody must not only attach itself to a
tumor cell or pathogen but must also stimulate a response by other components of
the immune system to kill the tumor cell or pathogen. Typically, this occurs
when the antibodies attract the attention of killer cells - white blood cells
such as macrophages, monocytes and neutrophils (collectively, "macrophages").
Macrophages are natural immune cells of the body whose normal role is the
elimination of foreign pathogens such as viruses and bacteria. To signal a
macrophage to kill a particular target, an antibody must not only attach to its
target, but must also bind to a trigger molecule on the surface of the
macrophage. This trigger molecule is known as an Fc receptor. Fc receptors are
involved in clearance of antibody bound pathogens and target cells. Three
different classes of human Fc receptors which bind IgG have been defined,
utilizing antibody subtypes that are specific for each. The type I Fc receptor
is highly expressed on monocytes and macrophages and binds human immunoglobulin
(IgG) with high affinity. The type I Fc receptor is the only Fc receptor that
has been demonstrated to mediate killing of tumor cell targets in vitro by all
cells on which it is found in the body. Throughout this document, the use of
the word "Fc receptor" refers only to the type I Fc receptor. It is only when
the antibody binds simultaneously both to its target and to an Fc receptor on a
macrophage that the macrophage responds by destroying the target.
The Fc receptor is found on large numbers of killer cells such as macrophages
and monocytes and can be activated on neutrophils and dendritic cells. The Fc
receptor is a trigger molecule that can initiate an immunological chain reaction
leading to various activities, including specific target cell killing,
phagocytosis, release of cytokines and antigen presentation. These activities
involve not only the Fc receptor-bearing killer cells, but also through their
actions, helper T cells, cytotoxic (killer) T cells, B cells and antibody
production. Phagocytosis involves internalizing the pathogen and breaking it
down into fragments, which are then transported to the surface of the killer
cell and "presented" to helper T cells and B cells. This process, known as
antigen presentation, can lead to the production of cytotoxic T cells and
antibodies specific to the pathogen. Conventional vaccines typically employ
this process to induce protective immunity against a wide variety of diseases.
The Company believes that few monoclonal antibody-based therapeutics have
succeeded in linking a tumor or pathogen to the Fc receptors in a way that has a
clinically significant therapeutic effect in patients. Only one antibody at a
time can bind at the normal binding site of an Fc receptor, and normally all Fc
receptors are fully occupied by circulating antibodies (most of which are not
attached to any pathogen). Monoclonal antibodies that are given to a patient
for the treatment of a disease, whether the treatment is designed for cancer, an
infectious disease or an autoimmune condition, must therefore compete with the
vast number of normal antibodies present in the body, many of which are capable
of attaching themselves to a triggering Fc receptor. The Company believes that
this "antibody-blockade" has impeded monoclonal antibodies from being
therapeutically effective. The Company also believes that it is difficult to
inject patients with enough antibodies to overcome the effects of antibody-
blockade. Furthermore, many of the monoclonal antibodies that have been used
for therapy are rapidly cleared from the body because they appear as foreign
substances to the immune system, and thus have only a short time in which to
attach to Fc receptors. Finally many of the earliest murine
<PAGE>
(i.e., mouse derived) monoclonals interacted poorly, if at all, with human Fc
receptors. Human and humanized antibodies were designed to overcome the
deficiencies of murine antibodies. They are capable of binding to and triggering
Fc receptors, but that binding may be inefficient because the monoclonals must
compete with the antibody-blockade. Accordingly, even these human and humanized
antibodies have not often demonstrated an ability to mediate a potent
immunological cascade.
MEDAREX'S TECHNOLOGY
Medarex's Bispecifics typically consist of two antibody fragments, each of
which is specific for a different site, that are fused into a "bispecific"
antibody. The "Trigger" fragment, which is a humanized antibody fragment
proprietary to Medarex, is specific for the Fc receptor, and consequently is
capable of binding to and triggering a macrophage. The "target" fragment, which
is licensed to Medarex by a third party, is specific for a particular antigen on
a tumor cell or pathogen, depending on the target fragment utilized. The
Company's Bispecifics, therefore, are designed to bind to a specific type of
tumor cell or pathogen and to a killer cell, triggering the destruction by the
killer cell of the target.
Based on early clinical trial results, the Company believes that its
Bispecific technology differs from conventional antibody technology in that it
involves an approach that circumvents the antibody-blockade. Medarex's
Bispecific products can attach directly to Fc receptors without competition from
natural antibodies because they bind at a site that is separate from the normal
binding site. Data from clinical trials has shown that a large percentage of the
patient's monocytes can be "armed" with thousands of Bispecifics within minutes
after the infusion of a few milligrams of the product. When the targeting
component of the Bispecific binds to a tumor or pathogen, the killer cell may be
triggered to destroy the target and to commence the process of antigen
presentation. The Bispecific products may thus combine the potential for cell
killing (cytotoxicity) with antigen presentation (vaccinating the patients
against their own disease). By their potential ability to combine targeted cell
killing with antigen presentation, Bispecifics are designed to be more efficient
than monoclonal antibodies and to have a more comprehensive and enduring effect
than other therapeutic agents designed only to destroy tumor cells or pathogens.
The Company believes its anti-tumor therapeutic products may also be employed
as therapeutic vaccines. Based on clinical trial results, management believes
that these products may cause the presentation of tumor-associated antigens that
are different from the originally targeted antigen. This same approach may be
employed in developing therapeutic vaccines for infectious diseases, and it may
also be used to induce the presentation of antigens that are normally difficult
to present when conventional adjuvants are used.
In addition to Bispecific products, the Company's other primary approach to
fighting disease causes targeted cells to be killed by activating the complement
cascade. This approach is currently being used in clinical trials to treat
acute myeloid leukemia ("AML") patients. In general, the complement system
consists of a series of protein factors and enzymes that can be activated in a
cascade to attack antibody-coated targets.
MARKET OVERVIEW
CANCER. The Company has targeted the following cancer indications for
treatment with its therapeutic products.
Breast Cancer. The American Cancer Society (the "ACS")/1/ estimated that
approximately 183,400 new cases of breast cancer would be diagnosed in the
United States in 1995. Current treatments have extended the five-year survival
rate for localized breast cancer to 93%. If the breast cancer has spread
regionally, however, the five-year survival rate is 72% and for persons with
distant metastases, the five-year survival rate is 18%, according to the ACS.
/1/ Source: "American Cancer Society Facts and Figures-1995."
<PAGE>
Ovarian Cancer. The ACS estimated that approximately 26,600 new cases of
ovarian cancer would be diagnosed in the United States in 1995. Current
treatments include surgical removal of one or both ovaries, the uterus and the
fallopian tubes as well as radiation and drug therapy. According to the ACS,
ovarian cancer is the leading cause of death for cancers of the female
reproductive system, and the overall five-year survival rate is 41%.
Prostate Cancer. The ACS estimated that approximately 244,000 new cases of
prostate cancer would be diagnosed in the United States in 1995. Current
treatment options include surgery, radiation and/or hormones and anti-cancer
drugs. Prostate cancer is the second leading cause of cancer death in men,
resulting in an estimated 40,400 deaths in 1995 in the United States.
Colon Cancer. The ACS estimated that approximately 138,200 new cases of colon
cancer would be diagnosed in the United States in 1995. Five-year survival, if
detected early, is 92%. After the cancer has spread locally, the survival rate
decreases to 61%, and patients with distant metastases have less that a 7%
chance of survival.
Gastric, Lung, Head and Neck and Bladder Cancer. The ACS estimated that
approximately 22,800 new cases of gastric cancer, 169,900 of lung cancer (of
which non-small cell lung cancer is a subset), 40,250 of head and neck cancers
and 50,500 of bladder cancers would be diagnosed in the United States in 1995.
Melanoma, Glioma and Neuroblastoma. The ACS estimated that approximately
34,100 new cases of melanoma and approximately 17,200 new cases of glioma and
neuroblastoma would be diagnosed in the United States in 1995. Melanoma is the
most fatal form of skin cancer and glioma and neuroblastoma are forms of cancer
affecting the brain and nervous system.
Leukemia. AML is a cancer affecting certain white blood cells. The ACS
estimated that approximately 11,000 AML patients would be diagnosed in the
United States in 1995. The disease spreads rapidly and median survival with
conventional therapy is approximately one year.
INFECTIOUS AND AUTOIMMUNE DISEASES. The Company has targeted the following
infectious and autoimmune diseases for treatment with its therapeutic products.
AIDS. The number of positively diagnosed cases of AIDS and infection by the
virus that causes AIDS, HIV, has increased significantly since the disease was
first identified in 1981. According to the Pan American Health Organization
("PAHO"), as of December 10, 1994 there had been 387,809 AIDS cases in the
United States. In addition, the PAHO estimates that more than one million
people in the United States, and 13 to 15 million people world-wide are
currently infected with HIV. The PAHO estimates that as of December 10, 1994
approximately 235,240 people had died of AIDS and related syndromes in the
United States.
Idiopathic Thrombocytopenia Purpura. ITP is an autoimmune condition in which a
patient's platelets are destroyed by the patient's own immune system. According
to Department of Health and Human Services, there were approximately 150,000
primary, secondary and other unspecified thrombocytopenias in the United States
in 1992.
<PAGE>
COMPANY'S PRODUCTS
The following table outlines the Company's products and current development
status.
<TABLE>
<CAPTION>
Development Commercial
Product Indications Status Rights
- --------------------------- ---------------- ----------------- --------------
<S> <C> <C> <C>
CANCER PRODUCTS
MDX-210 Breast, ovarian, Phase I/II Ciba -
prostate Worldwide
MDX-447 Head and neck Phase I/II Medarex - U.S.
E. Merck -
Europe
Medarex/E.
Merck - all
other areas
MDX-260 Melanoma and Pre-clinical Medarex
glioma
MDX-11 Leukemia - in Phase II Medarex
MDX-22 vivo
Leukemia - bone Phase II Medarex
marrow purging
Tumor vaccines Various tumors Research Medarex
INFECTIOUS DISEASES
MDX-240 AIDS Phase I/II Medarex
AUTOIMMUNE DISEASES
MDX-33 ITP Pre-clinical Medarex
- --------------------------------------------------------------------------------
</TABLE>
BISPECIFIC CANCER PRODUCTS. Each of the Company's Bispecific therapeutic
products for cancer targets a different antigen. MDX-210, MDX-447 and MDX-260
are all antigen-specific products and may be useful in the treatment of the
various forms of cancer in which their specific antigen targets are highly
expressed.
MDX-210: Breast Cancer and other HER-2 Overexpressing Tumors. The Company is
developing MDX-210, a Bispecific product designed to treat tumors that
overexpress the antigen HER-2. MDX-210 combines the Company's proprietary
Trigger antibody fragment with a targeting antibody fragment specific for the
HER-2 antigen. Researchers have discovered that HER-2 is overexpressed in
breast, ovarian, prostate, colon and other cancers, and, with respect to breast
cancer, is generally associated with poor prognosis for survival. In May 1995,
the Company entered into a collaborative agreement with Ciba providing for the
development and commercialization of MDX-210. Pursuant to this collaboration,
the Company has granted to Ciba worldwide marketing rights. The targeting
component used in this product is licensed to the Company by Chiron Corporation.
In October 1993, the Company was granted orphan drug designation for MDX-210 for
the treatment of ovarian cancer.
During 1994, a Phase I/II clinical trial for MDX-210 was completed at
Dartmouth Medical School ("Dartmouth Medical") pursuant to an investigator-
sponsored IND application. These results indicated that MDX-210 has been well
tolerated, had bound to macrophages in vivo, had induced an immune response at
all dose levels as measured by the binding of MDX-210 to white blood cells and
the release of biologically significant quantities of cytokines and had induced
certain tumor shrinkage or other clinical responses in two of the ten patients
with measurable tumors. Based on the results of this early clinical trial, the
Company launched the following six additional Phase I/II MDX-210 trials alone or
in combination with cytokines. A total of approximately 75 to 100 patients are
expected to be treated in these trials.
National Cancer Institute--a multi-dose, dose-escalating study commenced in
1995 in patients with various types of HER-2 positive tumors, but with a
concentration on breast cancer tumors.
Dartmouth Medical--a multi-dose, dose-escalating study commenced in 1995 in
patients with HER-2 positive prostate cancer. This trial is co-sponsored
by CaP CURE (The Association for the Cure of Cancer of the Prostate), which
is principally funded by Michael Milken's family foundation.
<PAGE>
University Erlangen, Germany--a single dose, dose-escalating study in
combination with G-CSF commenced in 1994 in patients with HER-2 positive
breast cancer.
University of Southern California--a multi-dose, dose-escalating study in
combination with G-CSF commenced in 1995 in patients with HER-2 positive
breast cancer. This trial is being co-sponsored by Amgen, Inc.
Georgetown University--a multi-dose, dose-escalating study in combination
with GM-CSF commenced in 1995 in patients with various types of HER-2
positive tumors.
Dartmouth Medical--a multi-dose, dose-escalating study in combination with
gamma interferon commenced in 1995 in patients with HER-2 positive breast
cancer.
The Company's MDX-210 Bispecific currently undergoing clinical trials consists
of humanized Trigger component and a murine target component. The Company had
previously conducted a Phase II clinical trial of an entirely murine version of
MDX-210.
MDX-447: Head and Neck and other EGF-R Expressing Cancers. The Company is
developing a Bispecific product known as MDX-447 for the treatment of cancers
that overexpress the antigen EGF-R. This development project is being conducted
pursuant to a collaborative arrangement with E. Merck. MDX-447 is designed to
induce tumor cell killing by simultaneously binding to a protein known as EGF-R
found on the surface of various types of tumors and to Fc receptors on
macrophages and other white blood cells. The Trigger and target components of
MDX-447 are both humanized. EGF-R has been found to be over-expressed in a
significant percentage of head and neck, breast, brain, non-small cell lung and
bladder tumors. The EGF-R targeting component was contributed to the
collaboration by E. Merck. A Phase I/II clinical trial of MDX-447 to treat
cancers that overexpress EGF-R, particularly head and neck cancers, commenced in
1995 at the Memorial Sloan-Kettering Cancer Center.
MDX-260: Melanoma and Glioma. The Company is developing a Bispecific
therapeutic product, designated MDX-260, that targets GD-2, an antigen found on
melanomas, gliomas and neuroblastomas. The targeting component for this product
has been licensed from researchers at the University of Vaudrois in Switzerland.
Initial pre-clinical studies have recently been completed at the Institut Curie
in Paris, France.
OTHER CANCER PRODUCTS. The Company is also developing therapeutic products
which activate the complement cascade, which consists of a series of protein
factors and enzymes that can attack certain diseased cells, as well as tumor
vaccines.
MDX-11 and MDX-22: Leukemia. Medarex is developing two therapeutic products,
designated MDX-11 and MDX-22, for the treatment of AML, a usually fatal form of
cancer. Some cancers, including AML, spread to the bone marrow and become
extremely difficult to treat successfully. The bone marrow is the tissue in the
body responsible for regenerating the cells of the immune system. If the marrow
is subjected to high doses of conventional therapies such as chemotherapy or
radiation, the marrow's vital stem cells, necessary for immune cell
regeneration, will often be eliminated, and the patient may suffer a life-
threatening immune deficiency. Yet, if the cancer cells in the bone marrow are
left untreated, the cancer is likely to recur.
MDX-11 is a therapeutic product for AML that specifically binds to leukemia
cells and is designed to cause their destruction by triggering the body's
natural complement system, a cascade of serum proteins that results in cell
destruction. In a multi-center Phase I/II trial of 16 patients suffering from
advanced or secondary AML, MDX-11 was generally well tolerated. In addition,
results from the clinical study demonstrated that treatment with MDX-11 alone
caused the destruction of an average of 90% of circulating leukemia cells in
half of the patients. Phase II clinical trials of MDX-11 commenced during 1994.
In 1991, the Company was granted an orphan drug designation for MDX-11 for the
treatment of AML.
MDX-22, the Company's other AML product, is intended to be used as an ex vivo
therapy during bone marrow transplants. This product has been tested in
clinical trials under an investigator-sponsored IND at Dartmouth Medical and
other institutions since 1983. The treatment involves removing a patient's own
bone
<PAGE>
marrow and purging it of cancer cells by exposing the bone marrow to MDX-22.
After the patient has received high levels of conventional chemotherapy and, in
certain circumstances, radiation therapy, the purged bone marrow is returned in
an effort to re-establish the patient's immune system. The use of the patient's
own marrow eliminates the difficulty of finding an appropriately matched donor
and the complications frequently associated with use of donated marrow, such as
graft-versus-host disease. Phase II clinical trials of MDX-22 are in progress.
The results from the first 65 patients indicated a significant improvement in
the proportion of patients surviving long-term when compared to conventional
chemotherapeutic regimens in the absence of bone marrow transplantation. In 1990
the Company was granted orphan drug designation for MDX-22 for the treatment of
AML.
Tumor Vaccines. Results of recent clinical trials have suggested that
Medarex's Bispecifics have stimulated antigen presentation and an endogenous
anti-tumor response in some of the patients. Recent studies in transgenic mice
that express the human Fc receptor have also shown that antigen presentation via
the Fc receptor can induce an immune response to the antigen. Several tumor-
associated antigens have been identified, and the Company is now making
genetically constructed Bispecific fusion proteins which may be employed as
therapeutic vaccines for cancer patients.
INFECTIOUS AND AUTOIMMUNE DISEASES. The Company is developing two products for
the treatment of certain infectious and autoimmune diseases.
MDX-240: AIDS. The Company is developing a Bispecific product, designated MDX-
240, for the treatment of AIDS. HIV is the virus that infects blood cells that
have a receptor known as CD4 on their surfaces, and it appears that this
infection is responsible for the onset of AIDS. Antiviral materials currently
approved by the FDA for the treatment of AIDS seek to inhibit viral activity or
related symptoms of the disease, but to date they have not been shown to be as
clinically effective in eliminating HIV or HIV-infected cells as many
researchers had hoped.
MDX-240 is composed of the Company's Trigger molecule linked to a targeting
component that binds to HIV. The targeting component is a human antibody to a
portion of the virus known as GP-41. This product is designed to direct
macrophages to neutralize HIV as well as HIV-infected cells in the body. In
vitro studies suggest that macrophages may be able to neutralize HIV when HIV is
targeted for interaction with Fc receptors through Bispecifics. Such studies
have been conducted by scientists at the Company and at Dartmouth Medical as
well as by a team of scientists affiliated with the Institut Pasteur in Paris,
France. In 1994, the Company's clinical investigators in France and Belgium
began a Phase I/II trial of a Bispecific product, designated MDX-240, for the
treatment of AIDS.
MDX-33: Idiopathic Thrombocytopenia Purpura. The Company is developing a
therapeutic product, designated MDX-33, for the treatment of ITP, an autoimmune
condition in which patients' platelets are destroyed by their own immune
systems. Conventional treatment includes steroids, removal of the spleen and
high doses of intravenous IgG. The Company believes that intravenous IgG
creates an antibody blockade by overwhelming the Fc receptors with extremely
large quantities of antibodies, thus minimizing the effects of the auto-
antibodies.
MDX-33 may diminish the ability of various killer cells to phagocytose and
destroy platelets by binding to Fc receptors in such a way as to temporarily
remove many of the Fc receptors from the surface of the macrophage, potentially
diminishing the autoimmune activity. By reducing the number of Fc receptors,
MDX-33 is designed to achieve the same therapeutic result as provided by large
quantities of intravenous IgG, and might eliminate or reduce the need for the
human blood-derived products in the treatment of ITP. Pre-clinical studies of
MDX-33 are currently being conducted by the Company. The Company is actively
seeking a corporate partner for the development of MDX-33.
Currently, the Company does not have any products in Phase III clinical trials
and none of the Company's products has been approved by the FDA for marketing.
Any such products will have to satisfy various FDA 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.
<PAGE>
The Company, as a development stage enterprise, has experienced operating
losses in each year since its inception and expects its operating losses to
increase at an accelerated rate over the next several years as the Company
expands and accelerates its clinical trials and product development efforts.
CORPORATE COLLABORATIONS
Medarex is actively pursuing the establishment of strategic alliances with
major biotechnology and pharmaceutical companies. One such relationship was
established in 1995 with Ciba and another was established in 1994 with E. Merck.
Ciba-Geigy, Limited. On May 17, 1995, the Company announced a collaborative
arrangement with Ciba to develop and market the Company's MDX-210 Bispecific.
This collaboration provides for the joint development of MDX-210 by the two
companies. Medarex is primarily responsible for Phase II clinical trials;
thereafter, Ciba is primarily responsible for Phase III clinical trials,
regulatory approvals and commercial launch. Under the terms of the arrangement,
on June 28, 1995, the Company sold 899,888 shares of Common Stock to Ciba for an
aggregate purchase price of $4,000,000. The Company also granted Ciba worldwide
exclusive rights to MDX-210 subject to Ciba's election to purchase additional
equity in the amount of $4,000,000, make milestone and research and development
payments of up to $31 million and pay royalties on product sales. In such event,
Ciba would be responsible for all Phase III clinical trial and market launch
costs of MDX-210. The Company has certain rights with respect to the manufacture
of the product. There can be no assurances that additional funding will be
received from Ciba.
Merck KGaA. Under the terms of the E. Merck collaboration (the
"Collaboration"), E. Merck's EGF-R targeting mechanism is being combined with
the Company's Trigger mechanism to form MDX-447, a Bispecific product being
developed for the treatment of head, neck and other EGF-R overexpressing
cancers. In 1994, E. Merck purchased 450,000 shares of Common Stock at $7.00 per
share for an aggregate purchase price of $3.15 million in lieu of research and
development funding. E. Merck may also provide up to $1.25 million to fund
further clinical trials. Upon the achievement of certain milestones, E. Merck
may provide the Company with up to $25 million (the "Additional Funding") to
fund Phase III clinical trials. E. Merck has the option, upon the commencement
of the Additional Funding, to purchase 1.0 million shares of the Company's
Common Stock at a price of $12.50 per share for an aggregate purchase price of
$12.5 million to satisfy half of its Additional Funding obligation. E. Merck has
certain additional rights to purchase the Company's Common Stock at a price of
$15.00 per share to obtain an ownership interest of up to 10% of the Company's
Common Stock on a fully diluted basis. After E. Merck's funding of $29 million
of the Collaboration, the parties will share future development costs equally.
There can be no assurance that the applicable milestones will be achieved or
that additional funding will be received from E. Merck.
The Company has the exclusive commercialization rights in the United States,
subject to royalties payable to E. Merck, for the EGF-R Bispecific and any other
Bispecific developed by this Collaboration. E. Merck has exclusive
commercialization rights in Europe, subject to royalties payable to the Company,
and the two companies jointly hold commercialization rights for the rest of the
world. In addition to the EGF-R Bispecific, other products covered by the
Collaboration are a Bispecific for the treatment of other tumors employing a
different E. Merck targeting molecule and proprietary Bispecific technology
developed by E. Merck capable of triggering the killing of tumors by T cells.
The Collaboration does not cover any other of the Company's products.
RESEARCH AND DEVELOPMENT
The Company focuses its research and development efforts on designing and
developing its core technology and related products. Since its inception through
December 31, 1995 the Company has expended $22,243,839 on its research and
development efforts. The Company spent $3,797,542, $5,905,043 and $6,442,159
during the years ended December 31, 1993, 1994 and 1995, respectively, on
activities relating to the development of new products, services or techniques
or the improvement of existing products, services or techniques. All research
and development costs in 1993 was funded by the Company. Three percent (3%) of
<PAGE>
1994 research and development costs were funded by E. Merck. Twelve percent
(12%) of 1995 research and development costs were funded by E. Merck and ten
percent (10%) was funded by Ciba.
Research Collaboration. The Company has obtained from Dartmouth Medical the
exclusive worldwide rights (on a royalty-free basis) to the Trigger component of
its Bispecific products. The Company also actively pursues opportunities to
evaluate and possibly acquire form other companies and academic institutions
targeting mechanisms that may be used in Bispecific therapeutic products.
The Company has a license agreement with Chiron Corporation pursuant to which
the Company obtained a license to two targeting molecules for use in ovarian and
breast cancer. The Company's obligation to pay royalties expires on the 10th
anniversary of the first sale of licensed products thereunder. Additional
targeting molecules have been licensed to the Company and others are currently
under evaluation.
In addition, under the terms of a certain Financing Agreement dated December
1, 1993 ("Financing Agreement") and amended on January 17, 1995 (the
"Amendment") by and among the Company, Immuno-Designed Molecules, S.A. ("IDM"),
a biotechnology company based in France, and G. Musuri S.A., an investment and
consulting company based in Spain, the Company has acquired an option for a
period of three years to purchase the exclusive United States rights to a
cellular therapy known as macrophage activated killer cells (MAKTM)/2/ when used
in conjunction with Bispecifics or other protein-based targeting devices
(Targeted Immuno-therapy) from IDM.
MAK technology is designed to increase the therapeutic capacity of a patient's
own white blood cells. MAKs have numerous potential applications, including
possible use as cancer therapeutics in conjunction with the Company's
Bispecifics.
Additionally, the Company has acquired from IDM certain rights to possible
gene therapy applications, where MAKs have the potential to act as gene
carriers. MAK therapy has already begun clinical development and was well-
tolerated in Phase I clinical trials conducted by IDM in Europe for the
treatment of cancer. IDM is currently developing protocols for Phase II clinical
trials to be conducted in Europe.
The Company can exercise its option until December 1, 1996, for $600,000. The
option expires on December 1, 1996. The Company will also shares, to the extent
of 20% of fees over $960,000 until December 1, 1996, for the rights to MAK
therapy other than for Targeted Immunotherapy in the United States. The Company
has also appointed a representative to the IDM Board of Directors.
Payment of the option fee may be made at the Company's option in cash or by
the delivery of the Company's registered Common Stock having a fair market value
equal to the amount of the option fee or any combination thereof and will be
made in six equal monthly installments following the exercise of the option by
the Company. The Company is also required to pay to IDM royalties equal to 10%
of the sales of any of the Company's products based on the IDM technology.
The Company has acquired stock, warrants to purchase stock and non-voting
convertible debentures in IDM which could give the Company up to a 27% equity
interest in IDM. In exchange for the option and its equity interest in IDM, the
Company paid IDM approximately $414,000.
/2/ MAK is a trademark of IDM.
<PAGE>
MARKETING, MANUFACTURING AND FACILITIES
The Company's products fall into two groups: those intended to be marketed and
sold by the Company and those expected to be marketed by licensees or
distributors. The Company currently intends to market its products for EGF-R
expressing cancers in the United States. The advanced stages of these diseases
are treated primarily at Comprehensive Cancer Centers, 21 institutions
specifically recognized by the National Cancer Institute with an especially
broad approach to the treatment of cancer. The Company believes that a small
sales force can successfully introduce and detail these products in this
concentrated marketplace. Currently, the Company has no such sales force. The
Company intends to develop its internal sales capacity as its first products
progress toward commercialization.
Medarex acknowledges that the successful manufacturing and marketing of some
of its products is beyond the capabilities of all but the largest pharmaceutical
organizations. For this reason, the Company plans to license to major
pharmaceutical companies individual products serving very large markets or those
that will be widely distributed geographically, if the products are approved by
the FDA. The Company's MDX-210, which has been licensed to Ciba, and MDX-240
products are likely to fall into this category.
The Company's product licensing strategy is to require its licensees to fund
the Company's later stage development work on the licensed products. In addition
to receiving royalties on sales, the Company may retain manufacturing and co-
marketing or co-promotion rights to these products.
The Company has leased approximately 45,000 square feet of laboratory,
clinical trial production and office space in a modern facility on a research
campus in Annandale, New Jersey, that was developed by Exxon Research and
Engineering Company as its corporate research headquarters. Management believes
that this facility is well suited for clinical-grade production of its products
as it has in place most utilities required for clinical-grade production,
including a production unit designed to meet cGMP standards. The initial term of
the lease is five years and three months with an option to renew for on
additional five-year period, except as to a 7,000 square foot portion of the
premises housing the Company's corporate offices, the lease for which is
terminable upon 60 days notice. The minimum annual lease commitment ranges
between approximately $1,200,000 to $1,600,000, and the aggregate future minimum
lease commitment as of December 31, 1995 over the remainder of the initial lease
term was approximately $4,300,000.
The Company is currently producing materials for its clinical trials in its
existing facilities. However, the Company does not currently have the
capability to manufacture its products under development in commercial
quantities and has no experience in commercial-scale manufacturing.
In 1994 and 1995, 35% and 45%, respectively, of the Company's total revenues
were derived from E. Merck. Such revenues were derived from a collaborative
arrangement with E. Merck dated March 30, 1994, pursuant to which the Company
sold 450,000 shares of Common Stock to E. Merck at $7.00 per share, for an
aggregate purchase price of $3,150,000. The sale of Common Stock was in lieu of
research and development funding. The purchase price represented a premium of
approximately $1,000,000 over the then fair market value of the Company's Common
Stock. This premium represents consideration paid for clinical trial and
research activities performed by the Company and has been amortized into income
as the clinical trial and research activities were performed. At December 31,
1994, $200,000 was recognized as contract revenues and in 1995 $800,000 was
recognized contract revenue. In 1995, 37% of the Company's total revenues were
derived from Ciba. This revenue was the result of an arrangement made on June
28, 1995 where the Company sold 899,888 shares of Common Stock to Ciba-Geigy at
$4.445 per share, for an aggregate purchase price of $4,000,000. The purchase
price represented a premium of approximately $1,140,000 over the then fair
market value of the Company's Common Stock. This premium represents
consideration paid for research activities performed by the Company and is
amortized into income as the clinical trial and research activities are
performed. As of December 31, 1995, $666,667 has been recognized as contract
revenues and $476,191 was included in the balance sheet as deferred contract
revenue.
No other single source accounted for more than 10% of the Company's total
revenues for 1992, 1993 and 1994.
<PAGE>
RESEARCH REAGENT PRODUCTS
Since 1988, the Company has sold certain of its research reagents to
universities, hospitals and research institutes for use in laboratory research.
These research products are sold through advertisements in scientific journals
and through distributors. The Company plans to continue these sales of research
reagents as an adjunct to its continuing emphasis on its research and
development of therapeutic products.
COMPETITION
The areas of product development on which the Company has focused are
intensely competitive. The Company's competitors include major pharmaceutical
and chemical companies, specialized biotechnology firms, universities and
research institutions. In addition, many specialized biotechnology firms have
formed collaborations with large, established companies to support research,
development and commercialization of products that may be competitive with those
of the Company. Medarex depends upon its proprietary core technology, including
its patented Trigger molecule, to compete in the therapeutic product market. The
Company's competitive position also depends on its ability to attract and retain
qualified personnel, develop effective proprietary products, implement
production and marketing plans, obtain patent protection and secure sufficient
capital resources.
Technologies other than those involving Bispecifics can also be applied to the
treatment of the diseases that the Company's products are designed to treat.
For example, immunoconjugates, monoclonal antibodies linked to toxins or
radioactive isotopes, are being developed by others. However, the Company
believes that such immunoconjugates are likely to be more toxic than the
Company's products which use the body's own immune system to fight disease. In
addition, the application of recombinant DNA technology to develop potential
products consisting of proteins (cytokines) that occur normally in the body in
small amounts has been underway for some time. Included in this group are
Interleukin-2, interferons alpha, beta and gamma, tumor necrosis factor, colony
stimulating factors and a number of other biological response modifiers.
Continuing development of conventional chemotherapies and other materials by
large pharmaceutical companies carries with it the potential for discovery of an
agent active against various solid tumor cancers, HIV and AML, the markets upon
which the Company has focused initially. The development of new treatment
methods, whether based on monoclonal antibodies or on other technologies, could
render the Company's technology and products under development uncompetitive or
obsolete. In particular, the Company is aware that Genentech, Inc. and Chiron
Corporation have published reports indicating that they are developing
monoclonal antibody-based products targeting HER-2 that may be competitive with
MDX-210. The Company is also aware that ImClone Systems, Inc. has published
reports indicating that it is developing monoclonal antibody-based products
targeting EGF-R that may be competitive with MDX-447. There can be no assurance
that these or other conventional or novel products will not be developed and
marketed, which could have a material adverse effect on the Company.
PATENTS, TRADEMARKS, TRADE SECRETS AND LICENSES
General. Proprietary protection for the Company's products, processes and
know-how is important to the Company's business. The Company's policy is to file
patent applications to protect technology, inventions, and improvements that are
considered important to the development of its business. The Company also relies
upon trade secrets, know-how, and continuing technological innovation to develop
and maintain its competitive position. The Company plans to aggressively
prosecute and defend its patents and proprietary technology. The Company has
obtained patents from the United States patent office, the European patent
office and the patent offices of Australia, Canada, New Zealand and Israel,
covering the Company's Bispecific products. The opposition period for the
granted European patent, in general, expired on January 5, 1996. These patents
have expiration dates from 2007 - 2010. Additional patent applications are
pending throughout the world.
The Company is prosecuting its applications with the United States Patent and
Trademark Office, but the Company does not know whether any of its applications
will result in the issuance of any patents or
<PAGE>
trademarks or, if any patents are issued, whether any issued patent or trademark
will provide significant proprietary protection or will be circumvented or
invalidated. The Company intends to file additional patent and trademark
applications, when appropriate, relating to improvements in its technologies and
other specific products.
The patent positions of biopharmaceutical and biotechnology firms, including
Medarex, are generally uncertain and involve complex legal and factual
questions. No assurance can be given regarding the breadth or enforceability of
claims allowed in these types of patents.
Competitors or potential competitors have filed applications for, or have been
issued, patents and may obtain additional patents and proprietary rights
relating to materials or processes competitive with those of the Company.
Accordingly, there can be no assurance that the Company's patent applications
will result in patents being issued or that, if issued, the patents will afford
protection against competitors with similar technology; nor can there be any
assurance that others will not obtain patents which the Company would need to
license or circumvent.
The Company also relies upon unpatented trade secrets, and no assurance can be
given that others will no independently develop substantially equivalent
proprietary information and techniques, or otherwise gain access to the
Company's trade secrets or disclose such technology, or that the Company can
meaningfully protect its rights to its unpatented trade secrets.
Medarex typically requires its employees, consultants, outside scientific
collaborators and sponsored researchers to execute confidentiality agreements
upon the commencement of employment or consulting relationships with the
Company. These agreements provide that all confidential information developed
or made known to the individual during the course of the relationship is to be
kept confidential and not disclosed to third parties except in specific
circumstances. In the case of employees, the agreements provide that all
inventions conceived by the individual shall be the exclusive property of the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection for the Company's trade secrets in the event of
unauthorized use or disclosure of such information.
Agreements with the Trustees of Dartmouth College ("Dartmouth"). Pursuant to a
joint venture agreement with Dartmouth ("the Joint Venture"), the Company was
formed to develop and commercialize certain technology originally developed over
several years by the Company's founders and other scientists at Dartmouth
Medical. Under the Joint Venture, the Company holds the rights to this
technology together with any modifications or improvements to this technology
made either by the Company or at Dartmouth Medical. The Company also has several
agreements with Dartmouth which provide Medarex with rights to numerous Trigger
and targeting mechanisms. The duration of these agreements with Dartmouth is
perpetual. In particular, the Company has received from Dartmouth assignments of
several Trigger mechanisms as well as certain targeting mechanisms for AML and
other tumors. In return for the rights granted by Dartmouth to the Company in
1987, Dartmouth received 420,000 shares of Common Stock.
REGULATORY ISSUES
General. The production and marketing of the Company's products and its
research and development activities are subject to regulation for safety,
efficacy and quality by numerous governmental authorities in the United States
and other countries. In the United States, drugs are subject to rigorous
federal regulation and, to the lesser extent, state regulation. The Federal
Food, Drug and Cosmetic Act, as amended, and the regulations promulgated
thereunder, and other federal and state statutes, and regulations govern, among
other things, the testing, manufacture, safety, efficacy, labeling, storage,
record keeping, approval, advertising and promotion of the Company's products.
Product development and approval within this regulatory scheme, if successful,
will take a number of years and involve the expenditure of substantial
resources.
The Company's products and activities in the United States are regulated in
accordance with the Federal Food, Drug and Cosmetic Act as well as the Public
Health Service Act and other laws. The standard process required by the FDA
before a therapeutic drug or biological agent may be marketed in the United
States includes (i) preclinical laboratory and animal tests; (ii) submission to
the FDA of an application for an IND,
<PAGE>
which must become effective before human clinical trials may commence; (iii)
preliminary human clinical studies to evaluate the drug and its manner of use;
(iv) adequate and well-controlled human clinical trials to establish the safety
and effectiveness of the drug (and, in the case of a biologic, its potency as
well) for its intended indication; (v) submission to the FDA of a New Drug
Application ("NDA") with respect to drugs and a Product License Application
("PLA") with respect to biologics; and (vi) FDA approval of the NDA or PLA prior
to any commercial sale or shipment of the drug or biologic. As part of the NDA
or PLA process, the manufacturer is required to accumulate, and submit to the
FDA for review and approval, data concerning the safety and effectiveness (and,
in the case of a biologic, potency) from laboratory testing and clinical
studies, manufacturing, product stability and other studies. Each domestic
manufacturing establishment must also be registered or licensed by the FDA.
In the case of a given biological product, in addition to obtaining FDA
approval of a PLA, the manufacturer must obtain approval of an Establishment
License Application ("ELA"). A PLA and an ELA are submitted, reviewed and
approved together and are issued by the FDA only to the same party. In order to
hold an approved PLA and ELA for a biologic product, the Company must perform at
least a significant portion of the manufacturing process, and any PLA and ELA
the Company obtains will only cover the portion of the manufacturing process
actually performed by the Company or under its direct control. In addition, any
other companies performing any significant portion of the manufacturing of the
Company's biologic products must also obtain a PLA and ELA for the portion of
the manufacturing process they directly perform. If other companies will be
responsible for any significant portion of the manufacturing process for the
Company's products, the Company's ability to manufacture and market such
products will be dependent on those companies' ability to obtain a PLA and ELA
for the portion of the manufacturing process they perform. Furthermore, the
Company's ability to continue to manufacture and market such products will be
dependent on those companies continuing ability to perform the parts of the
manufacturing process for which they are responsible. There can be no assurance
that the Company, or any other companies involved in the manufacture of the
Company's products, will be able to obtain or maintain the necessary FDA
approvals or capacity to supply and manufacture such products.
Domestic manufacturing establishments are subject to inspections by the FDA
and by other federal agencies and by state and local agencies, and must comply
with cGMP regulations as appropriate for production. If violations of applicable
requirements are noted by the FDA during an inspection, distribution of clinical
materials for investigational use or production lots for commercial use may be
halted and, possibly, other sanctions imposed. Parenteral monoclonal antibody
products are currently considered biologics and, therefore, are subject to
regulation by the Center for Biologics Evaluation and Research within the FDA.
Commercial marketing of the Company's products may occur only after approval of
PLAs and ELAs following the submission of a complete application. The NDA or
PLA/ELA internal review process frequently takes two to four years to complete,
or longer. There can be no assurance of FDA approval at the end of such time, or
ever. The FDA may require the Company to perform additional studies to gain
approval which may take several years to complete.
Under the Prescription Drug User Fee Act, the Company must pay FDA certain
fees for reviewing the PLA or NDA, for each commercial manufacturing
establishment it controls, and for each product it manufactures. These fees can
be significant, the NDA and PLA review fee can exceed $200,000, although certain
deferrals, waivers and reductions may be available. In addition, under that law
and FDA regulations, each NDA or PLA submitted for FDA approval is reviewed
during the 45 to 60 days following submission of the application for
administrative completeness and reviewability. FDA can refuse to file any NDA or
PLA that it deems incomplete or not easily reviewable. If FDA refuses to file an
application, FDA will retain 25% percent of the user fee as a penalty. The
Company may then resubmit the application, after incorporating the additional
information or changes demanded by FDA, or request that the application be filed
for substantive review over protest. In either case, the Company will be
required to pay a new NDA or PLA review fee. There can be no assurances that any
application submitted by the Company will be filed by FDA, and if filed will be
approved.
Moreover, the Company is, or may become, subject to various federal, state and
local laws, regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices, the experimental use of animals and the
use and disposal of hazardous substances, including radioactive materials and
infectious disease agents used in conjunction with the Company's research work.
<PAGE>
Certain issues that have potential impact on future marketing of Medarex
products are summarized in the following paragraphs.
Research, Development and the Clinical Trials Process. The production of
therapeutic products generally involves research, development and human clinical
trials.
Research refers to the discovery or identification of potential product
candidates, initial work on new applications of technology and other associated
discovery research.
Development involves the further evaluation of biological functions, testing
in pre-clinical models, improvement of laboratory scale production methods, and
the performance of other work necessary to optimize product performance prior to
the commencement of clinical testing in humans.
Before a therapeutic product may be sold in the United States and other
countries, clinical trials of the product must be conducted and the results
submitted to the appropriate regulatory agencies for approval. In the United
States, these clinical trial programs generally involve a three-phase process.
Typically, Phase I studies are conducted in healthy volunteers or, on occasion,
in patients afflicted with the target disease, to determine the early side
effect profile and the pattern of drug distribution and metabolism. In Phase
II, studies are conducted in groups of patients afflicted with the target
disease to determine preliminary efficacy, optimal dosages and expanded evidence
of the safety profile. In Phase III, large-scale clinical trials are conducted
in patients with the target disease to provide sufficient data for the
statistical proof of efficacy and safety required by federal regulatory
agencies. Such Phase III trials must be well-controlled, and success of such
trials often depends on the ability of the Company to ensure the required level
of control is maintained. Maintenance of such control is very difficult, and
there can be no assurance that the Company will be able to do so. The clinical
trial process may take three to six years or more to complete and there can be
no assurance that the data collected will demonstrate the product to be safe or
effective, or will support FDA approval of the product.
In the case of drugs for cancer and certain other diseases, the initial human
testing may be done in patients rather than in healthy volunteers. Because
these patients are already afflicted with the target disease, it is possible
that such studies will provide results traditionally obtained in Phase II
studies. These studies are referred to as "Phase I/II" studies.
Notwithstanding the foregoing, even if patients are used in initial human
testing and a "Phase I/II" study carried out, the sponsor is still responsible
for obtaining all the data usually obtained in both Phase I and Phase II
studies.
The Company also will be subject to widely varying foreign regulations
governing clinical trials and pharmaceutical sales. Whether or not FDA approval
has been obtained, approval of a product by the comparable regulatory
authorities of foreign countries must be obtained prior to the commencement of
marketing of the product in these countries. The approval process varies from
country to country and the time may be longer or shorter than that required for
FDA approval. The Company intends, to the extent possible, to rely on foreign
licensees to obtain regulatory approval for marketing the Company's products in
foreign countries. There is no assurance that such approvals will be obtained.
In addition, under current law, there are significant restrictions on the export
of products not approved by the FDA. There can be no assurance that the Company
will be able to obtain the approvals necessary to export its products to other
countries for commercial distribution.
Regulatory approval to market a biologic or a new drug often takes a number of
years and involves the expenditure of substantial resources. Approval time also
depends on a number of factors, including the severity of the disease in
question, the availability of alternative treatments and the risks and benefits
demonstrated in the clinical trials.
Currently, the Company does not have any products in Phase III clinical trials
and none of Company's products have been approved by the FDA for sale. Any such
products will be subject to the requisite regulatory requirements prior to their
commercial sale, which may take two to four years or more and may never be
obtained.
<PAGE>
The Company, as a development stage enterprise, has experienced operating
losses in each year since its inception and expects its operating losses to
increase at an accelerating rate over the next several years as the Company
expands and accelerates its clinical trials and product development efforts.
Orphan Drug Designation. The Orphans Drug Act provides incentives to
manufacturers to undertake development and marketing of products to treat
relatively rare diseases or conditions. Biological products targeted for
affected patients populations in the United States of fewer than 200,000 persons
may be eligible for orphan drug designations. Medarex seeks orphan drug
designation for all qualified products as they enter clinical trials. The FDA
granted requests for orphan drug designation for MDX-22 and for MDX-11 for the
treatment of AML in 1990 and 1991, respectively. A request for orphan drug
designation for MDX-210 for he treatment of ovarian cancer was granted in
October 1993. There can be no assurance that orphan drug designation will be
accorded to other products developed by the Company. Orphan drug designation
does not convey any advantage in, or shorten the duration of, the regulatory
process. However, the Orphan Drug Act offers, among other things, the
opportunity to receive funding for qualified clinical trials via a grant
approval process. The sponsor who obtains the first marketing approval for a
designated orphan drug for a given indication is eligible to receive seven years
of United States marketing exclusivity subject to certain limitations. There can
be no assurance that the Company will obtain marketing approval for any of its
orphan drug products. There can be no assurance that the benefits of the
existing statute will remain in effect, or that the Company will be able to
maintain exclusivity for its products, if obtained at all. There also can be no
assurances with respect to the scope of the Company's orphan exclusivity, if
any, or that the Company's PLA or NDA, if any, will not be precluded from
approval by the orphan exclusivity held by another entity.
Treatment IND Status. The Company may also file treatment protocols under
provisions of the IND regulation as revised in 1987. This regulatory framework
applies to products for patients with serious or life-threatening diseases. The
purpose of these regulations is to facilitate the availability of new products
to desperately ill patients before general marketing begins. Medarex may
thereby be able to recover some of the costs of production manufacture,
research, development and handling prior to market approval. Notwithstanding
the foregoing, there are specific conditions which must be met before a sponsor
may charge reimbursement costs for an IND product, including notifying the FDA
in writing in advance. The FDA may notify the sponsor that it is no authorized
to charge for the products. No assurance can be given that the Company will be
able to recover any of its costs prior to market approval.
Drug and Biologics for Serious Or Life-Threatening Illnesses. FDA regulations
provide certain mechanisms for an accelerated or conditional approval for
products intended for treating serious or life-threatening conditions, which
have been studied for safety and effectiveness, and which provide a meaningful
benefit over existing therapies. The procedures permit early consultation and
commitment from the FDA regarding pre-clinical and clinical studies necessary to
gain marketing approval. Provisions of this regulatory framework also permit in
certain cases PLAs to be approved on the basis of Phase II clinical study
results, thus accelerating the normal approval process. The Company believes
that its products might qualify for this regulatory procedure although there can
be no assurance the FDA will agree. Notwithstanding the foregoing, approval may
be denied by the FDA or Phase III studies may be required. The FDA may also seek
the Company's agreement to perform post-approval Phase IV studies, as a
condition of such early approval.
EMPLOYEES
As of December 31, 1995, the Company had 41 full-time employees, 46% of whom
hold advanced degrees. None of the Company's employees is covered by collective
bargaining agreements. The Company has entered into employment contracts with
certain of its executive officers. The Company considers relations with its
employees to be satisfactory. In the next 12 months, the Company anticipates
hiring up to ten additional employees skilled in clinical testing, regulatory
processes and manufacturing.
ITEM 2. PROPERTIES
The Company has leased approximately 45,000 square feet of laboratory,
clinical trial production and office space in a modern facility on a research
campus in Annandale, New Jersey, that was developed by
<PAGE>
Exxon Research and Engineering Company as its corporate research headquarters.
Management believes that this facility is well suited for clinical-grade
production of Bispecific and monoclonal antibodies as it has in place most
utilities required for clinical-grade production of such antibodies, including a
production unit designed to meet cGMP standards. By leasing this facility and
spending modestly to adapt it, management believes that the Company has
preserved a considerable amount of capital that might otherwise have been used
to build a biopharmaceutical production facility. In October 1994, the Company
moved its executive offices to Annandale, New Jersey, where all of its
operations are now located. The initial term of the lease is five years and
three months with the option to renew for one additional five year period. The
minimum annual lease commitment ranges between approximately $1,200,000 to
$1,600,000, and the aggregate future minimum lease commitment over the remainder
of the initial lease term is approximately $4,300,000.
The Company is currently producing materials for its clinical trials in its
existing facilities.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the last
quarter of the fiscal year ended December 31, 1995 through the solicitation of
proxies or otherwise.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and Redeemable Warrants are traded in the over-the-
counter market and included in the Nasdaq National Market System under the
symbols MEDX and MEDXW, respectively. On February 21, 1996 there were
approximately 380 holders of record (which includes individual holders) and as
of the last Shareholders' meeting, there were over 3,000 beneficial shareholders
of the Company's Common Stock.
The following table sets forth for the periods indicated the high and low last
reported sales prices for the Common Stock and Redeemable Warrants for the
fiscal years ended December 31, 1993 and 1994 as reported by the Nasdaq National
Market Systems.
Fiscal Year Common Stock Redeemable Warrants
- ---------------- ------------ -------------------
1994 High Low High Low
- ---------------- ----- ----- --------- --------
First Quarter $8.13 $5.75 $3.13 $1.63
Second Quarter $7.25 $3.88 $2.88 $1.00
Third Quarter $6.25 $3.75 $2.25 $1.13
Fourth Quarter $4.25 $2.50 $1.50 $0.63
1995 High Low High Low
- ---------------- ----- ----- --------- --------
First Quarter $4.13 $2.38 $1.19 $0.69
Second Quarter $6.50 $2.75 $1.88 $0.69
Third Quarter $7.63 $5.13 $2.19 $1.06
Fourth Quarter $7.50 $5.38 $2.19 $1.19
The Company has not paid any dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. The Company intends to
retain any earnings to finance its growth. The Board of Directors will review
the Company's dividend policy from time to time to determine the feasibility and
desirability of paying dividends, after giving consideration to the Company's
earnings, financial condition, capital requirements and other factors as the
Board of Directors deems relevant.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1991 1992 1993 1994 1995
------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales.............................. $ 366 $ 365 $ 406 $ 378 $ 312
Contract and license revenues........ 1,309 -- -- 200 1,467
------- ------- -------- -------- --------
Total revenues..................... 1,675 365 406 578 1,778
Costs and expenses:
Cost of sales......................... 57 66 82 91 123
Research and development.............. 1,431 2,531 3,798 5,905 6,442
General and administrative............ 873 2,165 2,361 2,154 2,275
------- ------- -------- -------- --------
Total costs and expenses........... 2,362 4,761 6,240 8,150 8,840
Operating loss.................. (687) (4,396) (5,834) (7,573) (7,062)
Interest and dividend income....... 318 399 421 348 561
Interest expense................... (217) -- (2) (11) (8)
------- ------- -------- -------- --------
Net loss........................ $ (585) $(3,997) $ (5,415) $ (7,236) $ (6,509)
======= ======= ======== ======== ========
Net loss per share(1)................... $(0.15) $(0.79) $(0.86) $(1.00) $(.69)
Weighted average common shares
outstanding(1)......................... 3,838 5,049 6,304 7,269 9,457
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1991 1992 1993 1994 1995
------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities............................. $11,349 $15,938 $ 9,687 $ 9,434 $ 15,729
Working capital......................... 11,228 15,918 8,330 8,017 14,549
Total assets............................ 11,942 16,943 12,640 13,017 19,240
Long-term obligations................... -- -- 78 60 40
Cash dividends declared per common share -- -- -- -- --
Deficit accumulated during the
development stage...................... (1,465) (5,462) (10,877) (18,113) (24,623)
Total stockholders' equity.............. 11,634 16,603 10,943 11,097 17,375
</TABLE>
__________
(1) Computed on the basis described for net loss per share in Note 2 to the
Financial Statements.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Since its inception in 1987, the Company has been a development stage
enterprise, primarily engaged in research and development. The Company has been
unprofitable since inception and expects that as the Company's research and
development and clinical trial expenditures accelerate, its losses will
increase. For the period from its inception to December 31, 1995, the Company
incurred a cumulative loss of $24,622,770.
RESULTS OF OPERATIONS
Years ended December 31, 1993, 1994 and 1995
The Company's total revenues in 1993 and 1994 were derived primarily from
research reagent sales. Revenues for 1995 were principally derived from contract
and licensing activities. Total revenues in 1994 of $577,520 increased 42% over
1993, representing a $200,000 increase in contract and license revenue from a
collaborative arrangement with E. Merck offset, in part, by a $28,592 decrease
in research reagent sales, attributable to lower sales volume. Total revenues in
1995 of $1,778,400 increased 208% over 1994 revenues, representing a $1,266,667
increase in contract and license revenues from collaborative arrangements with
E. Merck and Ciba offset, in part, by a $65,787 decrease in research reagent
sales, attributable to lower sales volume.
The Company's cost of sales increased by $9,052 in 1994, an 11% increase from
1993 to 1994 and $32,184 in 1995, a 35% increase from 1994 to 1995. These
increases were principally due to increased rent and personnel costs.
Research and development expenses increased 55% or $2,107,501 in 1994 compared
to 1993. This increase was principally due to activity associated with human
clinical trials resulting in higher personnel costs, rent expense and supply
expenses. Research and development expenses increased by $537,116 in 1995, a 9%
increase from 1994 to 1995. As in 1994, this increase was principally due to
activity associated with human clinical trials resulting in higher personnel
costs, clinical trial expenses, patent expenses and depreciation expenses.
Research and development costs are expected to increase at an accelerated rate
as the Company's products progress through the regulatory approval process.
General and administrative expenses decreased by 9% or $206,379 to $2,154,193
in 1994 as compared to 1993, due to lower relocation expenses partially offset
by increased personnel costs. General and administrative expenses in 1995
increased by $120,699, a 6% increase from 1994, reflecting increased rent
expense and personnel costs, partially offset by lower legal and consulting
expenses. These expenses are expected to increase significantly as the
Company's products are developed and it expands its operations.
Interest and dividend income in 1994 decreased 17% or $73,232 compared to
1993, as the result of a lower average cash balance. Interest and dividend
income in 1995 increased by $212,822, a 61% increase from 1994 reflecting the
Company's increase of average cash balance resulting from financing activities
and its product development collaboration with Ciba and higher interest rates.
Interest expense in 1994 and 1995 of $11,208 and $8,128, respectively, was
principally the result of a capitalized lease obligation.
The Company does not believe that inflation has had a material impact on its
results of operations.
Effective January 1, 1994, the Company adopted the provisions of Statements
of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The impact to the Company was not
material to its financial condition or results of operations. In March 1995,
the FASB issued Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. Statement 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company adopted Statement 121 in 1995, and the effect
<PAGE>
of adoption was not material. In October 1995 the FASB issued Statement No. 123,
Accounting for Stock-Based Compensation, which provides an alternative to APB
Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for
stock-based compensation issued to employees. The Company has elected to
continue to account for stock based compensation to employees in accordance with
Opinion 25.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
private placements and public sales of its securities, contract and license
revenues and research product sales. Through December 31, 1995, the Company
raised $41,846,540 from sales of securities. From July 15, 1987 (inception)
through December 31, 1995, the Company recognized $4,433,015 from contract and
license revenues and $2,207,405 from product sales.
The Company had $9,433,782 and $15,728,695 in cash, cash equivalents and
marketable securities as of December 31, 1994 and 1995, respectively. Operating
activities consumed $3,620,154, $6,772,038 and $6,233,272 of cash for the years
ended December 31, 1993, 1994 and 1995, respectively.
Through December 31, 1995, the Company had invested $2,877,107 in property and
equipment.
The Company has incurred and will continue to incur significant costs in the
area of research and development, including pre-clinical and clinical trials, as
its products develop. Administrative costs are also expected to increase with
the increase of administrative activities and the creation of a marketing
organization. The Company expects its operating losses to increase at an
accelerated rate over the next several years as the Company expands its clinical
trials and product development efforts.
In connection with the merger of Essex Medical Products ("EMP") and Medarex,
Medarex issued promissory notes to Essex Chemical Corporation ("Essex") in the
principal amount of $100,000 and committed to pay 20% of the Company's net
after-tax income until a total of $1,000,000 has been paid, contingent upon the
occurrence of certain events. At the Company's option, this contingent
obligation may be satisfied by the payment of shares of the Company's Common
Stock having a fair market value equal to the amount owed, provided such shares
are registered for sale with the Securities and Exchange Commission. Amounts up
to the $1,000,000 will be payable to Essex, based solely on the earnings of the
Company, by March 31 of each year, to the extent of 20% of net after-tax
earnings of the Company realized during the preceding fiscal year. On June 6,
1991, the Company repaid the $100,000 of notes plus accrued interest to Essex.
On July 1, 1994, the Company sold 1,000,000 shares of Common Stock in a public
offering for $3.75 per share, and on July 15, 1994, the Company sold an
additional 150,000 shares of Common Stock for $3.75 pursuant to the
underwriter's exercise of its over-allotment option in the aforementioned public
offering. The Company realized net proceeds in the public offering of
approximately $3,200,000.
Pursuant to a collaborative arrangement with E. Merck dated March 30, 1994,
the Company received $3,150,000 on August 16, 1994, for the purchase of 450,000
shares of Common Stock at $7.00 per share, for an aggregate purchase price of
$3,150,000, in lieu of the research and development funding. The purchase price
represented a premium of approximately $1,000,000 over the then fair market
value of the Company's Common Stock. This premium represents consideration paid
for clinical trial and research activities performed by the Company and will be
amortized into income as the clinical trial and research activities are
performed. At December 31, 1994, $200,000 was recognized as contract revenues
and $800,000 was included in the balance sheet as deferred contract revenue and
subsequently recognized as revenue in 1995.
On October 10, 1994, the Company sold, through a private placement, 600,000
shares of Common Stock for $3.85 per share resulting in net proceeds to the
Company of approximately $2,000,000.
On May 17, 1995, the Company announced a collaborative arrangement with Ciba.
Under the terms of the arrangement, on June 28, 1995, the Company sold 899,888
shares of Common Stock to Ciba-Geigy at $4.445 per share, for an aggregate
purchase price of $4,000,000. The purchase price represented a premium
<PAGE>
of approximately $1,140,000 over the then fair market value of the Company's
Common Stock. This premium represents consideration paid for research activities
performed by the Company and is amortized into income as the clinical trial and
research activities are performed. As of December 31, 1995, $666,667 has been
recognized as contract revenues and $476,191 is included in the balance sheet as
deferred contract revenue.
On November 8, 1995, the Company sold 2,190,000 shares of Common Stock in a
placement to selected institutional investors for $5.00 per share. The Company
realized net proceeds of approximately $9,650,000.
At December 31, 1995 the Company has NOL carryforwards of approximately
$25,200,000, approximately $400,000 of which is restricted due to an "ownership"
change under Section 382 of the Internal Revenue Code during 1989. Approximately
$24,800,000 of the NOL is unrestricted and expires in 2005 ($379,000), 2006
($863,000), 2007 ($3,985,000), 2008 ($5,533,000), 2009 ($7,592,000) and 2010
($6,448,000).
The Company has leased approximately 45,000 square feet of laboratory,
clinical trial production and office space in a modern facility on a research
campus in Annandale, New Jersey, that was developed by Exxon Research and
Engineering Company as its corporate research headquarters. Management believes
that this facility is well suited for clinical-grade production of Bispecific
and monoclonal antibodies as it has in place most utilities required for
clinical-grade production of such antibodies, including a production unit
designed to meet cGMP standards. By leasing this facility and spending modestly
to adapt it, management believes that the Company has preserved a considerable
amount of capital that might otherwise have been used to build a
biopharmaceutical production facility. In October 1994, the Company moved its
executive offices to Annandale, New Jersey, where all of its operations are now
located. The initial term of the lease is five years and three months with the
option to renew for one additional five year period. The minimum annual lease
commitment ranges between approximately $1,200,000 to $1,600,000, and the
aggregate future minimum lease commitment over the remainder of the initial
lease term is approximately $4,300,000.
The Company is currently producing materials for its clinical trials in its
existing facilities.
The Company has obtained a bank letter of credit pursuant to the requirements
of its Annandale, New Jersey, lease. This letter of credit in the amount of
$1,260,000, which expires on September 30, 1998, is fully cash collateralized.
As of December 31, 1995, the Company had commitments for approximately $78,000
of capital expenditures.
To date, the Company's sources of cash have been the proceeds from the sale of
its securities through public and private placements, sales of it products for
research purposes and technology transfer and license fees.
The Company's current sources of liquidity are its cash, cash equivalents and
marketable securities, interest and dividends earned on such cash, cash
equivalents and marketable securities, sales of its products for research and
contract and licensing revenues. Management believes that under existing
operating plans its current sources of liquidity will be sufficient to meet
anticipated cash requirements for at least the next 24 months.
Upon exhaustion of its current cash reserves, the Company's continued
operations will depend on its ability to raise additional funds through equity
or debt financing and/or enter into licensing or joint development agreements,
including collaborative research and development arrangements with large
pharmaceutical companies pursuant to which certain costs associated with the
regulatory approval process for certain of its products would be borne by the
licensees or joint developers. There can be no assurance that these sales or
financing activities will be successful.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Medarex, Inc.
We have audited the accompanying balance sheets of Medarex, Inc. (a
development stage enterprise) as of December 31, 1994 and 1995 and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1995 and for the period from July
15, 1987 (inception) to December 31, 1995. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medarex, Inc. at December 31,
1994 and 1995 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995 and for the period from
July 15, 1987 (inception) to December 31, 1995, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Princeton, New Jersey
February 2, 1996
<PAGE>
MEDAREX, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 4,308,262 $ 3,540,759
Marketable securities 5,125,520 12,187,936
Trade accounts receivable, less allowance for doubtful
accounts of $5,000 67,944 59,576
Inventory 62,875 49,494
Prepaid expenses 186,751 383,126
Other current assets 125,787 153,230
---------- ----------
Total current assets 9,877,139 16,374,121
Property and equipment:
Machinery and equipment 1,701,520 1,941,348
Furniture and fixtures 145,524 145,524
Leasehold improvements 557,996 557,996
----------- ----------
2,405,040 2,644,868
Less accumulated depreciation and amortization (919,618) (1,399,221)
----------- ----------
1,485,422 1,245,647
Investments in, and advances to affiliate 324,484 324,484
Segregated cash 1,260,000 1,260,000
Other assets 69,489 35,791
----------- ----------
Total assets 13,016,534 19,240,043
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
------------------------------------
Current liabilities:
Trade accounts payable $ 206,368 $143,527
Accrued liabilities 853,952 1,205,408
Deferred contract revenue 800,000 476,191
--------- ----------
Total current liabilities 1,860,320 1,825,126
Long-term portion of capitalized lease obligation 59,665 39,833
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $1.00 par value, 2,000,000 shares authorized;
none issued and outstanding -- --
Common stock, $.01 par value;40,000,000 shares authorized;
8,713,738 and 11,858,626 shares issued and outstanding,
respectively 87,138 118,587
Capital in excess of par value 29,122,871 41,814,203
Unrealized gain on securities -- 65,064
Deficit accumulated during the development stage (18,113,460) (24,622,770)
----------- -----------
Total stockholders' equity 11,096,549 17,375,084
----------- -----------
Total liabilities and stockholder's equity $13,016,534 $19,240,043
=========== ===========
See notes to financial statements.
</TABLE>
<PAGE>
MEDAREX INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
July 15, 1987
For the Year Ended December 31, (inception) to
December 31,
1993 1994 1995 1995
------------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Sales.......................... $ 406,112 $ 377,520 $ 311,733 $ 2,207,405
Contract and license revenues.. - 200,000 1,466,667 4,433,015
----------- ----------- ----------- ------------
Total revenues............... 406,112 577,520 1,778,400 6,640,420
Costs and expenses:
Cost of sales.................. 82,185 91,237 123,421 474,315
Research and development....... 3,797,542 5,905,043 6,442,159 22,243,839
General and administrative..... 2,360,572 2,154,193 2,274,892 10,444,095
----------- ----------- ----------- ------------
Operating loss............... (5,834,187) (7,572,953) (7,062,072) (26,521,829)
Interestand dividend income.... 421,300 348,068 560,890 2,148,597
Interest expense............... (2,410) (11,208) (8,128) (249,538)
----------- ----------- ----------- ------------
Net loss..................... $(5,415,297) $(7,236,093) $(6,509,310) $(24,622,770)
=========== =========== =========== ============
Net loss per share............. $ (0.86) $ (1.00) $ (0.69)
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
MEDAREX, INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Common stock Treasury stock accumulated Total
------------------- Capital -------------- Unrealized during the stock-
Number of in excess Number of gain on development holders
shares Amount of par value shares Amount securities stage equity
--------- ------ ------------ --------- ------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial sale to stockholders 294,000 $2,940 $137,060 $ 140,000
Issuance of common stock for
technical rights and know-how 1,281,000 12,810 (6,710) 6,100
Net loss $(83,884) (83,884)
------------------------------------------------------------------------------------------------
Balance at December 31,1987 1,575,000 15,750 130,350 (83,884) 62,216
------------------------------------------------------------------------------------------------
Issuance of common stock for
know-how 10,500 105 (55) 50
Sale of common stock 651,000 6,510 303,490 310,000
Net loss (204,715) (204,715)
------------------------------------------------------------------------------------------------
Balance at December 31, 1988 2,236,500 22,365 433,785 (288 599) 167,551
------------------------------------------------------------------------------------------------
Conversion of debentures to
common stock 1,260,000 12,600 587,400 600,000
Issuance of common stock for
know-how 10,500 105 (55) 50
Issuance of common stock to be
held in treasury 420,000 4,200 (2,200) 420,000 $ (2,000)
Acquisition of treasury stock 970,200 (88,000) (88,000)
Net loss (521,691) (521,691)
------------------------------------------------------------------------------------------------
Balance at December 31, 1989 3,927,000 39,270 1,018,930 1,390,200 (90,000) (810,290) 157,910
------------------------------------------------------------------------------------------------
Issuance of common stock for
exercise of options 21,000 210 1,790 2,000
Issuance of common stock for
know-how 10,500 105 (55) 50
Cancellation of common stock (970,200) (9,702) (78,298) (970,200) 88,000
Net loss (69,480) (69,480)
------------------------------------------------------------------------------------------------
Balance at December 31,1990 2,988,300 29,883 942,367 420,000 (2,000) (879,770) 90,480
------------------------------------------------------------------------------------------------
Issuance of common stock in
bridge financing 63,000 630 179,370 180,000
Issuance of common stock in
initial public offering 2,300,000 23,000 11,924,375 11,947,375
Issuance of common stock for
exercise of options 17,850 179 1,521 1,700
Net loss (585,204) (585,204)
------------------------------------------------------------------------------------------------
Balance at December 31, 1991 5,369,150 53,692 13,047,633 420,000 (2,000) (1,464,974) 11,634,351
------------------------------------------------------------------------------------------------
Issuance of common stock in
private placements 1,304,203 13,042 8,945,151 8,958,193
Issuance of common stock for
exercise of options 16,750 168 7,427 7,595
Net loss (3,997,096) (3,997,096)
------------------------------------------------------------------------------------------------
Balance at December 31, 1992 6,690,103 66,902 22,000,211 420,000 (2,000) (5,462,070) 16,603,043
------------------------------------------------------------------------------------------------
Costs associated with the
issuance of common stock in
1992 private placements (263,981) (263,981)
Issuance of common stock for
exercise of options 102,519 1,025 18,415 19,440
Purchase of treasury stock 614 (3,305) (3,305)
Retirement of treasury stock (420,614) (4,206) 2,017 (420,614) 5,305 3,116
Net loss (5,415,297) (5,415,297)
------------------------------------------------------------------------------------------------
Balance at December 31, 1993 6,372,008 63,721 21,756,662 (10,877,367) 10,943,016
------------------------------------------------------------------------------------------------
Exercise of warrants 58,867 58,867
Issuance of common stock in
public offering 1,150,000 11,500 3,240,236 3,251,736
Issuance of common stock in
private placements 1,050,000 10,500 4,067,953 4,078,453
Issuance of common stock for
exercise of options 147,000 1,470 20,530 22,000
Purchase of treasury stock 5,270 (21,430) (21,430)
Retirement of treasury stock (5,270) (53) (21,377) (5,270) 21,430
Net loss (7,236,093) (7,236,093)
------------------------------------------------------------------------------------------------
Balance at December 31, 1994 8,713,738 $ 87,138 $29,122,871 $(18,113,460) $11,096,549
------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
<PAGE>
MEDAREX, INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY (con't)
<TABLE>
<CAPTION>
Deficit
Common stock Treasury stock accumulated Total
------------------- Capital -------------- Unrealized during the stock-
Number of in excess Number of gain on development holders'
shares Amount of par value shares Amount securities stage equity
--------- ------ ------------ --------- ------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock in
public offering 2,190,000 21,900 9,628,488 9,650,388
Issuance of common stock in
private placements 899,888 8,999 2,839,644 2,848,643
Issuance of common stock for
exercise of options and grant
of restricted shares 55,000 550 223,200 223,750
Unrealized gain on securities $65,064 65,064
Net loss (6,509,310) (6,509,310)
--------------------------------------------------------------------------------------------------
Balance at December 31, 1995 11,858,626 $118,587 $41,814,203 $65,064 $(24,622,770) $17,375,084
==================================================================================================
</TABLE>
See notes to financial statements.
<PAGE>
MEDAREX, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
For the Years Ended December 31, July 15, 1987
(inception)
1993 1994 1995 o Dec. 31, 199
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(5,415,297) $(7,236,093) $(6,509,310) $ (24,622,770)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation 196,262 280,808 373,124 1,177,435
Amortization 277,486 123,099 140,176 613,012
Non cash interest expense -- -- -- 180,000
Non cash revenues -- -- -- (300,000)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(Increase) decrease in trade accounts receivable, net 12,730 (26,666) 8,368 (59,576)
(Increase) decrease in inventory (402) (26,079) 13,381 (49,494)
(Increase) decrease in prepaid expenses and other
current assets 45,276 (127,612) (223,818) (536,356)
Increase (decrease) in trade accounts payable 416,512 (300,805) (62,841) 143,527
Increase (decrease) in accrued liabilities 847,279 (258,690) 351,456 1,189,157
Increase (decrease) in deferred contract revenue -- 800,000 (323,809) 476,191
------------ ----------- ------------ ------------
Net cash used in operating activities (3,620,154) (6,772,038) (6,233,272) (21,788,873)
INVESTING ACTIVITIES:
Purchase of property and equipment (1,071,644) (489,377) (239,828) (2,877,107)
Increase in segregated cash and other assets (1,260,000) (80,001) -- (1,340,001)
Increase in investments in and advances to affiliate (39,422) (283,395) -- (324,483)
Purchase of marketable securities (5,590,320) -- (6,997,352) (12,887,672)
Sale of marketable securities -- 464,800 -- 764,800
------------ ----------- ------------ ------------
Net cash used in investing activities (7,961,386) (387,973) (7,237,180) (16,664,463)
Financing activities:
Cash received from sales of securities, net (244,730) 7,389,626 12,722,781 41,846,540
Proceeds of bridge financing -- -- -- 300,000
Repayment of bridge financing -- -- -- (300,000)
Payment of note payable to Essex Chemical -- -- -- (100,000)
Principal payment under capital lease obligation (14,661) (17,952) (19,832) (52,445)
Advance royalty from CNTS -- -- -- 300,000
------------ ----------- ------------ ------------
Net cash provided by (used in) financing activities (259,391) 7,371,674 12,702,949 41,994,095
------------ ----------- ------------ ------------
Net increase (decrease) in cash (11,840,931) 211,663 (767,503) 3,540,759
Cash and cash equivalents at beginning of period 15,937,530 4,096,599 4,308,262 --
------------ ----------- ------------ ------------
Cash and cash equivalents at end of period $ 4,096,599 $ 4,308,262 $ 3,540,759 $3,540,759
============ =========== ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING PERIOD FOR:
Income taxes $ -- $ -- $ -- $ --
============ =========== ============ ============
Interest $ 2,410 $ 11,208 $ 8,128 $ 69,538
============ =========== ============ ============
</TABLE>
<PAGE>
MEDAREX, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1993, 1994, and 1995 and
For the Period From July 15, 1987 (Inception) to December 31, 1995
1. Nature of Operations
--------------------
Medarex, Inc. (the "Company"), incorporated in July 1987, is a
biotechnology company developing therapeutic products for cancer, AIDS and other
life-threatening diseases based on proprietary technology in the field of
immunology. The Company's therapeutic products are currently under development
and will need approval of the FDA prior to commercial distribution. The
Company's operations constitute one business segment.
2. Significant Accounting Policies
-------------------------------
Cash equivalents
----------------
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents. The Company invests its cash in
deposits with major financial institutions, money market funds and notes issued
by the U. S. government.
Marketable securities
---------------------
Marketable securities consist of fixed income investments with a
maturity of greater than three months which can be readily purchased or sold
using established markets. Such securities are carried at market with
unrealized gains and losses reported in a separate component of stockholders'
equity. During 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities, which resulted in no changes to its financial condition or results
of operations.
Inventory
---------
Inventory consists primarily of antibodies to be sold to the research
community and is stated at the lower of cost or market with cost determined on a
first-in, first-out basis.
Property and equipment
----------------------
Property and equipment is stated at cost. Depreciation is provided
over five years using the straight-line method. Leasehold improvements are
amortized over the estimated useful lives of the assets or the related lease
terms, whichever is shorter.
<PAGE>
MEDAREX, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1993, 1994, and 1995 and
For the Period From July 15, 1987 (Inception) to December 31, 1995
Long-Lived Assets
-----------------
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company has adopted Statement
121 in 1995 and the effect of adoption was not material.
Revenue recognition
-------------------
The Company sells antibodies primarily to research institutions in the
United States and overseas. Revenue from these sales is recognized when the
products are shipped. Research and development contract revenues are recognized
as the services are performed. Amounts received in advance of services to be
performed are recorded as deferred revenue.
Research and development
------------------------
Research and development costs are expensed as incurred.
Use of Estimates
----------------
The preparation of the 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.
Stock Based Compensation
------------------------
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
recognizes no compensation expense for the stock option grants.
Net loss per share
------------------
The net loss per share is based upon the weighted average Common Stock
outstanding during each year. Common Stock equivalents are not included as their
effect is antidilutive. Shares used in computing loss per share were 6,304,146,
7,269,438 and 9,456,763 in 1993, 1994, and 1995, respectively.
<PAGE>
MEDAREX, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1993, 1994, and 1995 and
For the Period From July 15, 1987 (Inception) to December 31, 1995
3. Leases
------
The Company leases laboratory, production and office space in
Annandale, New Jersey. The initial term of this lease commencing on July 15,
1993 is for five years and three months. The Company has an option to renew this
lease for an additional five-year term. The Company incurred rent expense of
$833,654 in 1993, $1,737,420 in 1994, $1,782,004 in 1995 and $4,839,120 from
July 15, 1987 (inception) to December 31, 1995.
The Company has secured a bank letter of credit pursuant to the
requirements of its Annandale, New Jersey lease. This letter of credit in the
amount of $1,260,000 is fully cash collateralized and the cash is categorized as
segregated cash in the balance sheet.
Future minimum lease commitments are as follows:
1996 $1,551,712
1997 $1,551,712
1998 $1,228,438
4. Taxes
Income tax expense is determined using the liability method.
The components of the net deferred tax asset consist of the following as of
December 31:
1994 1995
---- ----
Deferred tax assets:
Research credit $ 567,000 $ 763,000
Net operating loss
carryforward 7,530,000 10,131,000
Deferred tax asset
valuation reserve (8,097,000) (10,894,000)
----------- -----------
Net deferred tax
asset --- ---
============= ===========
At December 31, 1995 the Company has federal net operating loss (NOL)
carryforwards of approximately $25,200,000, approximately $400,000 of which is
restricted due to an "ownership" change under Section 382 of the Internal
Revenue Code during 1989. The unrestricted NOL carryforward, approximately
$24,800,000, expires in 2005 ($379,000), 2006 ($863,000), 2007 ($3,985,000),
2008 ($5,533,000), 2009 ($7,592,000) and 2010 ($6,448,000).
The Company has state NOL carryforwards of approximately $24,500,000
at December 31, 1995 which expire in 1996 ($519,000), 1998 ($875,000), 1999
($3,997,000), 2000 ($5,398,000), 2001 ($7,453,000) and 2002 ($6,258,000).
<PAGE>
MEDAREX, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1993, 1994, and 1995 and
For the Period From July 15, 1987 (Inception) to December 31, 1995
4. Taxes (con't)
-------------
The Company has research tax credit carryforwards of approximately
$763,000 which expire between 2003 and 2010. In 1993, 1994 and 1995, the
Company provided valuation reserves of $5,330,120, $8,097,000 and $10,894,000,
respectively, to offset the benefits of net operating losses generated during
those years.
5. Accrued Liabilities
-------------------
Accrued liabilities consist of the following as of December 31:
1994 1995
-------- ----------
Accrued professional fees $155,514 $ 233,799
Accrued compensation 235,610 345,839
Accrued clinical trials 38,067 151,660
Accrued rent 172,714 126,657
Other 252,047 347,453
-------- ----------
$853,952 $1,205,408
======== ==========
6. Employee Savings Plan
---------------------
During 1993, the Company implemented a 401(k) savings plan. Employees
may contribute up to 15% of their annual salary. The Company may make matching
contributions of up to 6% of a participant's annual salary. The Company may
also make an additional annual discretionary contribution to the plan. During
1993, 1994 and 1995, the Company made contributions to the plan totaling
$22,587, $34,074 and $38,566, respectively.
7. Stockholders' Equity
--------------------
At inception, the Company issued 1,281,000 shares of Common Stock at
$0.01 per share to Dartmouth and its scientific founders in exchange for
technical rights and know-how. During 1987 through 1989, EMP, a holding company
owned by Essex Chemical Corporation ("Essex"), purchased 945,000 shares of
Common Stock at $0.48 per share and $600,000 of debentures convertible into
1,260,000 shares of Common Stock. During 1988 through 1990, pursuant to an
agreement at inception, the Company issued Common Stock in exchange for
technical know-how, which has been recorded at a nominal amount of $0.01 per
share.
<PAGE>
MEDAREX, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1993, 1994, and 1995 and
For the Period From July 15, 1987 (Inception) to December 31, 1995
7. Stockholders' Equity (con't)
----------------------------
During 1989, EMP exercised its option to convert its debentures into
Common Stock. Subsequently in June 1989, the Company acquired from Essex,
through a treasury stock transaction, a 44% interest in EMP (whose only
significant asset was 2,205,000 shares of the Company) in exchange for $100,000
in notes payable and a contingent commitment to pay $1,000,000 without interest,
in installments equal to 20% of net after tax earnings of the Company in future
years. The Company's acquisition of 970,200 shares of itself held through this
investment was reflected as treasury stock. The Company's contingent
commitment, as amended, to pay up to $1,000,000 out of future earnings may be
satisfied, at the Company's option, through the payment of cash or shares of the
Company's Common Stock having a fair market value equal to the amount owed,
provided that such shares are registered with the Securities and Exchange
Commission. The $1,000,000 will be payable to Essex, solely based on the
earnings of the Company, by March 31 of each year, to the extent of 20% of the
net after-tax earnings of the Company realized during the preceding fiscal year.
The remaining 56% of EMP was acquired by shareholders and officers of the
Company through payment of $100,000 to Essex and $12,000 to Medarex in order to
balance the respective purchase prices.
During 1990, EMP and the Company were merged and the Company's shares
of treasury stock acquired from EMP were canceled. In addition, the remaining
1,234,800 shares of the Company's Common Stock related to this transaction were
reissued directly to the aforementioned shareholders and officers.
In April of 1991, the Company declared a two-for-one stock split in
the form of a stock dividend. The par value of $14,230 for the additional
shares issued was transferred from capital in excess of par value to Common
Stock. Further, the authorized number of common shares was increased to
20,000,000 shares. In May of 1991, the Company declared a 1.05 for 1 stock
split in the form of a stock dividend. The par value of $1,423 for the
additional shares issued was transferred from capital in excess of par value to
Common Stock. All references in the financial statements to issued and
outstanding shares and stock option data have been adjusted for the stock
splits.
In April of 1991, the Company authorized the issuance of 2,000,000
shares of preferred stock, $1.00 par value, per share. No shares have been
issued.
On June 20, 1991, the Company sold 2,300,000 shares of Common Stock
for $6.00 per share and 2,645,000 Redeemable Warrants for $0.10 per Redeemable
Warrant in a public offering and 230,000 Warrants to underwriters for $0.001 per
Warrant resulting in net proceeds to the Company of approximately $12,000,000
and raising the number of outstanding shares of Common Stock to 4,931,300 not
giving effect to any shares of Common Stock issuable upon exercise of
outstanding options, Warrants, and Redeemable Warrants.
<PAGE>
MEDAREX, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1993, 1994, and 1995 and
For the Period From July 15, 1987 (Inception) to December 31, 1995
7. Stockholders' Equity (con't)
----------------------------
On December 14 and December 18, 1992, the Company sold a total of
1,267,665 shares of Common Stock and 1,267,665 Redeemable Warrants for $7.50 per
unit, (a unit consisting of one share of Common Stock and one Redeemable
Warrant) and issued 126,767 Warrants to the Placement Agent (the
"Representative's Warrants") in two private placements resulting in net proceeds
to the Company of approximately $8,400,000 and raising the number of outstanding
shares of Common Stock to 6,270,103 not giving effect to any shares of Common
Stock issuable upon exercise of outstanding options, Warrants and Redeemable
Warrants.
During 1993, the Company retired its treasury stock consisting of
420,614 shares. Additionally, the Company paid fees of $263,981 in connection
with the prior year's private placements.
On July 1, 1994, the Company sold 1,000,000 shares of Common Stock in
a secondary public offering for $3.75 per share (the "Secondary"), and on July
15, 1994, the Company sold an additional 150,000 shares of Common Stock for
$3.75 pursuant to the underwriter's exercise of its over-allotment option . In
connection with the Secondary, the Company sold to the Underwriter, for a
nominal consideration, warrants to purchase from the Company 100,000 shares of
Common Stock (See Note 9). The Company realized net proceeds in the Secondary
of approximately $3,200,000 while raising the number of shares of Common Stock
outstanding to 7,522,008 not giving effect to any shares of Common Stock
issuable upon exercise of outstanding options or warrants.
The Company received $3,150,000 on August 16, 1994 from Merck KGaA of
Darmstadt, Germany ("E. Merck"), an international pharmaceutical company, for
the purchase of 450,000 shares of Common Stock at $7.00 per share and for
certain research and clinical trial activities. Of this amount $2,150,000 is
included in equity and $1,000,000 is being amortized into contract revenues as
the research and clinical trial activities are performed. (See Note 10)
On October 10, 1994, the Company sold, through a private placement,
600,000 shares of Common Stock for $3.85 per share resulting in net proceeds to
the Company of approximately $2,000,000 and raising the number of outstanding
shares to 8,713,738. During 1994, the Company acquired 5,270 shares of Treasury
Stock and subsequently retired them.
On May 17, 1995, the Company announced a collaborative arrangement
with Ciba-Geigy Limited of Basel, Switzerland ("Ciba"). Under the terms of the
arrangement, on June 28, 1995, the Company sold 899,888 shares of Common Stock
to Ciba at $4.445 per share, for an aggregate purchase price of $4,000,000. The
purchase price represented a premium of approximately $1,140,000 over the then
fair market value of the Company's Common Stock. This premium represents
consideration paid for research activities performed by the Company and is
amortized into income as the clinical trial and research activities are
performed.
On November 8, 1995, the Company sold 2,190,000 shares of Common Stock
in a placement to selected institutional investors for $5.00 per share (the
"1995 Placement"). The Company realized net proceeds of approximately
$9,650,000.
<PAGE>
MEDAREX, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1993, 1994, and 1995 and
For the Period From July 15, 1987 (Inception) to December 31, 1995
7. Stockholders' Equity (con't)
----------------------------
Upon exhaustion of its current cash reserves, the Company's continued
operations will depend on its ability to raise additional funds through equity
or debt financing and/or enter into licensing or joint development agreements,
including collaborative research and development arrangements with large
pharmaceutical companies.
8. Stock Options
-------------
The Company has six Stock Option Plans -- the EMP Plan, the Amended
and Restated 1987 Stock Option Plan, the 1991 Stock Option Plan, the 1992 Stock
Option Plan, the 1994 Stock Option Plan and the 1995 Stock Option Plan (the
"Plans"). Under each of the 1991 and 1992 Plans the Company may grant up to
250,000 shares of incentive or non qualified stock options, stock appreciation
rights, restricted stock or deferred stock to key employees, directors or
consultants. Under the 1994 Plan, the Company may grant up to 300,000 shares of
incentive or non-qualified stock options, stock appreciation rights, restricted
stock or deferred stock to key employees, directors or consultants. Under the
1995 Plan, the Company may grant up to 350,000 shares of incentive or non-
qualified stock options, stock appreciation rights, restricted stock or deferred
stock to key employees, directors or consultants. No further grants may be made
under the EMP Plan, or the 1987 Plan. The purchase price of stock options under
the Plans is determined by the Stock Option Committee of the Board of Directors
of the Company (the "Committee") but cannot be less than 100% of the fair market
value of the stock on the date of grant. The term is fixed by the Committee,
but no incentive stock option is exercisable after 10 years from the date of
grant.
During 1994, all holders of stock options with an exercise price in
excess of $4.25 were, pursuant to a resolution of the Board of Directors, given
an opportunity to have their stock options repriced at $4.25. The election
required the vesting period on repriced options to recommence. Options to
purchase 389,400 shares were repriced.
Transactions involving the Plans are summarized as
follows:
Number of Shares
-----------------
1993 1994 1995
--------- --------- ---------
Outstanding, January 1 1,159,320 1,179,301 1,245,400
Granted 219,850 243,100 269,025
Exercised (102,519) (147,000) (55,000)
Canceled (97,350) (30,001) (2,675)
--------- --------- ---------
Outstanding, December 31 1,179,301 1,245,400 1,456,750
========= ========= =========
During the period January 1, 1993 through December 31, 1995, the
exercise prices of options issued by the Company are as follows:
<PAGE>
MEDAREX, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1993, 1994, and 1995 and
For the Period From July 15, 1987 (Inception) to December 31, 1995
8. Stock Options (con't)
Original Exercise Prices
Number of Exercise After
Year Options Price Repricing
---- --------- ------------ ---------------
1993 219,850 $5.38 - 8.25 $4.25
1994 243,100 $4.25 - 7.81 $4.25
1995 269,025 $4.25 - 6.56 --
At December 31, 1995, a total of 323,700 shares were available for future
grants under the 1991, 1994 and 1995 Plans.
9. Warrants
--------
In connection with its bridge financing completed on April 11, 1991,
the Company issued 63,000 shares of Common Stock and 63,000 Redeemable Warrants.
Based on an independent valuation, the Company charged interest expense at the
rate of $2.86 per unit or $180,000. In connection with its initial public
offering of Common Stock completed on June 20, 1991 (See Note 7), the Company
issued 2,645,000 Redeemable Warrants to the public at $0.10 per Redeemable
Warrant and 230,000 Representative's Warrants to underwriters at $0.001 per
Representative's Warrant to purchase 230,000 shares of Common Stock and 230,000
Redeemable Warrants.
Under the terms of the Redeemable Warrants issued on both April 11,
1991, and June 20, 1991, each Redeemable Warrant entitles the holder to purchase
one share of Common Stock at a price of $7.20 per share commencing June 20, 1992
until June 19, 1996, and is redeemable at a redemption price of $.10 at any time
after June 19, 1992 on 30 days' prior written notice, provided that the market
price of the Common Stock equals or exceeds $9.00 per share for 20 consecutive
trading days ending within 10 days prior to the notice of redemption. The
Redeemable Warrants contain provisions for adjustment to the exercise prices and
the number and type of securities issuable upon the exercise of the Redeemable
Warrants upon the occurrence of certain events including the issuance of any
Common Stock or other securities convertible into or exercisable for Common
Stock, or in the event of any recapitalization, reclassification, stock
dividend, stock split, stock combination or similar transaction. Pursuant to a
series of transactions, including the Secondary, a 1994 private placement, the
sale of common stock to Ciba, the 1995 Placement and the issuance of employee
stock options, the exercise price of the Redeemable Warrants has been adjusted
to $6.17 per share, and each warrant now represents 1.17 shares of Common Stock.
The Representative's Warrants were initially exercisable at prices of
$9.90, subsequently adjusted to $7.20, per share of Common Stock and $0.165 per
Redeemable Warrant for a period of four years from June 20, 1992. The
Representative's Warrants contain provisions for adjustment to the exercise
prices and the number and type of securities issuable upon the exercise of the
Representative's Warrants upon the occurrence of certain events including the
issuance of any Common Stock or other securities convertible into or exercisable
for Common Stock, or in the event of any recapitalization, reclassification,
stock dividend, stock split, stock combination or similar transaction. The
Representative's Warrants grant to
<PAGE>
MEDAREX, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1993, 1994, and 1995 and
For the Period From July 15, 1987 (Inception) to December 31, 1995
9. Warrants (con't)
----------------
the holders thereof certain demand and piggyback registration rights for the
securities issuable upon exercise thereof.
In connection with its two private placements on December 14 and
December 18, 1992, the Company sold 1,267,665 Redeemable Warrants as part of a
units offering (a $7.50 unit consisting of one share of Common Stock and one
Redeemable Warrant) and issued 126,767 warrants to purchase 126,767 shares of
common stock and 126,767 Redeemable Warrants to the Placement Agent at $0.001
per warrant.
In February 1994, the Representative exercised its right to purchase
356,767 Redeemable Warrants at $0.165 per Redeemable Warrant.
On July 1, 1994, pursuant to the Secondary (See Note 7), the
Underwriter was issued warrants ("New Warrants") to purchase 100,000 shares of
Common Stock. Under the terms of the New Warrants, each New Warrant holder is
entitled to purchase one share of Common Stock at a price of $4.50 per share
commencing July 1, 1995 until June 30, 1999. The New Warrants contain provisions
for adjustment to the exercise prices and the number and type of securities
issuable upon the exercise of the New Warrants upon the occurrence of certain
events including any recapitalization, reclassification, stock dividend, stock
split, stock combination or similar transaction. The New Warrants grant the
holders thereof certain demand and piggyback registration rights for the
securities issuable upon exercise thereof. Further, as a result of the
Secondary and the 1995 Placement, the exercise price of the Representative's
Warrants was reduced to $2.68.
No additional warrants were exercised and 4,789,199 warrants
convertible to 5,600,409 shares of common stock are outstanding as of December
31, 1995.
10. Research and Development Agreements
-----------------------------------
On March 30, 1994, the Company entered into a letter of intent with E.
Merck, pursuant to which the two companies will develop Bispecific antibodies
for the treatment of certain cancers. The letter of intent provided for funding
to the Company of at least $2,750,000 during the period ending March 30, 1995,
to conduct clinical trials and additional research.
On August 16, 1994, the Company and E. Merck agreed to the purchase by E.
Merck of 450,000 shares of Common Stock at $7.00 per share, for an aggregate
purchase price of $3,150,000, in lieu of the research and development funding
noted above. The purchase price represented a premium of $1,000,000 over the
then fair market value of the Common Stock. This premium represents
consideration paid for clinical trial and research activities to be performed by
the Company and is amortized into income as the clinical trial and research
activities are performed. At December 31, 1994, $200,000 was recognized as
contract revenue and $800,000 is included in the balance sheet as deferred
contract revenue. During 1995 the remaining $800,000 of deferred contract
revenue was amortized into income.
<PAGE>
MEDAREX, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1993, 1994, and 1995 and
For the Period From July 15, 1987 (Inception) to December 31, 1995
10. Research and Development Agreements (con't)
-------------------------------------------
On May 17, 1995, the Company announced a collaborative arrangement
with Ciba. Under the terms of the arrangement, on June 28, 1995, the Company
sold 899,888 shares of Common Stock to Ciba at $4.445 per share, for an
aggregate purchase price of $4,000,000. The purchase price represented a
premium of approximately $1,140,000 over the then fair market value of the
Company's Common Stock. This premium represents consideration paid for research
activities performed by the Company and is amortized into income as the clinical
trial and research activities are performed. As of December 31, 1995, $666,667
has been recognized as contract revenues and $476,191 is included in the balance
sheet as deferred contract revenue.
The Company spent $3,797,542, $5,905,043 and $6,442,159 during the
years ended December 31, 1993, 1994 and 1995, respectively, on activities
relating to development of new products, services or techniques or the
improvement of existing products, services or techniques. All of 1993 research
and development was funded by the Company. In 1994 and 1995, approximately 3%
and 12% of the Company's research and development was funded by E. Merck, and in
1995 approximately 10% was funded by Ciba.
11. Commitments
-----------
The Company is a party to a number of license agreements which call
for royalties to be paid by the Company if and when the Company commercializes
products utilizing the licensed technology.
12. Segment Information
-------------------
All of the Company's operations are based in the United States. Sales
to foreign-based customers were as follows:
For the period from
July 15, 1987
(inception) through
1993 1994 1995 December 31, 1995
---- ----- ---- ------------------
Asia $ 20,855 $ 17,685 $ 18,861 $ 148,479
Europe 96,059 71,075 95,415 455,314
Other 2,790 22,565 7,415 91,071
---------- -------- -------- --------------------
Total $119,704 $111,325 $121,691 $694,864
========== ======== ======== ====================
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required herein will be reported in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 16, 1996, which will be filed on or before April 17, 1996, and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required herein will be reported in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 16, 1996, which will be filed on or before April 17, 1996, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required herein will be reported in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 16, 1996, which will be filed on or before April 17, 1996 and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required herein will be incorporated in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 16, 1996, which will be filed on or before April 17, 1996, and is
incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
ITEM NUMBER
- -----------
(a).1. Financial Statements
Report of Independent Auditors.
Balance Sheets as of December 31, 1994 and 1995.
Statements of Operations for the Years Ended
December 31, 1993, 1994 and 1995, and for
the Period from July 15, 1987 (inception) to
December 31, 1995.
Statements of Stockholders' Equity for the Period
from July 15, 1987 (inception) to December 31,
1995.
Statements of Cash Flows for the Years Ended
December 31, 1993, 1994 and 1995, and for
the Period from July 15, 1987 (inception) to
December 31, 1995.
Notes to Financial Statements.
(a).2. Financial Statement Schedules
All schedules for which provision is made in the
applicable accounting regulation of the Securities
and Exchange Commission are not required under the
related instructions or are inapplicable and
therefore have been omitted.
(a).3. Exhibits
2.1(1) Certificate of Merger, dated June 15, 1989,
including Plan of Merger.
3.1(16) Restated Certificate of Incorporation of the
Registrant.
3.2(1) Amended and Restated By-laws of the Registrant.
4.1(1) Form of Specimen of Common Stock Certificate.
4.2(1) Warrant Agreement between the Registrant and
Continental Stock Transfer and Trust Company, dated
as of June 20, 1991.
4.4(1) Form of Specimen of Warrant Certificate.
4.4(9) Amendment No. 1 to Warrant Agreement between the
Registrant and Continental Stock Transfer and Trust
Company, dated as of December 14, 1992.
4.5(9) Amendment No. 2 to Warrant Agreement between the
Registrant and Continental Stock Transfer and Trust
Company, dated as of December 18, 1992.
10.1(4) Lease of the Registrant's executive offices dated
August 1, 1992.
10.2(1) Lease of the Registrant's laboratory facilities
(West Lebanon, New Hampshire).
10.3(1) 1991 Employee Stock Option Plan.
10.4(1) Letter of Intent dated April 25, 1991 between Lower
Pyne Associates, L.P. and Medarex, Inc.
<PAGE>
ITEM NUMBER
- -----------
10.5(1) Joint Venture Agreement by and among Trustees of
Dartmouth College, Essex Medical Products, Inc. and
the Registrant, dated as of July 15, 1987.
10.6(1) Exclusive License Agreement by and between Trustees
of Dartmouth College and the Registrant, dated July
15, 1987.
10.7(1) Non-Exclusive License Agreement by and between
Trustees of Dartmouth College and the
Registrant, dated July 15, 1987.
10.8(1) Assignment Agreement by and between the Registrant
and Michael W. Fanger, dated July 15, 1987.
10.9(1) Consulting Agreement between the Registrant and
Michael W. Fanger, dated as of July 15, 1987.
10.10(1) Assignment Agreement by and between the Registrant
and Paul M. Guyre, dated July 15, 1987.
10.11(1) Consulting Agreement between the Registrant and
Paul M. Guyre, dated as of July 15, 1987.
10.12(1) Assignment Agreement by and between the Registrant
and Edward Ball, dated July 15, 1987.
10.13(1) Consulting Agreement between the Registrant and
Edward Ball, dated as of July 15, 1987.
10.14(1) Stock Purchase Agreement among Essex Vencap, Inc.
and Medarex Founders and the Registrant, dated as
of June 15, 1989.
10.15(1) Amended and Restated Research and Development and
Umbrella Agreement between Fondation Nationale de
Transfusion Sanguine and the Registrant, dated
March 7, 1991.
10.16(1) AML/SCCL License Agreement between Fondation
Nationale de Transfusion Sanguine and the
Registrant, dated February 13, 1990.
10.17(1) HIV License Agreement between Fondation Nationale
de Transfusion Sanguine and the Registrant, dated
February 13, 1990.
10.18(1) HIV Targeting Antibody License Agreement between
Fondation Nationale de Transfusion Sanguine and the
Registrant, dated February 13, 1990.
10.18A(1) Amendment to AML/SCCL License Agreement, the HIV
License Agreement and the HIV Targeting Antibody
License Agreement dated March 7, 1991.
10.19(1) Medarex Targeted Immunostimulation License
Agreement between the Registrant and Fondation
Nationale de Transfusion Sanguine, dated March 7,
1991.
10.20(1) FNTS Targeted Immunostimulation License Agreement
between Fondation Nationale de Transfusion Sanguine
and the Registrant, dated March 7, 1991.
10.21(1) Agreement of SmithKline Beecham Pharmaceuticals and
the Registrant with respect to Research
Collaboration, dated February 1, 1990.
10.21A(1) Amendment to Agreement of SmithKline Beecham
Pharmaceuticals and the Registrant with respect to
Research Collaboration dated July 5, 1990.
10.22(1) Research Agreement between the Registrant and The
Upjohn Company, dated October 18, 1990.
<PAGE>
ITEM NUMBER
- -----------
10.23(1) 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.
10.24(1) Assignment of certain patent rights by Trustees of
Dartmouth College to the Registrant dated May 16,
1991.
10.25(1) 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.
10.26(1) Security Agreement between the Registrant and First
New Hampshire Bank of Lebanon, dated October 25,
1990.
10.27(1) Distribution Agreement between the Registrant and
Funakoshi Pharmaceutical Co., Ltd., dated as of
June 1, 1989, expiring May 31, 1990.
110.28(1) Employment Agreement by and between the Registrant
and Dr. Donald Drakeman, dated as of April 1, 1991,
as amended.
10.29(1) Employment Agreement by and between the Registrant
and Dr. Nathan B. Dinces, dated as of April 1,
1991, as amended.
10.30(1) Form of Financial Advisory and Investment Banking
Agreement between the Registrant and Josephthal
Lyon & Ross Incorporated.
10.31(1) License Agreement between the Registrant and Chiron
Corporation (formerly Cetus Corporation) dated as
of February 19, 1991.
10.32(1) Form of invention and confidential information
agreement between registrant and its employees.
10.33(1) Stock Purchase Plan.
10.34(1) Settlement Agreement by and between the Registrant
and Fondation Nationale de Transfusion Sanguine,
dated December 9, 1991.
10.35(1) Amended and Restated HIV Targeting Antibody License
Agreement by and between the Registrant and
Fondation Nationale de Transfusion Sanguine, dated
December 9, 1991.
10.36(2) HBV Cell Line License Agreement by and between the
Registrant and Fondation Nationale de Transfusion
Sanguine, dated December 9, 1991.
10.37(3) Employment Agreement by and between the Registrant
and Michael A. Appelbaum, dated as of July 29,
1991.
10.38(4) Agreement dated November 28, 1991 between Scotgen
Limited and the Company pertaining to the genetic
engineering of one of the Company's antibodies.
10.39(5) Amended and Restated 1987 Stock Option Plan.
10.40(6) Letter of Intent between Registrant and The Bayson
Company dated March 16, 1992.
10.41(6) Form of Consulting Agreement between the Registrant
and Paul M. Guyre, dated as of March 17, 1992.
10.42(6) Form of Consulting Agreement between the Registrant
and Edward Ball, dated as of March 17, 1992.
10.43(6) Form of Consulting Agreement between the Registrant
and Michael W. Fanger, dated as of March 17, 1992.
<PAGE>
ITEM NUMBER
- -----------
10.44(6) Agreement In Principle dated as of July 10, 1992
between the Registrant and Dr. Daniel Beck of
Centre Hospitalier Universiter Vaudrois.
10.45(6) Agreement In Principle dated as of July 23, 1992 by
and among Institut Curie, Immuno-Designed
Molecules, SARL and the Registrant.
10.46(7) Underwriting Agreement by and between the
Registrant and Rosenkrantz Lyon & Ross Incorporated
as Representative of the Several Underwriters,
dated June 20, 1991.
10.47(9) Placement Agent Agreement between the Registrant
and Josephthal Lyon & Ross Incorporated, dated as
of November 13, 1992.
10.48(9) Placement Agent Warrant Agreement between the
Registrant and Josephthal Lyon & Ross Incorporated,
dated as of December 14, 1992. Placement Agent
Agreement between the Registrant and Josephthal
Lyon & Ross Incorporated, dated as of December 17,
1992.
10.50(9) Placement Agent Warrant Agreement between the
Registrant and Josephthal Lyon & Ross Incorporated,
dated as of December 18, 1992.
10.51(8) 1992 Employee Stock Option Plan.
10.52(10) Lease of Registrant's Laboratory Facility
(Annandale, New Jersey).
10.53(11) Amendment to Lease of Registrant's Laboratory
Facility (Annandale, New Jersey).
10.54(11) Employment Agreement by and between the Registrant
and Yashwant M. Deo, dated as of
July 8, 1993.
10.55(12) Financing Agreement dated as of December 1, 1993 by
and among the Registrant, G. Musuri S.A. and IDM
S.A.
10.56(12) Consulting Agreement dated February 10, 1994 by and
between the Registrant and Dr. Julius A. Vida.
10.57(13) Letter of Intent dated March 30, 1994 between the
Registrant and E. Merck.
10.58(14) Sublease of Registrant's Laboratory Facility (W.
Lebanon, New Hampshire).
10.59(14) Sublease of Registrant's Executive Office
(Princeton, New Jersey).
10.60(15) Sublease of the Company's New Hampshire Facility
dated May 25, 1994.
10.61 (9) 1995 Stock Option Plan
10.61A(17) Amendment to the Financing and Option Agreement of
December 1, 1993 by and among the Registrant, G.
Musuri S.A. and IDM S. A.
10.62(9) Stock Purchase Agreement dated May 16, 1995
between the Registrant and Ciba-Geigy
Limited.
10.63(9) Development and Commercialization Agreement dated
May 16, 1995 between the Registrant and Ciba-Geigy
Limited.
10.64(9) Registration Rights Agreement dated May 16, 1995
between the Registrant and Ciba-Geigy Limited.
11 Statement re: computation of per share earnings.
<PAGE>
ITEM NUMBER
- -------------
22(1) Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
- -------------------
(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 6, 1992.
(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. 33-75324) filed
on June 28, 1994.
(14) Incorporated by reference to the identically numbered exhibit to the
Registrant's Quarterly Report on Form 10-Q 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 exhibits to the
Registrant's Registration Statement on Form S-1 (File No. 33-98244) filed
on July 26, 1995.
(17) Incorporated by reference to the identically numbered exhibits to on Form
10-Q filed on May 11, 1995. the Registrant's Quarterly Report
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on February 23, 1996.
MEDAREX, INC.
By: /s/ Donald L. Drakeman
----------------------
Donald L. Drakeman
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities indicated and on the dates indicated.
PRINCIPAL EXECUTIVE OFFICER AND
DIRECTOR: /S/ DONALD L. DRAKEMAN FEBRUARY 23, 1996
----------------------- -----------------
Director, President and Donald L. Drakeman
Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER,
ACCOUNTING OFFICER AND DIRECTOR: /S/ MICHAEL A. APPELBAUM FEBRUARY 23, 1996
------------------------ -----------------
Director, Sr. Vice President Michael A. Appelbaum
and Chief Financial Officer
DIRECTORS:
/s/ Charles R. Schaller February 23, 1996
- ---------------------------------- ------------------------
Charles R. Schaller
Chairman of the Board
/s/ Michael W. Fanger February 23, 1996
- ---------------------------------- ------------------------
Michael W. Fanger
/s/ Irwin Lerner February 23, 1996
- ---------------------------------- ------------------------
Irwin Lerner
/s/ Julius A. Vida February 23, 1996
- ---------------------------------- ------------------------
Julius A. Vida
<PAGE>
INDEX TO EXHIBITS
Sequential
Description Page Numbers
----------- ------------
11 Statement Regarding Computation of 49-50
Per Share Earnings
23.1 Consent of Ernst & Young LLP 51-52
<PAGE>
EXHIBIT 11
Statement Regarding Computation
of Per Share Earnings
<PAGE>
EXHIBIT 11
MEDAREX, INC.
EXHIBIT 11--COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
<S> <C> <C> <C>
1993 1994 1995
----------- ----------- -----------
PRIMARY:
Actual shares outstanding at year end... 6,372,008 8,713,738 11,818,626
Average shares outstanding.............. 6,304,146 7,269,438 9,455,010
Net loss................................ $(5,415,297) $(7,236,093) $(6,509,310)
Net loss per share...................... $ (0.86) $ (1.00) $ (0.69)
FULLY DILUTED:
Average shares outstanding and common 11,072,931 11,854,172 14,065,942
stock equivalents......................
Shares to be issued in the event of 208,785 204,691 140,351
certain contingencies.................. ----------- ----------- -----------
11,281,716 12,058,863 14,206,293
Net loss................................ $(5,415,297) $(7,236,093) $(6,509,310)
Plus interest income.................... 890,357 1,594,715 867,253
Adjusted net income/(loss).............. (4,524,940) (5,641,378) (5,642,057)
Net income/(loss) per share............. $ (0.40) $ (0.47) $ (0.40)
</TABLE>
<PAGE>
EXHIBIT 23.1
Consent of Ernst & Young LLP
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
-------------------------------
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-71346) pertaining to the Amended and Restated 1991 Stock Option Plan
of Medarex, Inc., in the Registration Statement (Form S-8 No. 33-71350)
pertaining to the 1992 Stock Option Plan of Medarex, Inc., in the Registration
Statement (Form S-8 No. 33-71348) pertaining to the Amended and Restated EMP
Stock Option Plan of Medarex, Inc., in the Registration Statement (Form S-8 No.
33-80211) pertaining to the Amended and Restated 1987 Stock Option Plan of
Medarex, Inc., in the Registration Statement (Form S-8 No. 33-80213) pertaining
to the 1994 Stock Option Plan of Medarex, Inc. and in the Registration Statement
(Form S-8 No. 33-80215) pertaining to the 1995 Stock Option Plan of Medarex,
Inc. of our report dated February 2, 1996, with respect to the financial
statements of Medarex, Inc. included in its Annual Report (Form 10-K) for the
year ended December 31, 1995.
Princeton, New Jersey
March 12,1996
<PAGE>
EXHIBIT 13.2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For quarter ended September 30, 1996 Commission File No. 0-19312
------------------ -------
MEDAREX, INC.
-------------
(Exact name of registrant as specified in its charter.)
New Jersey 22-2822175
- ---------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1545 Route 22 East, Annandale, New Jersey 08801
- ----------------------------------------- -----
(Address or principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 713-6001
--------------
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
The number of shares of common stock, $.01 par value, outstanding as of November
5, 1996 was 17,592,992 shares.
Page 1 of 10
<PAGE>
MEDAREX, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30
---------------- ----------------
1995 1996
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 3,540,759 $ 20,013,274
Marketable securities 12,187,936 13,720,034
Trade accounts receivable, less allowance for doubtful
accounts of $5,000 59,576 22,114
Inventory 49,494 38,573
Prepaid expenses 383,126 269,008
Other current assets 153,230 640,697
---------------- ----------------
Total current assets 16,374,121 34,703,700
Property and equipment:
Machinery and equipment 1,941,348 2,249,576
Furniture and fixtures 145,524 160,279
Leasehold improvements 557,996 557,996
---------------- ----------------
2,644,868 2,967,851
Less accumulated depreciation and amortization (1,399,221) (1,746,653)
---------------- ----------------
1,245,647 1,221,198
Investments in, and advances to affiliate 324,484 414,777
Segregated cash 1,260,000 1,260,000
Patents and other assets, net 35,791 612,457
---------------- ----------------
Total assets $ 19,240,043 $ 38,212,132
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 143,527 $ 135,364
Accrued liabilities 1,105,408 961,752
Accrued offering costs 100,000 126,832
Deferred contract revenue 476,191 -
---------------- ----------------
Total current liabilities 1,825,126 1,223,948
Long-term debt and other long-term obligations 39,833 116,090
Commitments and contigencies - -
Stockholders' equity:
Preferred stock, $1.00 par value, 2,000,000 shares authorized;
none issued and outstanding - -
Common stock, $.01 par value; 40,000,000 shares authorized;
11,858,626 and 17,588,242 shares issued and outstanding,
respectively 118,587 175,883
Capital in excess of par value 41,814,203 65,804,521
Unrealized gain on securities 65,064 188,630
Accumulated deficit (24,622,770) (29,296,940)
---------------- ----------------
Total stockholders' equity 17,375,084 36,872,094
---------------- ----------------
Total liabilities and stockholders' equity $ 19,240,043 $ 38,212,132
================ ================
</TABLE>
See notes to these unaudited financial statements.
Page 2 of 10
<PAGE>
MEDAREX, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30, September 30, September 30,
1995 1996 1995 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 253,429 $ 210,468 $ 112,063 $ 81,150
Contract and license revenues 980,952 1,551,191 485,714 75,000
------------- ------------- ------------- -------------
Total revenues 1,234,381 1,761,659 597,777 156,150
Costs and expenses:
Cost of sales 94,008 99,839 31,947 36,599
Research and development 4,805,344 5,559,690 1,715,149 1,998,981
General and administrative 1,691,483 1,862,846 558,875 660,700
------------- ------------- ------------- -------------
Operating loss (5,356,454) (5,760,716) (1,708,194) (2,540,130)
Interest and dividend income 379,598 1,090,551 136,418 505,581
Interest expense (6,010) (4,006) (1,135) (1,222)
------------- ------------- ------------- -------------
Net loss $ (4,982,866) $ (4,674,171) $ (1,572,911) $ (2,035,771)
============= ============= ============= =============
Net loss per share ($0.55) ($0.32) ($0.16) ($0.12)
============= ============= ============= =============
Weighted-average number of common
shares outstanding during the period 9,023,590 14,515,314 9,613,626 17,085,364
</TABLE>
See notes to these unaudited financial statements.
Page 3 of 10
<PAGE>
MEDAREX, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-------------
1995 1996
---- ----
<S> <C> <C>
Operating activities:
Net loss $ (4,982,866) $ (4,647,171)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation 312,980 267,383
Amortization 105,378 115,883
Changes in operating assets and liabilities:
Decrease in trade accounts receivable, net 2,247 37,462
Decrease in inventory 14,290 10,921
Increase in prepaid expenses and other
current assets (76,955) (373,350)
Decrease in trade accounts payable (95,962) (8,163)
Decrease in accrued liabilities (47,286) (136,051)
Increase (decrease) in deferred contract revenue 161,905 (476,191)
---------------- -----------------
Net cash used in operating activities (4,606,269) (5,236,277)
Investing activities:
Purchase of property and equipment (186,905) (322,983)
Increase in advances to affiliate - (90,293)
Purchase of marketable securities - (1,408,532)
Sale of marketable securities 2,747,503 -
---------------- -----------------
Net cash provided by (used in) investing activities 2,560,598 (1,821,808)
Financing activities:
Cash received from sales of securities, net 2,848,642 23,435,114
Proceeds from long term debt 110,160
Principle payments under debt obligation (13,161) (14,674)
---------------- -----------------
Net cash provided by financing activities 2,835,481 23,530,600
---------------- -----------------
Net increase in cash and cash equivalents 789,810 16,472,515
Cash and cash equivalents at beginning of period 4,308,262 3,540,759
---------------- -----------------
Cash and cash equivalents at end of period $ 5,098,072 $ 20,013,274
================ =================
Non-cash investing and financing activities:
Non-cash acquisition of patent rights $ - $ 612,500
================ =================
Supplemental disclosures of cash flow information
Cash paid during period for:
Income taxes $ - $ -
================ =================
Interest $ 6,010 $ 2,784
================ =================
</TABLE>
See notes to these unaudited financial statements.
Page 4 of 10
<PAGE>
MEDAREX, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
The unaudited financial statements have been prepared from the books and
records of Medarex, Inc. (the "Company") in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Interim results are not
necessarily indicative of the results that may be expected for the year. For
further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1995.
Through March, 1996, the Company was in the development stage. The Company
has started receiving and expects to continue to receive revenue from research
and development agreements. As a result, the Company is no longer considered to
be in the development stage. Included in accumulated deficit is $26,308,655
accumulated during the development stage.
2. NET LOSS PER COMMON SHARE
Net loss per common share is based on net loss for the relevant period
divided by the weighted average number of shares issued and outstanding during
the period. Stock options and common stock issuable upon conversion of warrants
are not reflected as their effect would be antidilutive for both primary and
fully diluted earnings per share computations.
3. MARKETABLE SECURITIES
Marketable securities consist of fixed income investments with a maturity
of greater than three months and other highly liquid investments which can be
readily purchased or sold using established markets. Such securities are
carried at market which approximates cost in 1995 and 1996.
4. INVENTORY
Inventory consists primarily of antibodies to be sold to the research
community and is stated at the lower of cost or market with cost determined on a
first-in-first-out basis.
Page 5 of 10
<PAGE>
5. CONTINGENCIES
In connection with the merger of Essex Medical Products, Inc. and the
Company, Medarex issued promissory notes to Essex Chemical Corporation ("Essex")
in the principal amount of $100,000, which have been subsequently repaid, and
committed to pay 20% of the Company's net after tax income until a total of
$1,000,000 has been paid. At the Company's option, this obligation may be
satisfied by the payment of shares of the Company's Common Stock having a fair
market value equal to the amount owed, provided such shares are registered for
sale with the Securities and Exchange Commission. Amounts up to $1,000,000 will
be payable to Essex, based solely on the earnings of the Company, by March 31 of
each year, to the extent of 20% of net after tax earnings of the Company
realized during the preceding fiscal year.
Page 6 of 10
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
- -------------------------------
The Company had approximately $33.7 million in cash, cash equivalents and
marketable securities and approximately $1.3 million in a segregated cash
account as of September 30, 1996. Operating activities consumed $5,236,277 of
cash for the nine month period ended September 30, 1996.
To date, the Company's sources of cash have been the proceeds from the sale
of its securities through public and private placements, sales of its products
for research purposes and technology transfer and license fees.
The Company's current sources of liquidity are its cash, cash equivalents
and marketable securities, interest and dividends earned on such cash, cash
equivalents and marketable securities, sales of its products for research
purposes and contract and licensing revenues. Management believes that under
existing operating plans its current sources of liquidity will be sufficient to
meet anticipated cash requirements for at least the next 3 years.
The Company leases approximately 45,000 square feet of laboratory, clinical
trial production and office space in a modern facility on a research campus in
Annandale, New Jersey, that was developed by Exxon Research and Engineering
Company as its corporate research headquarters. Management believes that this
facility is well suited for clinical-grade production of Bispecific and
monoclonal antibodies as it has in place most utilities required for clinical-
grade production of such antibodies, including a production unit designed to
meet cGMP standards. As of September 30, 1996, the Company had commitments for
approximately $125,000 of capital expenditures.
Upon exhaustion of its current cash reserves, the Company's continued
operations will depend on its ability to raise additional funds through equity
or debt financing and/or enter into licensing or joint development agreements,
including collaborative research and development arrangements with large
pharmaceutical companies pursuant to which certain costs associated with the
regulatory approval process for certain of its products would be borne by the
licensees or joint developers. There can be no assurance that these sales or
financing activities will be successful.
Results of Operations
- ---------------------
Nine months ended September 30, 1995 and 1996
- ---------------------------------------------
Revenue for the nine month period ended September 30, 1996 increased by
$527,278, a 42.7% increase from the nine month period ended September 30, 1995.
The increase is principally due to contract and license revenue of $1,000,000,
generated from a collaborative agreement entered into on April 26, 1996 with
Centeon LLC, partially offset by a decrease in other contract revenues and a
$42,961 decrease in research reagent sales volume.
Cost of sales increased by $5,831 during the first nine months of 1996, a
6.2% increase from the comparable period in 1995.
Page 7 of 10
<PAGE>
Research and development expenses increased $754,346 during the first nine
months of 1996, a 15.7% increase from the first nine months of 1995. The
increase is principally due to activity associated with human clinical trials in
our two lead oncology bispecific products, MDX-210 and MDX-447.
General and administrative expenses increased by $171,363 for the first
nine months of 1996, a 10.1% increase from the first nine months of 1995.
Increases in personnel costs, partially offset by lower depreciation expense and
rent expense contributed to this increase.
Interest and dividend income increased by $710,953 for the first nine
months of 1996, a 187.3% increase from the same period in 1995, reflecting a
higher average cash balance, primarily as the result of proceeds received from
the exercise of the Company's public Redeemable Warrants pursuant to a Warrant
Reduction Offer which expired on May 15, 1996.
Three months ended September 30, 1995 and 1996
- ----------------------------------------------
Revenue for the three month period ended September 30, 1996 decreased by
$441,627, a 73.9% decrease from the three month period ended September 30, 1995,
reflecting a $410,714 decrease in contract and license revenue for the third
quarter and, a $30,913 decrease in sales volume of research reagents.
Cost of sales increased $4,652 during the three month period ending
September 30, 1996, a 14.6% increase from the same period of 1995.
Research and development expenses increased $283,832 during the three month
period ended September 30, 1996, a 16.5% increase from the same period of 1995.
The increase is principally due to increased activity associated with human
clinical trials resulting in higher personnel costs and laboratory expenses.
General and administrative expenses increased $101,825 for the period ended
September 30, 1996, a 18.2% increase from the same period of 1995. The increase
is primarily attributable to higher personnel costs and bank fees associated
with investment activities.
Interest and dividend income increased $369,163 for the three months ended
September 30, 1996, a 270.6% increase from the same period of 1995, reflecting a
higher average cash balance, primarily as the result of proceeds received from
the exercise of the Company's public Redeemable Warrants pursuant to a Warrant
Reduction Offer.
The Company has incurred and will continue to incur significant costs in
the area of research and development, including pre-clinical and clinical trials
as its products move through the various stages of development. Administrative
costs are also expected to increase with the increase of administrative
activities and the creation of a marketing organization. The Company expects
its operating losses to increase at an accelerated rate over the next several
years as the Company expands its clinical trials and product development
efforts.
Page 8 of 10
<PAGE>
Part II - Other Information
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
Page 9 of 10
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDAREX, INC.
-------------
(Registrant)
Date: November 7, 1996 By /s/ Michael A. Appelbaum
------------------------
Michael A. Appelbaum
Senior Vice President
Finance and Administration
(Principal Financial and
Accounting Officer)
Page 10 of 10
<PAGE>
[ARTICLE] 5
[LEGEND]
This schedule contains summary financial information extracted from the
financial statements for the nine months ended September 30, 1996 and is
qualified in its entirety by reference in such statements.
[/LEGEND]
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] SEP-30-1996
[CASH] 20,013,274
[SECURITIES] 13,720,034
[RECEIVABLES] 27,114
[ALLOWANCES] (5,000)
[INVENTORY] 38,573
[CURRENT-ASSETS] 34,703,700
[PP&E] 2,967,851
[DEPRECIATION] (1,746,653)
[TOTAL-ASSETS] 38,212,132
[CURRENT-LIABILITIES] 1,223,948
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 175,883
[OTHER-SE] 65,804,521
[TOTAL-LIABILITY-AND-EQUITY] 38,212,132
[SALES] 210,468
[TOTAL-REVENUES] 1,761,659
[CGS] 99,839
[TOTAL-COSTS] 7,522,375
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 4,006
[INCOME-PRETAX] (4,674,171)
[INCOME-TAX] 0
[INCOME-CONTINUING] (4,674,171)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (4,674,171)
[EPS-PRIMARY] (0.32)
[EPS-DILUTED] 0
</TABLE>
<PAGE>
EXHIBIT 13.3
- --------------------------------------------------------------------------------
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NO. 1-12210
HOUSTON BIOTECHNOLOGY INCORPORATED
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0102032
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3608 RESEARCH FOREST DRIVE
THE WOODLANDS, TEXAS 77381 77381
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (713) 363-0999
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
COMMON STOCK, $.01 PAR VALUE AMERICAN STOCK EXCHANGE
WARRANTS TO PURCHASE COMMON STOCK AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ ] No ...
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of shares outstanding of the Registrant's Common Stock as of March
27, 1996, was 5,638,707 shares. The aggregate market value of the voting stock
held by non-affiliates of the Registrant based on the closing price of these
shares on the American Stock Exchange as of March 27, 1996 was $5,268,350.
Documents incorporated by reference:
DOCUMENT FORM 10-K PART
-------- --------------
Portions of the Registrant's definitive
proxy statement anticipated to be filed
within 120 days of the Registrant's
fiscal year ended December 31, 1995 III
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
--------
GENERAL
Houston Biotechnology Incorporated ("HBI" or the "Company") is engaged
primarily in the research and development of biopharmaceutical products to
prevent or treat certain ophthalmic (eye-related) diseases and disorders. The
Company's principal expertise is its monoclonal antibody-based immunoconjugate
technology, which involves the linking of a monoclonal antibody to another
substance such as a drug or an anti-proliferative agent. This expertise has
been developed through the Company's work on its secondary cataract product (the
"4197X-RA Immunotoxin"), which consists of a monoclonal antibody chemically
linked to a toxin. The Company has no marketable products and its current
product candidates are not expected to generate significant revenues, if any,
for a number of years.
The Company was incorporated in Delaware in 1984 and commenced substantial
operations in 1986. A total of approximately $38 million has been raised on
behalf of HBI and its affiliates since 1986. HBI's outstanding securities
include 5,638,707 shares of Common Stock and 4,521,558 Warrants. The closing
prices of the Common Stock and Warrants as reported by the American Stock
Exchange ("AMEX") on March 27, 1996 were $1 1/8 and $7/32, respectively.
To date, the majority of HBI's efforts have been directed toward development
of 4197X-RA Immunotoxin for the prevention of secondary cataract. A Phase I
human clinical trial has been completed for this product and patient enrollment
in a Phase I/II human clinical trial was completed in July 1994. Interim
analyses of the data from the Phase I/II clinical trial have revealed
statistically significant differences in rates of lens capsule opacification
between patients receiving the 50-unit dose and patients receiving the placebo
at six and twelve months post cataract surgery. Patient enrollment in a Phase
II human clinical study of patients requiring cataract surgery in both eyes was
completed in January 1996. In addition, the Company is researching drug-
conjugates to enhance the success of glaucoma filtering surgery. All other
research activities were curtailed as a result of a spending reduction plan
implemented February 1, 1995.
Effective December 29, 1995, HBI and Santen Pharmaceutical Co., Ltd.
("Santen") entered into a Codevelopment and License Agreement (the "Santen
License") covering the marketing in Japan of HBI's 4197X-RA Immunotoxin to
prevent the formation of secondary cataract. To maintain exclusive marketing
rights, Santen is required to provide $7,750,000 over the next six years to
support HBI's development of the Immunotoxin. Santen is responsible for
development costs related to obtaining Japanese regulatory approval. Once the
Immunotoxin is approved for marketing in Japan, Santen will purchase the product
from HBI and will pay royalties on sales. HBI received $250,000 in November
1995 from Santen under an Option Agreement relating to the Codevelopment and
License Agreement, and $1,750,000 of the $7,750,000 is scheduled for payment in
1996. Santen may elect not to make any scheduled payment, but in such event, the
license may be made non-exclusive or terminated by HBI.
Payments made by Santen are currently funding HBI's activities, but such
payments will fall short of funding requirements beginning in the third quarter
1996. Accordingly, the Company is seeking funding from a variety of sources and
is considering its financing alternatives. See "Business Strategy" for further
discussion.
BUSINESS STRATEGY
The Company's business strategy is to (i) complete development and
commercialization of the 4197X-RA Immunotoxin, (ii) utilize its existing
expertise to develop other products to treat proliferative conditions of the
eye, (iii) establish collaborative research and development partnerships to
supplement and enhance the Company's internal capabilities, and (iv) license
marketing rights to its products to pharmaceutical companies with strong,
marketing and sales capabilities. To the extent that the Company's research
leads to discoveries with applications outside of ophthalmology, the Company
intends to license such discoveries to other companies with resources and
expertise appropriate to the particular discovery.
-1-
<PAGE>
The Company's ability to implement its business strategy is dependent on
having sufficient capital resources. Assuming scheduled payments from Santen
are made in a timely manner, the Company will need to secure additional funding
by the third quarter 1996. Accordingly, the Company continues to consider its
financing alternatives, which may include: (i) a license, sale or other
disposition of the 4197X-RA Immunotoxin or certain rights related thereto; (ii)
a sale of stock or other securities in a public or private offering; (iii) a
sale or other reorganization of the Company; or (iv) the combination of the
Company with another entity. If the Company is unsuccessful in obtaining
additional capital or in implementing one or more of its financing alternatives,
the Company will be unable to implement its business strategy, and may be unable
to continue as a going concern.
RESEARCH AND DEVELOPMENT PROGRAMS
The following table describes the major therapeutic indications to which the
Company is directing its research and product development efforts and the
development status of products or product candidates in each area:
<TABLE>
<CAPTION>
THERAPEUTIC INDICATION PRODUCT OR PRODUCT DEVELOPMENT STATUS
CANDIDATE
<S> <C> <C>
OPHTHALMOLOGY
- ---------------------------
Secondary cataract 4197X-RA Immunotoxin to Phase II clinical trials
prevent secondary
cataract
Glaucoma filtering surgery Drug-conjugate to Research;
improve success rate of identification and
surgery conjugation of proteins
and antiproliferative
agents, animal studies
Glaucoma LDNF (Lung-Derived Research/1/
Neurotrophic Factor) to
arrest visual field loss
Proliferative Bi-specific Immunotoxin Research/1/
vitreoretinopathy to prevent proliferative
vitreo-retinopathy
NEUROLOGY
- ---------------------------
Neurodegenerative diseases LDNF (Lung-Derived Research/1/
Neurotrophic Factor)
</TABLE>
/1/ Research and development efforts curtailed due to limited funds
SECONDARY CATARACT
BACKGROUND. Primary cataract is a slowly progressive opacification
(clouding) of the natural lens of the eye that results in blurred vision and
visual distortion. The natural lens is composed of clear proteins surrounded by
the lens capsule, a cellophane-like membrane partially lined with lens
epithelial cells. Extracapsular cataract extraction treats primary cataract by
removing the opaque lens, leaving the majority of the lens capsule intact along
with remnant lens epithelial cells. A plastic intraocular lens is then
implanted to replace the natural lens. A secondary cataract results from the
gradual growth of lens epithelial cells on the lens capsule across the visual
axis, thereby once again clouding the vision of the patient. The current method
of treatment of secondary cataract is laser capsulotomy, which is the use of a
laser to surgically rupture the posterior lens capsule in order to provide a
clear path for light to travel to the retina. The 4197X-RA Immunotoxin is
intended to prevent the development of secondary cataract in patients who
undergo extracapsular cataract surgery and is designed to be administered to the
eye at the end of the primary cataract procedure.
Extracapsular cataract extraction is used in 99% of all primary cataract
surgeries in the United States. This procedure is also becoming the preferred
surgery in Europe and Japan. During 1994, the Company estimates that there were
approximately 1.6 million extracapsular cataract surgeries in the United States
and that approximately 80% of all extracapsular cataract surgeries performed in
the United States were Medicare reimbursed (approximately 1.3 million reimbursed
procedures). Estimated Medicare Part B reimbursements relating to primary
cataract surgeries were approximately $2.7 billion in 1994.
-2-
<PAGE>
The laser capsulotomy procedure is used in over 99% of all secondary
cataract surgeries in the United States. There were approximately 700,000
Medicare-reimbursed laser capsulotomies in 1994. Estimated Medicare Part B
reimbursements in 1994 relating to secondary cataract surgeries were
approximately $300 million. Secondary cataract occurs in approximately 50% of
all primary cataract patients within three to five years after extracapsular
cataract surgery, based on an analysis of the Medicare statistics above and
studies conducted by the Company. The laser capsulotomy procedure, although
generally considered safe, can induce sight-threatening complications, including
retinal detachment, in a small percentage of cases. A study published in 1991
indicated that up to 3% of patients who undergo laser capsulotomy will suffer
from sight threatening complications. An additional study performed by
researchers at Georgetown and Johns Hopkins Universities published in 1992 found
that approximately 2% of patients who undergo the laser capsulotomy will suffer
a detached retina or other retinal problems. The Company's 4197X-RA Immunotoxin
is intended to reduce the need for laser capsulotomies. To be commercially
successful, however, the product will have to be safer than existing treatments,
efficacious, cost effective when compared to laser capsulotomy, and eligible for
reimbursement under Medicare.
IMMUNOTOXIN TECHNOLOGY. Immunotoxins are potent toxins linked to
monoclonal antibodies for use as specific cytotoxic (cell-killing) agents. They
rely on the specificity of the antibody to direct the toxin to the targeted cell
type, those having a specific surface antigen. The 4197X-RA Immunotoxin
consists of a murine (mouse-derived) monoclonal antibody (4197X) that binds
specifically to human lens epithelial cells. The antibody is conjugated to a
polypeptide toxin, ricin a (RA) chain toxin.
Unlike HBI's 4197X-RA Immunotoxin, most immunotoxins in development as
therapeutics are directed against neoplastic (cancer) cells. Many cancers are
composed of dense masses of tissue, which are difficult for a large protein like
an immunotoxin to attack because of difficulties in penetrating into the
cancerous tissue's core. Cancer immunotoxin therapeutics have had limited
success because of this penetration problem and other biodistribution and
pharmacokinetic issues.
In contrast, the 4197X-RA Immunotoxin will be directly exposed to a single
cell layer. HBI's immunotoxin is designed to kill selectively lens epithelial
cells. These are normal, non-cancerous cells that can proliferate undesirably
after primary cataract surgery. Unlike dense growths of cancer cells, the
natural lens epithelial cells occur in a single-cell layer thickness on the
inside front lens capsule. Because the 4197X-RA Immunotoxin is designed to be
administered at the end of a primary cataract surgery, it will have direct
access to all of these cells and consequently, the Company does not expect
tissue penetration to be a significant problem.
The 4197X-RA Immunotoxin is designed to be injected into the area of the
lens capsule following the extraction of the natural opaque lens and the
insertion of a clear plastic intraocular lens ("IOL"). The specificity of the
4197X-RA Immunotoxin to human lens epithelial cells was determined through
extensive preclinical research studies. In these experiments, the 4197X-RA
Immunotoxin did not bind to other mammalian lens epithelial cells. Because of
this species and tissue specificity, HBI believes there is no single relevant
animal model in which to test the drug's activity. Nevertheless, the Company
believes that the in vitro tissue and cell culture studies and in vivo animal
pharmacokinetic and safety testing previously conducted with the 4197X-RA
Immunotoxin support its potential human clinical efficacy and safety.
Immunotoxins based on murine antibodies have the potential to induce a
human anti-mouse antibody ("HAMA") response because the body's immune system
recognizes the mouse antibody protein as a foreign substance and produces
antibodies against it. The HAMA response can render the therapeutic murine
antibody ineffective by neutralizing it. Undesirable systemic reactions to
murine antibodies are also possible. Since the Company's 4197X-RA Immunotoxin
is administered one time per treatment in relatively small quantities to an
isolated organ of the body (the eye), the likelihood of either of these
reactions is not expected to be significant. Although early testing of the
4197X-RA Immunotoxin did produce an immune response in small animals, no such
response was produced in large animals. Further, no human patient in the
clinical studies (see "Human Clinical Trials") has developed a systemic immune
response after receiving a single injection of the drug.
REFINED PRODUCT DEVELOPMENT. The current 4197X-RA product is a multi-
species product (i.e. it consists of some free antibody, one-ricin
immunoconjugate, two-ricin immunoconjugate, etc.). The company has improved its
manufacturing and purification process to the point that it can produce a
product of more or less one species, the two-
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ricin immunoconjugate. The company has completed development of the processes,
has scaled up and produced two batches of refined 4197X-RA Immunotoxin. The
second batch will be used for preclinical and possibly clinical studies.
The Company is conducting certain preclinical studies with the refined
immunotoxin and is evaluating preliminary results. If the results suggest that
certain preclinical tests be repeated or that the refined product manufacturing
and purification processes be modified, additional time would be required and
other product development activities would be delayed. If the results of these
preclinical studies are acceptable, a small Phase I trial will be initiated (the
"Refined Product Safety Study"). These preclinical and clinical studies are
required before the Company can begin a Phase III trial with the refined
immunotoxin.
HUMAN CLINICAL TRIALS. The conduct of human clinical trials is a long-term
undertaking designed to establish the safety and efficacy of a drug prior to its
sale to the public. By its nature, the process is uncertain, and in most cases
no meaningful judgment as to a product's effectiveness can be made until
clinical trials are completed and the collected data analyzed.
During 1990, the Company conducted research and completed certain studies
to test the efficacy of the 4197X-RA Immunotoxin in killing or retarding the
proliferation of human lens epithelial cells cultured in laboratory conditions
(in vitro). These studies, which demonstrated the efficacy of the 4197X-RA
Immunotoxin in vitro, enabled the Company to better determine optimum dosage
levels for the initial human safety and efficacy clinical trials. The Company
continues to perform certain product and process development on the 4197X-RA
Immunotoxin, principally in the areas of stability, product characterization,
product refinement and manufacturing-related activities. See "Government
Regulation" and "Refined Product Development".
A Phase I human clinical safety and tolerance study in five patients who
were irreversibly blind in one eye was conducted in 1991. Each patient was
injected in their blind eye with a therapeutic dose of the 4197X-RA Immunotoxin
and monitored over a three week period via five post-operative observations. A
final report supporting the safety of the 4197X-RA Immunotoxin was submitted to
the U.S. Food and Drug Administration ("FDA") in January 1992.
Upon completion by the FDA of its review of the results of the five-patient
study and the Phase I/II human clinical protocol, the Company commenced a
multiple-dose Phase I/II human clinical trial in April 1992 to evaluate safety,
dose tolerance and preliminary efficacy in patients undergoing extracapsular
cataract surgery. The Company suspended the clinical trial in August 1992 due
to a lack of patient enrollment, and commenced a revised trial in March 1993.
The trial protocol calls for injecting the 4197X-RA Immunotoxin at the end of
extracapsular cataract surgery and monitoring the patients for safety and
potential efficacy for up to six months, with continued monitoring of the
patients for up to twenty-four months after treatment to determine long-term
safety and preliminary efficacy of the 4197X-RA Immunotoxin. Patient enrollment
in this trial was completed in July 1994. In addition to this trial, the
Company is conducting a Phase II human clinical trial in which patients who are
scheduled to undergo cataract surgery in both eyes over a short period of time
received an injection of the 4197X-RA Immunotoxin in one eye and placebo in the
other. Patient enrollment in this trial was completed in January 1996.
Interim analyses of the available data from the Phase I/II study have
revealed statistically significant differences in rates of lens capsule
opacification between patients treated with the placebo and patients treated
with the Immunotoxin, particularly with the 50-unit dose, the level predicted to
have clinical relevance. With the higher 175-unit dose, patients experienced
more ocular inflammation than with the placebo or 50-unit dose. The 50-unit
dose appeared to be well tolerated and had a safety profile similar to that of
the placebo.
The results of the Phase I/II and Phase II studies will be used to
determine the size, scope and duration of the Phase III safety and efficacy
study. The Phase III Study could be initiated upon acceptable results from the
Refined Product Safety Study as well as the Phase I/II and Phase II studies. If
the Phase III study supports a finding of efficacy, a Product License
Application ("PLA") for the 4197X-RA Immunotoxin will be assembled and filed
with the FDA seeking approval to market the drug in the United States. A PLA
filing may be made by 1999. Due to the uncertainties involved in product
development and regulatory review, however, there can be no assurance that this
schedule can be adhered to.
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PATENTS AND LICENSING RIGHTS FOR THE 4197X-RA IMMUNOTOXIN. The 4197X-RA
Immunotoxin is proprietary to HBI and is protected by numerous United States and
foreign patents. Three United States patents have issued (1984, 1989 and 1991)
and several U.S. patent applications are pending. The issued patents cover the
composition of the immunotoxin and its use in the prevention of secondary
cataract and include broad, generic claims directed to a composition comprising
a macromolecular protein capable of binding substantially specifically to lens
epithelial cells conjugated in vitro to a cytotoxic agent and to a method of
inhibiting posterior lens capsule opacification using a cytotoxic agent
comprising a monoclonal antibody conjugated to a toxin molecule. In 1993, a
patent issued covering the antibody 4197X and the hybridoma cell line which
produces the antibody; the claims in the patent are directed broadly to
hybridoma cultures producing antibodies which bind specifically to lens
epithelial cells and to the monoclonal antibodies produced by these hybridomas.
The Company expects that this patent will extend the United States market
exclusivity of the product until at least 2010. Several foreign patents have
issued, including two European patents (1987 and 1992), and many are pending.
most of these patents and applications are assigned to Baylor College of
Medicine with the remainder being the direct property of HBI. The inventors for
the first patent in the series licensed to the Company by Baylor, were, at the
time of the invention, professors at Baylor and are founders of the Company.
HBI holds an exclusive, worldwide license to the Baylor patents (the "Baylor
License").
The Baylor License provides for an earned royalty to Baylor of 10% of net
sales (5% in certain instances) of the 4197X-RA Immunotoxin until $5 million in
royalties are paid and 5% of net sales thereafter (2.5% in certain instances).
Baylor may terminate the Baylor License if a PLA is not filed with the FDA by
December 31, 2000 or if earned royalty payments are not made to Baylor within
six months of PLA approval by the FDA. The Company has previously requested and
has been granted extensions of the PLA filing and royalty payment dates.
Management of the Company believes that the PLA can be filed before December 31,
2000, although there can be no assurance in this regard. Although the Company
believes that the PLA date could be further extended, if required, there can be
no assurance that Baylor would agree to such extension. If Baylor were to
terminate the Baylor License, it is likely that the Company would be unable to
complete development of the 4197X-RA Immunotoxin. However, the Company believes
that its significant research and development, including the development of
substantial proprietary know how, decreases the likelihood that such a
termination will occur, since any subsequent licensee of the Baylor patents
would have to develop significant technology similar to that developed to date
by HBI. No Company stockholder, officer, director or affiliate would stand to
benefit from the termination of the Baylor License. See "Patents and
Proprietary Rights".
In 1988, the Company entered into a license agreement with Elf Sanofi
(formerly Sanofi S.A., "Sanofi"), a French pharmaceutical company (the "Sanofi
License"). Under the Sanofi License, the Company has a non-exclusive license to
use, in connection with treatment and prevention of proliferative diseases of
the eye, a method and a composition patented by Sanofi for conjugating
(chemically bonding) antibodies involving the particular toxin and linker
(binding agent) used by the Company in the manufacture of the 4197X-RA
Immunotoxin. A royalty of $1.00 per treatment unit of the 4197X-RA Immunotoxin
will be payable to Sanofi for sales in countries where Sanofi has patent rights
until royalties of $1 million are paid, after which the royalty rate is reduced
to $0.75 per treatment unit. The royalty rate is subject to increase based on
price increases for the 4197X-RA Immunotoxin. In addition, the Company made
minimum royalty payments of $50,000, $50,000 and $87,500 to Sanofi to secure the
license for 1993, 1994 and 1995, respectively, and will make additional payments
of $137,000 per year for 1996 and thereafter, with the last payment due in March
1999. Thereafter, the license becomes irrevocable and royalty free.
Effective December 29, 1995, HBI and Santen entered into a Codevelopment
and License Agreement covering the marketing in Japan of the Immunotoxin. To
maintain exclusive marketing rights, Santen is required to provide $7,750,000
over the next six years to support HBI's development of the Immunotoxin. HBI
received $250,000 in November 1995 from Santen under an Option Agreement related
to the Santen License, and the payment schedule for the $7,750,000 is as
follows: $750,000 in five installments through April 1996; $250,000 quarterly
for 1996 through 2001, and $1 million within 60 days of delivery of an interim
report on the Refined Product Safety Study or within 30 days of enrollment of
the first patient in U.S. Phase III trials, at Santen's option. Santen may elect
not to make any payment, but in such event, the license may be made non-
exclusive or terminated by HBI. Santen is obligated to seek regulatory approval
for the product in Japan and is responsible for the developments cost associated
with these efforts. Upon the commencement of commercial sales by Santen in
Japan, Santen will pay HBI earned royalties based on net sales. Commencing six
months after approval of the Immunotoxin by Japanese regulatory authorities,
Santen is required to pay minimum royalties. HBI retains all marketing rights
and Santen is required to purchase the
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Immunotoxin from HBI. Amounts paid by Santen to HBI, except those amounts
related to the purchase of the Immunotoxin, are subject to a 10% withholding tax
imposed by the Japanese government. HBI receives U.S. income tax credits equal
to the amounts withheld, but HBI is not currently able to utilize such credits.
MANUFACTURING DEVELOPMENTS. The manufacture of the 4197X-RA Immunotoxin
involves four phases. The first phase is the manufacture of the purified
monoclonal antibody that is specific to human lens epithelial cells. The second
phase involves the isolation and purification of a toxic protein capable of
killing human cells. The third phase is the conjugation (chemical binding) of
the toxin to the monoclonal antibody through the use of a binding agent or
"linker," and purification of the resulting immunotoxin. The final phase is the
sterile filling and packaging of the immunotoxin to produce the 4197X-RA
Immunotoxin. The FDA requires that each phase of manufacture follow established
standard operating procedures and batch records must be maintained to document
each step in the manufacturing process. Following each phase of manufacturing,
material is tested to assure that drug quality, purity and activity meet product
specifications. Standard operating procedures are updated as methods for the
manufacturing process and analytical testing of the manufactured product are
improved.
The Company has certain facilities for cell culture, solution preparation,
and purification and conjugation of the monoclonal antibody in which it prepares
material for the early phase clinical trials in progress. As the clinical trial
program moves forward, the Company plans to continually upgrade its
manufacturing and testing capabilities. If manufacturing upgrades are delayed,
there may be a delay in initiating the Phase III human clinical trials. A delay
in the Phase III trials would delay the PLA filing and, ultimately, FDA approval
of the 4197X-RA Immunotoxin. The Company presently does not have sufficient
funds to upgrade its manufacturing facility. See "Manufacturing and Laboratory
Facilities".
GLAUCOMA
BACKGROUND. Glaucoma encompasses a heterogenous group of eye disorders
characterized by three symptoms: elevated intraocular pressure ("IOP"), optic
nerve damage and progressive visual field loss. IOP is regulated by the
production and outflow of aqueous humor, the fluid in the inside front part of
the eye. Glaucoma affects almost three million americans and is the leading
cause of blindness in the United States. While glaucoma consists of a diverse
group of diseases, primary open-angle glaucoma represents the dominant (65-75%)
form encountered by clinicians in the United States and Europe. Approximately
two million Americans suffer from primary open-angle glaucoma.
The current treatment of primary open-angle glaucoma involves medical,
laser and conventional surgical approaches and is directed toward the reduction
in IOP to a level that is presumed to arrest the progressive damage to the optic
nerve. However, the Company is aware of no current treatment that has been
successful in accomplishing this goal over the long term. Medical treatment of
glaucoma typically involves topical therapy with adrenergics (epinephrine,
timolol) and/or cholinergics (pilocarpine), as well as oral therapy with
carbonic anhydrase inhibitors (acetazolamide). Maximum medical therapy consists
of large doses of several of the above agents in combination. Surgical
intervention includes laser trabeculoplasty and filtration procedures. When
drug therapy fails, conventional or laser surgery may be performed to maintain
the IOP within normal limits. Laser trabeculoplasty involves the controlled
application of intense synchronized light on the trabecular meshwork, the
aqueous humor outflow tissue, in an attempt to shrink the tissue and thereby
open the drainage channels. This surgery provides only temporary IOP-lowering
relief. Filtration procedures include glaucoma filtering surgery in which a
surgical bleb (drainage channel) is created to bypass the trabecular meshwork.
The new route of drainage allows aqueous humor to be absorbed where it will not
cause a pressure increase. The latter two procedures are usually reserved for
patients who have open-angle glaucoma that is uncontrollable with maximum
medical therapy.
A principal goal in the management of glaucoma is to reduce IOP by
regulating the aqueous outflow. The Company's primary approach is the
development of a protein/anti-proliferative drug-conjugate to enhance
significantly the success and the safety of glaucoma filtering surgery. When it
is successful, glaucoma filtering surgery maintains controlled IOP without
further medical or surgical treatment. However, glaucoma filtering surgery has
a significant rate of failure, due to the scarring of the filtering bleb, the
hole created through the sclera (white of the eye). This scarring is the body's
normal wound healing mechanism. As a result of this high failure rate, surgical
intervention is
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considered a last resort. In an attempt to improve the surgery's success rate,
5-fluorouracil (5-FU), an agent which prevents cell division, is frequently
injected into the eye over several days. The known toxicity of 5-FU, combined
with the painful nature of the injections, limits the utility of this procedure.
The anti-neoplastic agent mitomycin C has also been reported to improve the
success rate of the filtering surgery. Although it is administered less
frequently than 5-FU, this agent is extremely toxic and its undesirable side
effects have been observed.
The Company's objective is to develop a drug-conjugate which will localize
the anti-proliferative drug to the surgical site, interfere with the normal
wound healing process, and prevent scarring of the filtering bleb. The conjugate
used for this purpose should be efficacious and safe, and eliminate the
undesirable side effects of 5-FU or mitomycin C. Although HBI does not
anticipate that surgery, regardless of its success, will become first-line
therapy, it could become a more acceptable alternative in recalcitrant cases and
performed with greater frequency. According to statistics compiled by the
Health Care Financing Administration, in 1994 approximately 60,000 glaucoma
filtering surgeries performed in the United States were reimbursed by Medicare.
HBI has identified a molecule which binds extracellular matrix components
of the conjunctiva and sclera and conjugated it to a known anti-proliferative
agent. This conjugate has been shown to inhibit the growth of scleral
fibroblasts in vitro. The results suggest that a similar inhibition of
fibroblast proliferation could be achieved in vivo at the site of filtration
surgery. In vivo studies using this conjugate have been conducted in an animal
model of GFS. The results indicate the conjugate can successfully prevent
scaring over of the fistula and maintain bleb patency. Further preclinical
evaluation is the subject of a Phase II SBIR application submitted in December
1995. Results from these studies will be incorporated in an IND application to
the FDA.
On September 21, 1994, the Company and Alcon Laboratories, Inc. ("Alcon")
entered into a research agreement pursuant to which Alcon conducted in vivo
tests in glaucoma filtration models using HBI's initial drug candidates, and had
an exclusive right to negotiate an option to license any product identified by
Alcon's work. The agreement expired in November 1995, and Alcon has no
continuing obligations or rights related to HBI's glaucoma project.
OTHER RESEARCH
Until 1995, the Company was conducting certain other research activities:
Lung-Derived Neurotrophic Factor (LDNF) to treat glaucoma; bi-specific
immunotoxins to treat proliferative vitreoretinopathy; LDNF to treat certain
neurodegenerative diseases; and immunoconjugates to treat certain cancers. All
such research programs have been curtailed due to financial constraints. The
decision to restart such programs will be made when the Company has greater
resources and will depend on the merit of the programs when compared to other
opportunities at the time.
MARKETING
OPHTHALMIC PHARMACEUTICALS-MARKET OVERVIEW. The Company's ophthalmic
research and development programs address large and growing markets. Although
the diseases targeted are not life-threatening, they can be seriously
debilitating and substantially affect the quality of life.
The Company believes that the market for ophthalmic pharmaceuticals will
grow as the median age of the populations of major industrial countries
continues to increase. The incidence of major eye diseases such as cataract and
glaucoma increases with advancing age. The United States Bureau of the Census
predicts that while the overall rate of population growth is slowing, the
portion of the population over 65 is expected to increase substantially by the
year 2000. Logistically, the therapeutic ophthalmic market is concentrated in
approximately 15,000 prescribing ophthalmologists, including 5,500 cataract
surgeons. Ophthalmic products are used or prescribed primarily by eye surgeons
and specialists, rather than general practitioners.
While population demographics vary in Europe and Asia, the market
characteristics (i.e., concentrated group of physicians, market growth and
emphasis on improved eye care) are similar to the United States market. Markets
and marketing techniques for non-ophthalmic neurodegenerative diseases would be
more diverse and would include co-marketing or licensing arrangements with
companies having existing specialty sales forces.
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MARKETING STRATEGY. The Company presently anticipates that it will need to
secure licensees to market the 4197X-RA Immunotoxin, either independently of or
in conjunction with the Company. HBI currently has one such association with
Santen for the Japanese market, and intends to enter into similar arrangements
for other markets.
An important factor in the commercial success of the 4197X-RA Immunotoxin
will be obtaining Health Care Financing Administration ("HCFA") approval for
Medicare reimbursement. Considerations in obtaining HCFA approval include cost
effectiveness and the characterization of the 4197X-RA Immunotoxin as a
therapeutic drug. HBI believes that the 4197X-RA Immunotoxin, if it proves to
be effective, will be cost effective as compared with secondary cataract
surgery, the need for which could be reduced through the use of the 4197X-RA
Immunotoxin at the time of primary cataract surgery, and that the drug can be
properly characterized as a therapeutic drug. The costs and inconvenience of
secondary cataract include the vision degradation related to secondary cataract,
the cost associated with the laser capsulotomy surgery, and the cost, patient
discomfort and vision problems associated with complications that result in some
cases. The Company has implemented procedures to allow the capture of cost
effectiveness and health outcome data in its human clinical studies. These
data, along with Phase III human clinical cost effectiveness data, should
provide a basis for seeking reimbursement approval from HCFA for the 4197X-RA
Immunotoxin.
MANUFACTURING AND LABORATORY FACILITIES
The Company's facilities are leased pursuant to a lease which expires on
February 28, 1999, with options to renew for two additional three-year periods.
The facilities include approximately 20,000 square feet of space, including
approximately 16,000 square feet of research and development laboratories and
manufacturing facilities. HBI's laboratories include facilities for hybridoma
and cell culture, microbiology, protein chemistry, formulation and analytical
chemistry. Preliminary plans have been developed to upgrade the manufacturing
facility, primarily commercial for production of the Company's 4197X-RA
Immunotoxin. The Company subleases approximately 7,000 square feet of its space
to another company.
As a condition to receipt of FDA approval to market a drug in the United
States, an applicant must demonstrate to the satisfaction of the FDA that the
processes and facilities used to manufacture that drug are safe and
controllable, and that they conform with GMP established by the FDA. Biological
products, such as the 4197X-RA Immunotoxin, must meet stringent manufacturing
guidelines. Similar requirements exist in other major countries. The
manufacture of sufficient quantities of new drugs is typically a time consuming,
complex and expensive process. If the Company is unable to develop or contract
for manufacturing capabilities on acceptable terms, the Company's ability to
meet the regulatory requirements will be adversely affected. As a result,
submission of products for regulatory approval and initiation of new development
programs could be delayed. This in turn could materially impair the Company's
competitive position and the possibility of the Company achieving profitability.
The Company's manufacturing facilities can produce quantities of human
clinical-grade material sufficient for purposes of clinical development, but not
large-scale commercial quantities. Prior to completing Phase III clinical
trials for the 4197X-RA Immunotoxin, the Company intends to upgrade its
manufacturing facility to produce the quantities of the 4197X-RA Immunotoxin
needed to meet early commercial needs. This GMP facility would not include
product finishing (vialing and packaging), which the Company believes can
initially be handled more easily through third party subcontracting. The
Company presently does not have sufficient funds to upgrade its manufacturing
facility.
PATENTS AND PROPRIETARY RIGHTS
The Company has filed, and expects to continue to file in appropriate
jurisdictions, patent applications for inventions that might be used in the
Company's products. The Company anticipates that filings in the United States,
Japan, Canada, Australia and most European countries will be made in order to
seek patent protection for the inventions it believes to be of material
importance.
The Company believes that patent and trade secret protection is important
in its business, and its success may, in part, depend on its ability to obtain
broad patents and maintain trade secret protection. There can be no assurance
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that valid and enforceable patents will be obtained with respect to any product
or the technology used to produce them, or that any patents, even if issued,
will be of commercial value.
Under the Baylor License, the Company holds the exclusive license for the
patent families covering the 4197X-RA Immunotoxin under development (the "Baylor
Patents"). See "Secondary Cataract-Patents and Licensing Rights for the 4197X-
RA Immunotoxin". The Company has also filed several United States patent
applications on extensions of the immunotoxin concept, exemplified by its 4197X-
RA Immunotoxin. The concept is that due to the unique anatomical location of
remnant lens epithelial cells following extracapsular surgery, they can be
killed using a chimeric molecule which contains a targeting portion and a
cytotoxic portion. The targeting portion is a macromolecular protein which
binds to lens epithelial cells and the cytotoxic portion is a toxin molecule.
The patent covered by the Sanofi License contains broad claims covering ricin-A-
chain immunotoxins as a class. The 4197X-RA Immunotoxin belongs to this class.
The Company believes that its rights under the Sanofi License entitle it to use
the Baylor Patents without infringing the Sanofi patent.
The Company received United States composition-of-matter patents on the
Lung-Derived Neurotrophic Factor in 1992 and 1995.
The Company has filed patent applications on its glaucoma filtering surgery
and proliferative vitreoretinopathy projects. The Company has filed a United
States patent application on the use of certain antibodies and immunoconjugates
in the field of cancer and other proliferative disease therapy and diagnosis.
The Company intends to keep all such data and research progress results
confidential until such filings are made so as not to jeopardize its United
States and foreign patent rights.
The patent position of biotechnology firms generally is highly uncertain.
The rapid rate of development and the intense efforts throughout the world in
biotechnology, the time lag between the filing of a patent application and its
review by appropriate authorities, and the lack of significant precedent
involving inventions of the nature anticipated to be useful for the products
make it impossible to anticipate the breadth or degree of protection that
patents will afford such products or their underlying technology. Available
patent protection may be limited for such products due to the prior use or
reported utility of such products (or their natural sources) to treat various
diseases or disorders.
The scope of patent applications filed by third parties is frequently
unknown, because applications filed in the United States are not public. In
cases where third parties have an earlier priority date for a patent application
covering a particular product or technology, such parties may obtain patents
that could be sufficiently broad to prevent the Company from marketing products
in the countries where the patents are granted. There can be no assurance that
products of the Company will not infringe any patents or other rights of third
parties or, even if such patents or other rights were identified in advance,
that the Company could obtain licenses on economically acceptable terms or
design around them.
In some cases the Company may determine that its proprietary position would
be better served through reliance on trade secret or know-how protection rather
than on patents. All the Company's scientific and management employees,
scientific advisors and certain consultants have signed confidentiality
agreements under which they have agreed not to use or disclose the Company
proprietary information. Research and development contracts and licensing
agreements with third parties provide access to aspects of the Company's know-
how that is protected generally under confidentiality agreements with the
parties involved. However, there can be no assurance that all confidentiality
agreements will be honored. Breach of these confidentiality obligations would
be likely to adversely affect the Company.
COMPETITION
The Company competes with large and small pharmaceutical and chemical
companies (many of which are diversifying their operations into biotechnology),
specialized biotechnology firms in the United States and elsewhere, universities
and governmental agencies. Many of the Company's major project areas are, or
are likely to become, highly competitive, and many of its competitors have
substantially greater financial resources, experience, manufacturing facilities
and sales organizations than the Company.
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Important competitive factors in the Company's business include the ability
to develop and maintain scientifically advanced technology during a period of
rapid technological development, to attract and retain a sufficient number of
qualified scientific and other management personnel, to obtain patent protection
or otherwise protect proprietary products or processes, to establish and revise
appropriately a sound market strategy and to have available adequate financial
resources to fund the extensive and time-consuming work necessary to develop and
commercialize a pharmaceutical product. The Company's current financial
conditions may adversely affect its ability to compete effectively with its
competitors.
Significant competitors in the development and marketing of ophthalmic
pharmaceuticals include companies such as: Alcon Laboratories, Inc. (a division
of Nestle, S.A.), Allergan Inc., Merck & Co., Ciba Vision Ophthalmics (a
division of Ciba-Geigy), Chiron Vision (a division of Chiron Corporation),
Pharmacia & Upjohn, Inc., along with other smaller regional companies.
With respect to the prevention of secondary cataract, the Company is not
aware of any commercial competitor with a competing product on the market.
Prizm Pharmaceuticals Inc. ("Prizm") has announced plans to develop a
macromolecular protein-toxin conjugate (fibroblast growth factor-saporin
conjugate). The Company has informed Prizm that if they commercialize such a
conjugate, it would infringe the Baylor patents. Pharmacia & Upjohn, Inc. has a
research-stage project related to the reduction of secondary cataract. Efforts
of other competitors with respect to secondary cataract have been primarily
directed toward enhanced surgical techniques, alternative intraocular lens
designs and certain pharmacologic approaches. However, there can be no
assurance that methods of preventing primary cataract or that other methods of
preventing secondary cataract will not be developed, or that such methods would
not prove to be more cost effective than the 4197X-RA Immunotoxin.
GOVERNMENT REGULATION
The Company's business is subject to regulation by numerous federal, state
and local governmental authorities in the United States, particularly by the
FDA, with respect to the introduction of new pharmaceutical and biological
products. Similar regulatory frameworks exist in other countries.
All new human therapeutic products must undergo extensive development,
animal testing and human clinical studies. The results of these studies must be
submitted to appropriate national regulatory agencies for review, and must be
satisfactory to the agencies before the products can be marketed. The
regulatory process, which includes preclinical, clinical and post-clinical
testing of each compound to establish its safety and efficacy, generally takes
many years and requires the expenditure of substantial resources. Data obtained
from preclinical and clinical activities are susceptible to varying
interpretations which could delay, limit or prevent FDA regulatory approval. In
addition, delays or rejections may be encountered based upon changes in FDA
policy for drug approval during the period of product development and FDA
regulatory review of each submitted PLA. Similar delays may also be encountered
in foreign countries.
The standard process required by the FDA before a biopharmaceutical agent
may be marketed in the United States includes: (i) preclinical tests; (ii)
submission to the FDA of a Notice of Claimed Investigational Exemption for a New
Drug ("IND") which must become effective before human clinical trials may
commence; (iii) adequate and well-controlled human clinical trials to establish
the safety and efficacy of the drug in its intended application; (iv) submission
of a PLA and ELA to the FDA; and (v) FDA approval of the PLA and ELA prior to
any commercial sale or shipment of the drug. Domestic manufacturing
establishments are subject to inspections by the FDA and by other federal, state
and local agencies and must comply with established manufacturing practices
which are appropriate for production.
Human clinical trials are typically conducted in three sequential phases,
which may overlap. In Phase I, the initial introduction of the drug to humans,
the drug is tested for safety (adverse effects), dosage tolerance, absorption,
distribution, metabolism and excretion. Phase II involves studies of a limited
patient population to determine the efficacy of the drug for specific targeted
indications, dosage tolerance and optimal dosage, and to identify possible
adverse effects and safety risks. When a product is considered effective and
has an acceptable safety profile in a Phase II evaluation, clinical
investigators begin the Phase III tests to further evaluate clinical efficacy
and safety within an
-10-
<PAGE>
expanded patient population at geographically dispersed clinical study sites.
The time required for approval of PLA submissions varies greatly and there is no
guarantee that any particular product will ever be approved.
Under the Drug Competition and Patent Term Restoration Act of 1984, a
product patent or method of treatment patent with a 17-year period of
enforceability covering a drug or biological product may be extended for up to
five years under certain circumstances to compensate the patent holder for the
time required for FDA regulatory review of the product. The benefits of the Act
are only available to the first approved use of the active ingredient in a drug
or biological product and may only be applied to one patent per drug per
product. This law also establishes a period of time following FDA approval of
certain PLAs during which the FDA may not accept or approve abbreviated
applications for generic versions of the drug from other sponsors. However,
there can be no assurance that the Company will be able to take advantage of
either the patent term extension or marketing exclusivity provisions of this
law.
All of the Company's manufacturing facilities, or contract manufacturing
facilities used by the Company, will be subject to periodic inspections by the
FDA and comparable agencies. If deficiencies in compliance to applicable
regulation are discovered during these inspections, the Company may be
restrained from continued marketing of the manufactured products until such
deficiencies are remedied. The Company is also subject to regulation regarding,
among other things, occupational safety, laboratory practices, the use and
handling of radioisotopes and hazardous chemicals, prevention of illness and
injury, environmental protection and hazardous substance control.
HUMAN RESOURCES
At December 31, 1995, the Company had 10 full-time employees. Seven
employees were engaged in research and development and support, and three were
in executive or administrative positions. The Company also utilizes the
services of consultants and scientific advisors to a significant extent,
particularly in the areas of clinical trial management and regulatory affairs.
The Company has entered into employment and severance agreements with certain of
its employees.
The Company is highly dependent on the principal members of its management
and scientific staff, the loss of whose services might impede the achievement of
development objectives. Furthermore, recruiting and retaining qualified
scientific personnel to perform research and development work in the future will
also be critical to the Company's success. Although the Company believes it
will be successful in attracting and retaining skilled and experienced
scientific personnel, there can be no assurance that the Company will be able to
attract and retain such personnel on acceptable terms given the competition
among numerous pharmaceutical and health care companies, universities and non-
profit research institutions for experienced scientists and managers and the
Company's current financial condition. None of the Company's employees is
subject to any collective bargaining agreement. The Company believes that
relations with its employees are excellent.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names of all executive officers of the
Company and certain other information relating to their positions held with the
Company and other business experience. Executive officers of the Company do not
have a specific term of office, but rather serve at the discretion of the Board
of Directors.
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
J. Russell Denson 45 President, Chief Executive Officer and Chief Financial Officer
Donald S. Clark, Ph.D. 46 Vice President, Development and Medical Affairs, and Secretary
Peter J. Kelleher, Ph.D. 46 Vice President, Research
</TABLE>
J. Russell Denson joined the Company as President and Chief Executive
Officer and as a Director in February 1992 and became Chief Financial Officer in
1994. From 1987 until he joined the Company, Mr. Denson was
-11-
<PAGE>
a Partner in The Denson Publishing Group in Houston, Texas. He served as Co-
Chairman on the Board of Hippocrates, Inc. and Chief Operating Officer of
Hippocrates Partners, the publisher of In Health magazine, until the magazine's
acquisition by Time Warner in 1990. From 1981 to 1987, Mr. Denson served as
Executive Vice President of HEI Corporation, a publicly held, diversified health
care company.
Donald S. Clark, Ph.D. joined the Company as Vice President, Development
in September 1989 and became Vice President - Medical Affairs and Secretary in
1994. Prior to joining the Company in 1989, Dr. Clark was Director,
Pharmaceutical Development at Allergan, Inc. where he served in various
capacities of increasing responsibility since 1981. From 1979 to 1981, Dr.
Clark was a senior research chemist at Rohm and Haas Chemical Company. Dr.
Clark received both his B.S. degree in Physical Biochemistry/Chemistry and his
Ph.D. degree in Physical Biochemistry from Louisiana State University.
Peter J. Kelleher, Ph.D. has been Vice President of Research since 1994.
He joined the Company as Project Leader for secondary cataract and Director of
the Hybridoma Laboratory in 1986 and has since served in various areas of
increasing responsibility. Before joining HBI, Dr. Kelleher was a Research
Associate at M. D. Anderson Hospital in Houston. He received his Ph.D. in
Microbiology from Texas A & M University in 1979 and completed post-doctoral
training in the Department of Pharmacology at The University of Texas Medical
School and in the Division of Basic Immunology at the National Jewish Hospital
and Research Center in Denver, Colorado.
ITEM 2. PROPERTIES
----------
HBI's laboratory, operating and manufacturing facilities are located in
The Woodlands, Texas, approximately 35 miles north of downtown Houston. HBI
leases approximately 20,000 square feet of space, including approximately 16,000
square feet of research and development laboratories and manufacturing
facilities. The Company subleases approximately 7,000 square feet of its space
to another company. HBI's laboratories include facilities for hybridoma and
cell culture, microbiology, protein chemistry, formulation and analytical
chemistry. The Company believes that its existing space should be sufficient to
meet its research, product development manufacturing and administrative needs
for the foreseeable future.
Effective January 1, 1995, the Company suspended payments to its lessor
under its premises lease, except for payments made to the Company under a
sublease. Effective June 1, 1995 the Company reached an agreement with its
lessor regarding its lease obligations, the terms of which included payment by
the Company to lessor of $73,754 representing rent, leasehold note payments and
related items for January through May 1995 (net of certain credits) and deferral
of seven months of rent, leasehold note payments, and related items. The
amounts deferred at December 31, 1995 are secured by a promissory note in the
principal amount of $155,591.87, with a 10% principal payment due prior to April
1, 1996, and further payable in equal monthly installments of principal and
interest in the approximate amount of $2,600 beginning April 1, 1996, with the
balance due on March 31, 1998. In connection with the deferral of payments, the
Company will grant its lessor 15,000 options to purchase shares of Common Stock
exercisable at $1.25 per share until March, 2001.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is not a party to any pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of stockholders during the fourth
quarter of 1995.
-12-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------
MARKET INFORMATION
The Common Stock and Warrants of the Company are quoted on the AMEX.
The following table shows the high and low closing sales prices in
1995 by quarter as reported by the AMEX.
High Low
---- ----
Fiscal Year Ended December 31, 1995:
Common Stock:
1st Quarter 1 5/8
2nd Quarter 1 5/16
3rd Quarter 13/16 9/16
4th Quarter 13/16 3/8
Warrants:
1st Quarter 1/4 1/8
2nd Quarter 3/16 1/64
3rd Quarter 3/16 1/32
4th Quarter 1/8 1/32
For the first quarter of 1996 through March 27, 1996, the high and low
closing sales prices as reported by AMEX were as follows:
High Low
---- ---
Common Stock: 1 15/16 7/16
Warrants 9/32 1/32
The Company currently intends to retain all earnings for use in the
operation of its business and, accordingly, does not intend to pay
cash dividends on its common stock in the near future.
HOLDERS
On March 27, 1996, there were 846 holders of record of HBI's 5,638,707
outstanding shares of Common Stock, and 1,246 holders of HBI's 4,521,558
outstanding Warrants.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
Until April 30, 1992, substantially all of the Company's research and
development activities on the 4197X-RA Immunotoxin related to a contract
performed for Houston Biotech Partners, L.P. (the "Partnership"). On that date,
HBI acquired the assets and liabilities of the Partnership in exchange for
2,628,232 shares of HBI Common Stock. (the "Combination"). On July 30, 1993,
the Company consummated a rights offering (the "Rights Offering"), resulting in
the sale of 657,101 shares of Common Stock and 535,087 Warrants. Additionally,
to qualify the Warrants for listing on the AMEX, HBI distributed 128,422
Warrants pro rata to the Company's stockholders. On July 30, 1993, the
Partnership was dissolved and 2,628,232 shares of HBI Common Stock were
distributed to the partners. HBI Common Stock and Warrants commenced trading on
the AMEX on August 2, 1993 under the symbols HBI and HBIWS, respectively. The
terms of the Rights Offering contained an adjustment feature pursuant to which
the Company agreed to issue one Warrant to each stockholder of record on January
26, 1994 in the event that the sum of the closing prices of (i) one share of
Common Stock and (ii) one Warrant averaged less than $5.00 for the 15 trading
-13-
<PAGE>
days prior to January 26, 1994. On February 11, 1994, the Company issued an
aggregate of 3,858,183 Warrants to stockholders of record on January 26, 1994.
The Combination of HBI and the Partnership was accounted for as a reverse
acquisition with the Partnership treated as the acquirer of the Company. The
selected financial data of HBI for the five years in the period ended December
31, 1995 reflect the historical data of the Partnership until its dissolution on
July 30, 1993. The selected financial data, which will be referred to as
Company financial data, has been derived from, and should be read in conjunction
with, the audited financial statements and related notes for, and as of the end
of, each of the periods indicated, which have been audited by Arthur Andersen
LLP, independent public accountants, whose auditors' report includes an
explanatory paragraph that describes the uncertainty regarding the Company's
ability to continue as a going concern, which is included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1991 1992/(1)/ 1993/(2)/ 1994 1995
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Operations
Investment and other income $ 471,873 $ 395,753 $ 461,728 $ 298,127 $ 526,048
Expenses:
Research and development 2,813,027 2,976,532 3,218,344 3,274,078 2,152,390
General, administrative and other 362,208 636,913 1,068,008 1,254,423 849,896
Minority interest --- (397,209) (379,863) --- ---
-------------- ------------ ------------ ------------ ------------
Total expenses 3,175,235 3,216,236 3,906,489 4,528,501 3,002,286
-------------- ------------ ------------ ------------ ------------
Net loss ($2,703,362) ($2,820,483) ($3,444,761) ($4,230,374) ($2,476,238)
-------------- ------------ ------------ ------------ ------------
Net loss per share ($1.03) ($1.07) ($1.10) ($0.84) ($0.44)
============== ============ ============ ============ ============
Weighted average shares used in
computing net loss per share/(3)/ 2,628,232 2,628,232 3,147,159 5,043,581 5,638,707
============== ============ ============ ============ ============
December 31,
--------------------------------------------------------------------------
1991 1992/(1)/ 1993/(2)/ 1994 1995
--------------------------------------------------------------------------
Balance Sheets:
Total cash, cash equivalents and
short-term investments $ 6,488,915 $ 4,682,275 $ 3,460,329 $ 2,238,272 $ 572,058
Total assets 10,184,626 5,609,303 4,340,422 3,042,218 1,110,562
Long-term debt and capital lease
obligations --- --- 204,560 190,013 140,423
Minority interest --- 921,080 --- --- ---
Stockholders' investment (deficit) 10,039,950 4,241,304 3,806,028 2,347,122 (129,116)
</TABLE>
(1) For 1992, amounts reflect the Partnership's activities through April 30,
1992 (the date of the Combination) and beginning May 1, 1992, its
approximately 82% interest in HBI. Accordingly, the financial statements as
of December 31, 1992, are not comparable to previous periods.
(2) For 1993, amounts reflect the Partnership's 82% interest in HBI through July
30, 1993, with 18% reflected as minority interest. On that date, the
Partnership was dissolved and its shares were distributed to its partners.
Beginning August 1, 1993, amounts reflect 100% of HBI's activities with no
minority interest. Accordingly, the financial statements as of December 31,
1993, are not comparable to prior periods.
(3) Weighted average shares used in computing net loss per share equals the
number of shares issued to the Partnership in conjunction with the
Combination until dissolution of the Partnership on July 30, 1993. Weighted
average shares used in computing net loss per share after dissolution of the
Partnership includes all shares outstanding.
-14-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
The following discussion and analysis should be read in conjunction with
the Financial Statements and related notes contained elsewhere herein.
HBI commenced substantial operations in 1986 and, since inception, has
been primarily engaged in research and product development of its lead product,
the 4197X-RA Immunotoxin, an immunotoxin being developed for the prevention of
secondary cataract. In addition, the Company is researching protein-drug
conjugate products to enhance the success of glaucoma filtering surgery.
Effective December 29, 1995, HBI and Santen Pharmaceutical Co., Ltd. entered
into a Codevelopment and License Agreement covering the marketing in Japan of
HBI's 4197X-RA Immunotoxin to prevent the formation of secondary cataract. To
maintain exclusive marketing rights, Santen is required to provide $7,750,000
over the next six years to support HBI's development of the Immunotoxin. Santen
is responsible for development costs related to obtaining Japanese regulatory
approval. Once the Immunotoxin is approved for marketing in Japan, Santen will
purchase the product from HBI and will pay royalties on sales. HBI received
$250,000 in November 1995 from Santen under an Option Agreement relating to the
Codevelopment and License Agreement, and $1,750,000 of the $7,750,000 is
scheduled for payment in 1996.
Effective February 1, 1995, HBI initiated a spending reduction plan and
cut its work force by approximately 30%. Under the plan, the Company will
continue the development of the 4197X-RA Immunotoxin and its work in the area of
glaucoma filtering surgery, but has curtailed Company funding for other research
programs. The Company spent approximately $2.2 million on research and product
development for the year ended December 31, 1995, approximately $1.9 million of
which was associated with the 4197X-RA Immunotoxin.
On May 3, 1994, the Company consummated a private placement of Common
Stock raising net proceeds of approximately $2.8 million. The proceeds from the
private placement were utilized to fund ongoing research and product development
activities. The Company spent approximately $3.3 million on research and
product development for the year ended December 31, 1994, approximately $2.6
million of which was associated with the 4197X-RA Immunotoxin.
In July 1993, the Company consummated the Rights Offering raising net
proceeds of approximately $2.6 million. The Company spent approximately $3.2
million on research and product development in 1993, approximately $2.5 million
of which was associated with the 4197X-RA Immunotoxin.
The Company subleases approximately 7,000 square feet of its space to
another company. The Company believes that its existing space should be
sufficient to meet its research, product development manufacturing and
administrative needs for the foreseeable future.
-15-
<PAGE>
PRODUCT DEVELOPMENT
Development of biopharmaceutical products involves a high degree of risk
and uncertainty and requires a large investment of cash and technical resources
before commercialization. The Company's realization of its investment in its
research and development efforts will not occur unless and until regulatory
approval to market is obtained and profits are generated at a future date. The
FDA requires compliance with strict regulatory procedures before it will grant
approval for a pharmaceutical product to be marketed in the United States.
These regulatory procedures require, among other things: (i) preclinical
development and filing an IND with the FDA, (ii) Phase I human clinical trials
to test safety, which normally take from one to three years, (iii) Phase II and
III human clinical trials to confirm the results of Phase I safety studies,
prove efficacy and observe any low-incidence adverse effects, which normally
take from two to three years each, and (iv) filing a PLA with the FDA containing
the results of the human clinical trials for review and approval by the FDA, a
process which normally takes approximately two to three years. The time
required to comply with the regulatory procedures normally is longer for
treatments addressing slowly developing diseases, such as secondary cataract.
There is no assurance that FDA approval of the 4197X-RA Immunotoxin or any
product candidate can be obtained within these time frames, if at all.
With respect to the 4197X-RA Immunotoxin, the Company filed the IND in
August 1990, filed a Phase I report with the FDA in January 1992 and commenced a
Phase I/II human clinical study in April 1992 which was terminated, redesigned
and restarted in March 1993. Patient enrollment in this study was completed in
July 1994. Interim analyses of the data from the Phase I/II clinical trial have
revealed statistically significant differences in rates of lens capsule
opacification between the 50-unit dose and placebo at six and twelve months post
cataract surgery. Patient enrollment in a Phase II human clinical study of
patients requiring cataract surgery in both eyes was completed in January 1996.
The Company currently estimates that it will cost approximately an
additional $25 million to complete the product development, manufacturing
requirements and clinical trials necessary to allow commercial sale of the
4197X-RA Immunotoxin in the U.S., based on current estimates of the size of the
Phase III clinical trials. Additional capital will be required to market the
4197X-RA Immunotoxin once the product is approved for sale. In addition, other
funds will be required to defray general and administrative expenses and to
support the Company's other projects. Since research and development projects
such as the 4197X-RA Immunotoxin involve a number of uncertainties, there can be
no assurance that the project costs will not exceed the current estimates. In
any event, additional funds will be necessary to successfully complete
development and commercialization of the 4197X-RA Immunotoxin as well as any
other products.
RESULTS OF OPERATIONS
HBI has incurred net operating losses since its inception and expects to
continue to incur net operating losses for the next several years. There can be
no assurance that any substantial revenues will ever be generated from products
developed through HBI's research and development efforts.
COMPARISON OF 1995 VERSUS 1994. The Company had a net loss of $2,476,238
for 1995, a 42% decrease from the 1994 net loss. Expenses from operations were
$3,002,286, a 34% decrease as compared to 1994 expenses of $4,528,501. This
decrease was primarily due to a spending reduction plan implemented February 1,
1995, under which HBI cut its workforce and curtailed funding for all research
not related to the secondary cataract product and the glaucoma filtering surgery
program.
Revenues from operations consist primarily of investment income related
to cash on hand, funding from research grants, and payments received from Santen
related to the Option Agreement and the Santen License. Investment income was
$59,662 in 1995 compared to $127,491 in 1994 due primarily to a corresponding
decline in cash and cash equivalents in 1995. The Company's funds were invested
in a Government Securities Money Market Fund yielding approximately 5.13%.
Research grant income was $50,530 in 1995 compared to $170,636 in 1994 due to
the expiration of several Small Business Innovative Research grants in 1994.
Payments by Santen totaled $400,000 in 1995, including $250,000 under the Option
Agreement and $150,000 under the Santen License.
-16-
<PAGE>
COMPARISON OF 1994 VERSUS 1993. The Company had a net loss of $4,230,374
for 1994, a 23% increase from the 1993 net loss. Expenses from operations were
$4,528,501 a 6% increase as compared to 1993 expenses of $4,286,352 (excluding
the effect of 1993 deductions for minority interest). This increase was due
primarily to increased general and administrative expenses attributable to
increased professional fees and investor relations. All of these expenses were
partially offset by the minority interest in 1993.
Revenues from operations, which consist primarily of investment income
related to cash on hand and research grants, were $298,127, a 35% decrease from
1993. The decrease was related to the expiration of a Small Business Innovative
Research grant, resulting in research grant revenue of $170,636 in 1994 compared
to $330,016 in 1993. Investment income showed no significant change. A decrease
in funds available to invest was offset by rising interest rates in 1994.
Interest rates on investments increased from an average of approximately 3.0% in
1993 to 4.4% in 1994.
COMPARISON OF 1993 VERSUS 1992. The Company had a net loss of $3,444,761
for 1993, a 22% increase from the 1992 net loss. Expenses from operations were
$3,906,489, a 21% increase from 1992 expenses. This increase was due primarily
to increased research and development expenses of $3,218,344 as compared to
$2,976,532 in 1992 and increased general and administrative expenses of
$1,068,008 as compared to $636,913 in 1992. Research and development expenses
increased due to the cost of clinical trials on the 4197X-RA Immunotoxin and
funding of additional research projects other than the 4197X-RA Immunotoxin
(principally the lung-derived neurotrophic factor project). The increase in
general, administrative and other expenses was attributable to increased
professional fees, public relations and investor relations of approximately
$100,000. In addition, prior to april 30, 1992, in accordance with a contract
with the partnership, a portion of general and administrative expenses was
allocated to research and development. Such allocation was approximately
$234,000 in 1992. All of these expenses were partially offset by the minority
interest.
Revenues from operations, which consists primarily of investment income
related to cash on hand and research grants, were $461,728, a 17% increase from
1992. Investment income decreased slightly due to a decrease in funds available
to invest as well as a decrease in yields on investment of such funds. Interest
rates on investments decreased from an average of approximately 3.2% in 1992 to
3.0% in 1993. The decrease in investment income was offset by government
research grants received on certain research projects.
As a result of the Combination, the Company acquired capitalized research
and experimental expenditures with a tax basis of approximately $16 million. A
determination has not been made as to the timing and recoverability of this tax
asset. The Company has received permission from the Internal Revenue Service to
change its accounting method for subsequent research and experimental
expenditures to the deferral method previously used by the Partnership.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $572,058 as of December 31,
1995, a decrease of $1,666,214 from $2,238,272 as of December 31, 1994. The
decrease is attributable to cash used by operating activities (principally
research and development) of $1,592,440. Operating activities were in part
funded by an increase in current liabilities of $594,172, to $1,099,255 as of
December 31, 1995 from $505,083 as of December 31, 1994. The increase in
current liabilities was related primarily to the negotiation of delayed payment
terms from principal vendors. All of the Company's cash equivalents and short-
term investments are invested in United States government securities, high-grade
corporate investments, commercial paper and bankers acceptances.
-17-
<PAGE>
Periodic payments by Santen are currently funding HBI's activities,
including payments to vendors which agreed to delayed payment terms in 1995.
However, scheduled payments by Santen for the second half of 1996 ($250,000 per
quarter less a 10% withholding tax imposed by the Japanese government) will fall
short of HBI's funding requirements. Accordingly, the Company is seeking to
secure additional funding by the third quarter 1996, and is considering all of
its financing alternatives, including: (i) a sale, license or other disposition
of the 4197X-RA Immunotoxin, or certain rights relating thereto; (ii) a sale of
stock or other securities in a public or private offering; (iii) a sale or other
reorganization of the Company; or (iv) the combination of the Company with
another entity.
The Company has incurred accumulated losses of $25,828,874, expects to
incur losses for the next several years, and there can be no assurance that HBI
will be successful in raising additional capital or in implementing one of its
financing alternatives. These factors raise substantial doubt about the
Company's ability to continue as going concern. As a result of the foregoing,
the Company's independent accountants have included an explanatory paragraph in
their report on the Company's financial statements at December 31, 1995, that
describes the uncertainty regarding the Company's ability to continue as a going
concern.
The Company's Common Stock and Warrants are listed on the American Stock
Exchange ("AMEX"). At this time, the Company fails to meet certain of the
financial guidelines for continued listing. Accordingly, there can be no
assurance that the Company will be able to maintain the listing of its
securities on the AMEX. Delisting of the Common Stock and Warrants could have
an adverse effect on their liquidity and could increase the difficulty
encountered by the Company in obtaining future financing.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ARE INCLUDED HEREIN ON
PAGES F-1 THROUGH F-14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
-18-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF HBI
---------------------------------------
Information required by this Item 10 is hereby incorporated by reference
to the Company's definitive proxy statement to be filed pursuant to Regulation
14A promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, which proxy statement is anticipated to be filed within
120 days after the end of the Company's fiscal year ended December 31, 1995.
With respect to executive officers of the Company, see page 12 under Item 1 of
this report.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information required by this Item 11 is hereby incorporated by reference
to the Company's definitive proxy statement to be filed pursuant to Regulation
14A promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, which proxy statement is anticipated to be filed within
120 days after the end of the Company's fiscal year ended December 31, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Information required by this Item 12 is hereby incorporated by reference
to the Company's definitive proxy statement to be filed pursuant to Regulation
14A promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, which proxy statement is anticipated to be filed within
120 days after the end of the Company's fiscal year ended December 31, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information required by this Item 13 is hereby incorporated by reference
to the Company's definitive proxy statement to be filed pursuant to Regulation
14A promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, which proxy statement is anticipated to be filed within
120 days after the end of the Company's fiscal year ended December 31, 1995.
-19-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(A) 1. INDEX TO FINANCIAL STATEMENTS.
The following Financial Statements are included herein:
Report of Independent Public Accountants...................... F-2
Balance Sheets - December 31, 1994 and 1995................... F-3
Statements of Operations - For the Years Ended
December 31, 1993, 1994 and 1995........................... F-4
Statements of Stockholders' Investment - For the Years Ended
December 31, 1993, 1994 and 1995........................... F-5
Statements of Cash Flows - For the Years Ended
December 31, 1993, 1994 and 1995........................... F-6
Notes to the Financial Statements............................. F-7
(A) 2. INDEX TO FINANCIAL STATEMENT SCHEDULES.
No schedules are included because of the absence of conditions under
which they are required or because the required information is disclosed
in the financial statements or notes thereto.
(A) 3. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Restated Certificate of Incorporation, as amended.(4)
3.2 Bylaws, as amended.(1)
4.1 Form of Warrant Agreement between the Company and Mellon Securities
Trust Company as Warrant Agent, including the form of Warrant.(3)
4.2 Portions of Restated Certificate of Incorporation defining rights of
security holders (incorporated by reference to Exhibit 3.1).
10.1 Research and Development Agreement between Santen Pharmaceutical Co.,
Ltd. and the Company dated November 6, 1986.(1)
10.2 Exclusive License Agreement by and between Baylor College of Medicine
and the Company dated June 19, 1984; Amendment No. 1 to Exclusive
License Agreement dated October 10, 1986; Letter Amendment dated
February 13, 1989 and February 17, 1989; Amendment to Schedule V. (A) to
Exclusive License Agreement dated December 14, 1992.(2)
10.3 License Agreement by and between the Company and Sanofi S.A. dated
August 19, 1988.(1)
-20-
<PAGE>
10.4 Lease Agreement between the Company and The Woodlands Corporation dated
February 5, 1987; Rider No. 1 to Lease Agreement dated February 5, 1987;
Rider No. 2 to Lease Agreement dated February 5, 1987; Addendum to Lease
Agreement dated March 1, 1987; Modification and Ratification of Lease
dated July 1, 1990; Correction, Modification, Extension and Ratification
of Lease dated March 1, 1992.(1)
10.5 Lease Agreement between the Company and The Woodlands Corporation dated
December 30, 1986; Addendum to Lease Agreement dated December 30, 1986;
Amendment to Lease Agreement dated as of December 30, 1986;
Modification, Extension and Ratification of Lease dated October 1,
1991.(1)
10.6 1992 Unsubordinated Stock Option Plan.(1)(8)
10.7 1992 Subordinated Stock Option Plan, as amended.(2)(8)
10.8 Consulting Agreement between the Company and John L. Crary dated
April 30, 1992.(1)(8)
10.9 Confidentiality, Inventions and Discoveries and Non-Competition
Agreement between the Company and J. Russell Denson dated February 24,
1992.(1)
10.10 Letter Agreement regarding Terms of Employment of J. Russell Denson
dated February 21, 1992.(1)(8)
10.11 Severance Agreement between the Company and Donald S. Clark dated April
30, 1992.(1)(8)
10.12 Confidentiality, Inventions and Discoveries and Non-Competition
Agreement between the Company and Donald S. Clark dated October 3,
1989.(1)
10.13 Letter Agreement regarding Terms of Employment of Donald S. Clark dated
August 31, 1989.(1)(8)
10.14 Severance Agreement between the Company and John N. Bingham dated
April 30, 1992.(1)(8)
10.15 Confidentiality, Inventions and Discoveries and Non-Competition
Agreement between the Company and John N. Bingham dated September 8,
1986.(1)
10.16 Stock Transfer Restriction and Buyback Agreement dated September 8, 1986
by and between the Company and John N. Bingham.(1)
10.17 Confidentiality, Inventions and Discoveries and Non-Competition
Agreement between the Company and Alexandra J. Baran dated September 1,
1986.(1)
10.18 Form of Confidentiality, Inventions and Discoveries and Non-Competition
Agreement between the Company and other employees and consultants.(1)
10.19 Sub-license and License Agreement dated July 14, 1989 by and between the
Company and Genetic Engineered Systems, Inc.(1)
10.20 Restated and Amended Agreement of Limited Partnership of Houston Biotech
Partners, L.P. dated April 30, 1992.(1)
10.21 Agreement of Limited Partnership of VRP Management Associates, L.P.
dated December 31, 1991.(1)
10.22 Houston Biotechnology Incorporated 1986 Stock Option Plan.(1)(8)
10.23 Houston Biotechnology Incorporated 1986 Consultants and Advisors Stock
Option Plan.(1)(8)
10.24 1988 Non-Qualified Stock Option Plan and Agreement.(1)(8)
-21-
<PAGE>
10.25 Consulting Agreement dated August 1, 1991 by and between the Company and
Jared M. Emery, M.D.; Amendment to Consulting Agreement dated
August 1, 1992.(1)(8)
10.26 Consulting Agreement dated August 1, 1992 by and between the Company and
Dominic Man-Kit Lam, Ph.D.(1)(8)
10.27 Letter Agreement dated October 21, 1986 by and between the Company and
Torsten N. Wiesel, M.D.(1)
10.28 Scientific Advisor Agreement dated December 9, 1992 by and between the
Company and Jere E. Goyan, Ph.D.(2)
10.29 Scientific and Clinical Advisor Agreement dated May 20, 1988 by and
between the Company and Herbert E. Kaufman, M.D.(1)
10.30 Scientific Advisor Agreement dated October 1, 1992 by and between the
Company and Vernon Knight, M.D.(1)
10.31 Letter Agreement dated October 21, 1986 by and between the Company and
Alice McPherson, M.D.(1)
10.32 Agreement dated June 19, 1984 by and among Baylor College of Medicine,
Dominic Man-Kit Lam and Jared M. Emery.(1)
10.33 Form of Indemnity Agreements with Directors and Officers.(1)
10.34 Development Agreement dated October 13, 1987 by and between the Company
and Houston Biotech Partners, L.P.; First Amendment to Development
Agreement dated October 13, 1987.(1)
10.35 Consulting Agreement dated May 1, 1992 by and between the Company and
Zsolt P. Harsanyi, Ph.D.(2)(8)
10.36 Amended and Restated Agreement of Recapitalization and Asset Exchange
dated as of April 30, 1992 by and among the Company, Houston Biotech
Partners, L.P., VRP Management Associates, L.P., certain holders of
Warrants of the Company, and the holders of the Company's Preferred
Stock.(1)
10.37 Lease Agreement between the Company and The Woodlands Corporation dated
July 20, 1993.(6)
10.38 Houston Biotechnology Incorporated 1993 Stock Option Plan.(6)(8)
10.39 Collaborative Research Agreement effective April 30, 1993, by and
between Genentech, Inc. and the Company.(5)
10.40 Consulting Agreement dated July 1, 1993 by and between the Company and
A. Douglas Peabody.(8)
10.41 Houston Biotechnology Incorporated 1994 Stock Option Plan.(8)
10.42 Houston Biotechnology Incorporated 1994 Replacement Stock Option
Plan.(7) (8)
10.43 Houston Biotechnology Incorporated 1994A Stock Option Plan.(7) (8)
10.44 Sublease Agreement with GenoMetrix. (9)
10.45 Research Agreement with Alcon Laboratories, Inc. (9)
10.46 Fourth Modification and Ratification of Lease between the Company and
Technology Buildings - 94 Limited, Lessor, (successor to The Woodlands
Corporation) dated June 1, 1995, Promissory Note in favor
-22-
<PAGE>
of The Woodlands Corporation dated June 1, 1995, and Modification of
Note and Lien dated May 31, 1995.(10)
*10.47 Codevelopment and License Agreement between the Company and Santen
Pharmaceutical Co., Ltd. dated December 29, 1995.
*10.48 Severance Agreement between the Company and J. Russell Denson dated
January 29, 1996. (8)
*11 Calculation of Net Loss Per Share.
*23 Consent of Arthur Andersen LLP.
24 Power of Attorney. See page 25 of this report.
___________________________________
* Filed herewith
(1) Incorporated herein by reference to the Company's Registration Statement
on Form S-1 (Reg. No. 33-56236), filed December 23, 1992.
(2) Incorporated herein by reference to the Company's Registration Statement
on Form S-1, Amendment No. 1 (Reg. No. 33-56236), filed February 26,
1993.
(3) Incorporated herein by reference to the Company's Registration Statement
on Form S-1, Amendment No. 1 (Reg. No. 33-56236), filed March 10, 1993.
(4) Incorporated herein by reference to the Company's Registration Statement
on Form S-1, Post Effective Amendment No. 2 (Reg. No. 33-56236), filed
November 29, 1993.
(5) Incorporated herein by reference to the Company's Registration Statement
on Form S-1, Post Effective Amendment No. 1 (Reg. No. 33-56236), filed
November 8, 1993.
(6) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993.
(7) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994.
(8) Management contract or compensatory plan or arrangement.
(9) Incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended December 31, 1994.
(10) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the three months
ended December 31, 1995.
-23-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HOUSTON BIOTECHNOLOGY INCORPORATED
Dated: March 29, 1996 By: /s/ J. Russell Denson
----------------------
J. Russell Denson,
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, J. Russell Denson and
Donald S. Clark, Ph.D., and each one of them, his attorneys-in-fact, each with
the power of substitution, for him in any and all capacities, to sign any and
all amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratify and confirming all that each of said
attorneys-in fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- -----
<S> <C> <C>
/s/ J. Russell Denson President, Chief Executive Officer and March 29, 1996
- ----------------------------- Director (Principal Executive Officer)
J. RUSSELL DENSON
Director March 29, 1996
- -----------------------------
A. DOUGLAS PEABODY
/s/ William D. Gutermuth Director March 29, 1996
- -----------------------------
WILLIAM D. GUTERMUTH
/s/ Robert S. Lemer Director March 29, 1996
- -----------------------------
ROBERT S. LEMER
</TABLE>
-24-
<PAGE>
HOUSTON BIOTECHNOLOGY INCORPORATED
INDEX TO THE FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants...................... F-2
Balance Sheets - December 31, 1994 and 1995................... F-3
Statements of Operations - For the Years Ended
December 31, 1993, 1994 and 1995......................... F-4
Statements of Stockholders' Investment - For the Years Ended
December 31, 1993, 1994 and 1995.......................... F-5
Statements of Cash Flows - For the Years Ended
December 31, 1993, 1994 and 1995.......................... F-6
Notes to the Financial Statements............................. F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Houston Biotechnology Incorporated:
We have audited the accompanying balance sheets of Houston Biotechnology
Incorporated (a Delaware corporation) as of December 31, 1994 and 1995, and the
related statements of operations, stockholders' investment and cash flows for
each of the three years in the period ended December 31, 1995. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Houston Biotechnology
Incorporated as of December 31, 1994 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is engaged in research and development
activities, has not realized significant operating revenues, and has an
accumulated deficit of $25,828,874 at December 31, 1995, all of which raise
substantial doubt about its ability to continue as a going concern. Accordingly,
the Company's continued existence is dependent on its ability to obtain
additional financing to develop, manufacture and market its product and to
attain successful future operations. Management's plans in regard to these
matters are described in Note 2. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
ARTHUR ANDERSEN LLP
The Woodlands, Texas
March 12, 1996
F-2
<PAGE>
HOUSTON BIOTECHNOLOGY INCORPORATED
BALANCE SHEETS
December 31,
-----------------------------
1994 1995
-------------- ------------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 2,238,272 $ 572,058
Prepaid and other assets 40,675 67,492
------------ ------------
Total current assets 2,278,947 639,550
FIXED ASSETS, net of accumulated
depreciation of $2,030,342 and
$2,165,254, respectively 744,386 457,523
OTHER ASSETS, net of accumulated
amortization of $61,095 and $62,146,
respectively 18,885 13,489
------------ ------------
Total assets $ 3,042,218 $ 1,110,562
============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities $ 430,204 $ 843,717
Current portion of long-term debt
and capital lease obligations 74,879 255,538
------------ ------------
Total current liabilities 505,083 1,099,255
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS 190,013 140,423
COMMITMENTS AND CONTINGENCIES [Note 10]
STOCKHOLDERS' INVESTMENT (DEFICIT):
Common stock, $0.01 par value,
40,000,000 shares authorized,
5,638,707 shares issued and
outstanding 56,387 56,387
Warrants to purchase 4,521,558 shares
of common stock 3,795,725 3,795,725
Additional paid-in capital 21,847,646 21,847,646
Accumulated deficit (23,352,636) (25,828,874)
------------ ------------
Total stockholders' investment
(deficit) 2,347,122 (129,116)
------------ ------------
Total liabilities and stockholders'
investment $ 3,042,218 $ 1,110,562
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
HOUSTON BIOTECHNOLOGY INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1993 1994 1995
--------------------------------------------
<S> <C> <C> <C>
REVENUES
Investment income $ 131,712 $ 127,491 $ 59,662
Grants and other 330,016 170,636 466,386
-------------- ------------ ------------
Total revenues 461,728 298,127 526,048
EXPENSES
Research and development 3,218,344 3,274,078 2,152,390
General, administrative and other 1,068,008 1,254,423 849,896
Minority interest (379,863) --- ---
-------------- ------------ ------------
Total expenses 3,906,489 4,528,501 3,002,286
-------------- ------------ ------------
Net loss ($3,444,761) ($4,230,374) ($2,476,238)
============== ============ ============
Net loss per share $(1.10) $(0.84) $(0.44)
============== ============ ============
Weighted average shares used in
computing net loss per share 3,147,159 5,043,581 5,638,707
============== ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
HOUSTON BIOTECHNOLOGY INCORPORATED
STATEMENTS OF STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS ADDITIONAL
-------------------- --------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- --------- -------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992
2,628,232 $26,282 --- $ --- $19,892,523 ($15,677,501) $ 4,241,304
Issuance of Common Stock and Warrants
upon closing of the Offering discussed
in Notes 1 and 7 657,101 6,571 663,509 178,753 2,379,004 --- 2,564,328
Reclassification of minority interest
upon dissolution of the Partnership as
discussed in Notes 1 and 7 572,783 5,728 --- --- 439,094 --- 444,822
Exercise of Warrants 67 1 (67) (18) 352 --- 335
Net loss --- --- --- --- --- (3,444,761) (3,444,761)
----------- ------ ------ ------- --------- ----------- -----------
Balance at December 31, 1993
3,858,183 38,582 663,442 178,735 22,710,973 (19,122,262) 3,806,028
Issuance of Warrants --- --- 3,858,183 3,617,046 (3,617,046) --- ---
Exercise of Warrants 67 1 (67) (56) 391 --- 336
Issuance of Common Stock upon closing
of Private Placement Offering as
discussed in Note 7 1,780,457 17,804 --- --- 2,753,328 --- 2,771,132
Net loss --- --- --- --- --- (4,230,374) (4,230,374)
----------- ------ ------ ------- --------- ----------- -----------
Balance at December 31, 1994
5,638,707 56,387 4,521,558 3,795,725 21,847,646 (23,352,636) 2,347,122
Net loss --- --- --- --- --- (2,476,238) (2,476,238)
----------- ------ ------ ------- --------- ----------- -----------
Balance at December 31, 1995
5,638,707 $56,387 4,521,558 $3,795,725 $21,847,646 ($25,828,874) ($ 129,116)
=========== ======= ========= ========== =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HOUSTON BIOTECHNOLOGY INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1993 1994 1995
--------------------------------------------
<S> <C> <C> <C>
Cash flows used by operating activities:
Net loss ($3,444,761) ($4,230,374) ($2,476,238)
Adjustments to reconcile net loss to
net cash used by operating
activities:
Depreciation and amortization 219,247 202,355 236,118
Writedown of capitalized
construction costs --- --- 69,730
Rent and related expenses satisfied
by issuance of a note --- --- 196,065
Other (income) loss (6,168) 17,649 (9,157)
Minority interest (379,863) --- ---
(Increase) decrease in operating
assets:
Other current assets (5,798) (13,552) (26,817)
Other assets 302,753 (5,612) 4,346
Increase (decrease) in operating
liabilities:
Accounts payable and accrued
liabilities (149,608) 132,893 413,513
-------------- ---------- ----------
Net cash used by operating
activities (3,464,198) (3,896,641) (1,592,440)
Cash flows provided (used) by investing
activities:
Purchases of fixed assets (358,496) (74,792) (8,778)
Short-term investments 1,965,492 --- ---
-------------- ---------- ----------
Net cash provided (used) by
investing activities 1,606,996 (74,792) (8,778)
Cash flows provided (used) by financing
activities:
Payments on debt and capital lease
obligations --- (22,092) (64,996)
Sale of common stock and warrants,
net of offering costs and
liquidation of the partnership 2,600,748 2,771,468 ---
-------------- ---------- ----------
Net cash provided (used) by
financing activities 2,600,748 2,749,376 (64,996)
-------------- ---------- ----------
Increase (decrease) in cash and cash
equivalents 743,546 (1,222,057) (1,666,214)
Cash and cash equivalents at beginning
of year 2,716,783 3,460,329 2,238,272
-------------- ---------- ----------
Cash and cash equivalents at end of year $ 3,460,329 $ 2,238,272 $ 572,058
============== ========== ==========
Supplemental information of noncash
financing activities:
Capital lease obligation for purchase
of fixed assets $ 58,599 $ 49,537 ---
Long-term debt for purchase of fixed
assets $ 189,875 --- ---
</TABLE>
The accompanying notes are an integral part of these financial statementsHOUSTON
F-6
<PAGE>
HOUSTON BIOTECHNOLOGY INCORPORATED
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) ORGANIZATION
Houston Biotechnology Incorporated ("HBI" or the "Company"), a Delaware
corporation, was founded in February 1984 and commenced substantial operations
in May 1986. HBI is a biotechnology company engaged in the development of
biopharmaceutical products to treat or prevent certain common ophthalmic
diseases and disorders. The principal objective of the Company is to develop
products to treat conditions for which no effective pharmaceutical treatment
is currently available or for which such products may provide advantages over
existing treatments. The Company's most advanced product is an immunotoxin
for the prevention of secondary cataract (the "4197X-RA Immunotoxin"), the
most common complication following primary cataract surgery.
Until April 30, 1992, substantially all of the Company's research and
development activities on the 4197X-RA Immunotoxin related to a contract
performed for Houston Biotech Partners, L.P. (the "Partnership"), a research
and development partnership. On that date, HBI completed a recapitalization
and exchange of newly issued shares of HBI Common Stock for all of the assets
and liabilities of the Partnership. As a result of this transaction (the
"Combination"), the Partnership owned 82% of HBI's outstanding Common Stock.
On July 30, 1993, HBI consummated a rights offering (the "Rights Offering")
for the sale of HBI Common Stock and Warrants to existing stockholders,
including the partners of the Partnership, and to other parties. A total of
approximately $2,600,000, net of offering costs, was raised from the Rights
Offering. Upon closing of the Rights Offering, the Partnership was dissolved
and the HBI Common Stock held by the Partnership was distributed to the
partners. HBI Common Stock and Warrants began trading on the American Stock
Exchange ("AMEX") on August 2, 1993, under the symbols HBI for the Common
Stock and HBIWS for the Warrants.
For financial reporting purposes, the Combination was accounted for as
a reverse acquisition, with the Partnership treated as the acquirer. The
Partnership financial statements are used to reflect the financial position
and results of operations of HBI through the date of dissolution. Prior to
the date of dissolution, the Partnership capital accounts were retroactively
restated to reflect the equivalent number of shares issued in connection with
the Combination.
(2) FINANCIAL CONDITION
The Company is engaged in research and development activities in
biotechnology, which involve a high degree of uncertainty and risk. Risks
include, but are not limited to, the following: the need for additional
funding, the early stage of development of the Company's products, the
possibility of competition and technological changes, uncertainties in the
regulatory process, uncertainties regarding product pricing and reimbursement,
reliance on corporate partners for funding, dependence on licenses, patents
and know-how, possible product liability and reliance on key personnel. The
Company has not generated any revenues from product sales and there is no
assurance of any such revenues in the future. HBI has experienced significant
negative cash flow and must either access additional sources of financing or
consider some form of corporate reorganization.
Periodic payments by Santen Pharmaceutical Co., Ltd. ("Santen") (see
Note 4) are currently funding HBI's activities, but such payments will fall
short of funding requirements for the second half of 1996. Accordingly, the
Company is seeking to secure additional funding by the third quarter 1996, and
is considering all of its financing alternatives, including: (i) a license,
sale or other disposition of the 4197X-RA Immunotoxin, or certain rights
relating thereto; (ii) a sale of stock or other securities in a public or
private
F-7
<PAGE>
offering; (iii) a sale or other reorganization of the Company; or (iv)
the combination of the Company with another entity.
The Company has incurred accumulated losses of $25,828,874, expects to
incur losses for the next several years, and there can be no assurance that it
will be successful in raising additional capital or in implementing one of its
financing alternatives. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements
have been prepared assuming the Company will continue as a going concern, and
do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
The Company's Common Stock and Warrants are listed on the American
Stock Exchange ("AMEX"). At this time, the Company fails to meet certain of
the financial guidelines for continued listing. Accordingly, there can be no
assurance that the Company will be able to maintain the listing of its
securities on the AMEX. Delisting of the Common Stock and Warrants could have
an adverse effect on their liquidity and could increase the difficulty
encountered by the Company in obtaining future financing.
(3) SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of certain estimates by
management in determining the Company's assets, liabilities, revenues and
expenses.
Cash Equivalents
Cash equivalents include investments in loan participations and a
government money market fund in the amounts of $2,109,424 and $392,640 as of
December 31, 1994 and 1995, respectively. All cash equivalents have been
classified as securities held to maturity in the current financial statements.
The carrying value of the cash equivalents is cost which approximates market
value. For purposes of the balance sheet and the statements of cash flows,
the Company considers all highly liquid investments purchased with a maturity
of 90 days or less to be cash equivalents.
Fixed Assets
Fixed assets consist of research and development equipment, office
equipment and leasehold costs. These assets are carried at cost and
depreciated on the straight-line method using a five year estimated useful
life.
Research and Development Costs
Research and development costs are expensed when incurred. These costs
consist of direct costs associated with specific projects, including costs
associated with the operation of laboratories performing such research, and in
the case of contract research and government research grants, an allocation of
general and administrative costs associated with administering these
activities.
(4) RESEARCH AND LICENSE AGREEMENTS
The Company has entered into an exclusive license agreement with Baylor
College of Medicine ("Baylor") to market, manufacture, grant sublicenses and
sell the 4197X-RA Immunotoxin. Baylor may terminate this license agreement if
a Product License Application is not filed with the U.S. Food and Drug
Administration ("FDA") by December 31, 2000. In connection with this
agreement, the Company has agreed to pay Baylor a royalty equal to a maximum
of 10% of the net sales of the product until $5 million in royalties
F-8
<PAGE>
are paid and 5% of net sales thereafter (5% and 2.5% in certain instances). No
royalties have yet been paid under this agreement.
Effective December 29, 1995, HBI and Santen entered into a
Codevelopment and License Agreement (the "Santen License") covering the
marketing in Japan of the Immunotoxin. To maintain exclusive marketing
rights, Santen is required to provide $7,750,000 over the next six years to
support HBI's development of the Immunotoxin. HBI received $250,000 in
November 1995 from Santen under an Option Agreement related to the Santen
License, and the payment schedule for the $7,750,000 is as follows: $750,000
in five installments through April 1996; $250,000 quarterly for 1996 through
2001, and $1 million within 60 days of delivery of an interim report on the
Refined Product Safety Study or within 30 days of enrollment of the first
patient in U.S. Phase III trials. At Santen's option, Santen may elect not to
make any payment, but in such event, the license may be made non-exclusive or
terminated by HBI. Santen is obligated to seek regulatory approval for the
product in Japan and is responsible for the development cost associated with
these efforts. Upon the commencement of commercial sales by Santen in Japan,
Santen will pay HBI earned royalties based on net sales. Commencing six
months after approval of the Immunotoxin by Japanese regulatory authorities,
Santen is required to pay minimum royalties. HBI retains all marketing rights
and Santen is required to purchase the Immunotoxin from HBI. Amounts paid by
Santen to HBI, except those amounts related to the purchase of the
Immunotoxin, are subject to a 10% withholding tax imposed by the Japanese
government. HBI receives U.S. income tax credits equal to the amounts
withheld, but HBI is not currently able to utilize such credits.
The Company holds a non-exclusive license from Sanofi, S.A., a French
pharmaceutical company, to use its patented method for conjugating antibodies
involving the particular toxin and linker used by HBI in the manufacture of
the 4197X-RA Immunotoxin. A royalty of $1.00 per treatment unit of the 4197X-
RA Immunotoxin is payable to Sanofi for sales in countries where Sanofi has
patent rights until royalties of $1 million are paid, after which the royalty
rate is reduced to $.75 per treatment unit. The Company paid minimum annual
royalties of $50,000, $50,000 and $87,500 to secure the license for 1993,
1994, and 1995, respectively. The license provides for minimum annual
royalties of $137,500 for 1996 and thereafter, with the last payment due in
March 1999.
On September 21, 1994, the Company and Alcon Laboratories, Inc.
("Alcon") entered into a research agreement pursuant to which Alcon conducted
in vivo tests in glaucoma filtration models using certain of HBI's drug
candidates, and had an exclusive right to negotiate an option to license any
product identified by Alcon's work. The agreement expired in November 1995,
and Alcon has no continuing obligations or rights related to HBI's glaucoma
project.
(5) FEDERAL INCOME TAXES
Due to a net operating loss, the Company has no liability for federal
income taxes. For federal income tax purposes, net operating loss and tax
credit carryforwards as of December 31, 1995 are approximately $5,312,000 and
$694,000, respectively. These carryforwards will expire beginning in 2001.
The Tax Reform Act of 1986 provided for a limitation on the use of net
operating loss and tax credit carryforwards following certain ownership
changes that could limit the Company's ability to utilize these net operating
losses and tax credits. Additionally, because U.S. tax laws limit the time
during which net operating loss and tax credit carryforwards may be applied
against future taxable income and tax liabilities, the Company may not be able
to fully utilize its net operating loss and tax credits for federal income tax
purposes. The Company's net operating loss carryforward for financial
reporting purposes is approximately $25,800,000. This amount differs from the
amount reported for federal income tax purposes due primarily to the
Partnership's election to capitalize research and development expenditures for
income tax purposes. A determination has not been made as to the timing and
recoverability of the capitalized research and development expenditures of
approximately $16,100,000 for federal income tax purposes acquired as a result
of the Combination with the Partnership.
Under Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" ("SFAS No. 109"), deferred tax liabilities and assets are
recorded based on the enacted income tax rates which
F-9
<PAGE>
are expected to be in effect in the period in which the deferred tax liability
on assets is expected to be settled or realized. A change in the tax laws or
rates results in adjustments to the deferred tax liabilities and assets. The
effect of such adjustments shall be included in income in the period in which
the tax laws or rates changed. The Company adopted SFAS No. 109 beginning
January 1, 1993. The Company has recorded net deferred tax assets with respect
to NOL and tax credit carryforwards in certain circumstances. Since the
Company can not determine if the recorded net deferred tax assets will be
realized, a valuation allowance was established to fully offset such assets.
Significant components of the Company's deferred tax assets are as
follows:
December 31,
1994 1995
---- ----
Deferred tax assets
Federal net operating loss
carryforwards $ 1,707,152 $ 1,806,041
Capitalized research and development 2,727,269 3,435,961
Research and development tax credits 625,861 693,861
Other 48,032 59,322
----------- -----------
Total deferred tax assets 5,108,314 5,995,185
Deferred tax valuation allowance (5,108,314) (5,995,185)
Net deferred tax assets $ --- $ ---
=========== ===========
(6) RELATED-PARTY TRANSACTIONS
The Company leases office and laboratory space from a company which is
a related party to a stockholder. The Company incurred approximately
$154,000, $199,000 and $209,000 in rent under such leases in 1993, 1994 and
1995, respectively (see Note 10).
The Company utilizes the legal services of a law firm, of which one of
its partners is a director of the Company. The Company incurred approximately
$410,000, $260,000 and $113,000 in legal fees from that firm in 1993, 1994 and
1995, respectively.
(7) STOCKHOLDERS' INVESTMENT
Preferred Stock
The Company has authorized the issuance of up to 15,000,000 shares of
Preferred Stock, $.01 par value. No preferred shares were outstanding at
December 31, 1994 or 1995.
Common Stock
Upon consummation of the Combination on April 30, 1992, the Company
underwent a recapitalization which resulted in (i) a reverse stock split
whereby the 1,935,078 shares of Common Stock then outstanding (including
approximately 93,000 shares purchased via exercise of stock options) were
converted to 191,811 shares of Common Stock, (ii) exchange of 359,972 shares
of Common Stock for all of the Series A, B and C Preferred Stock, and (iii)
exchange of 21,000 shares of Common Stock for 198,000 Warrants held by certain
warrantholders. In addition, the Company exchanged 2,628,232 shares of Common
Stock for all of the assets and liabilities of the Partnership. For financial
reporting purposes, the 572,783 shares exchanged with the Company stockholders
and certain warrantholders were reported as minority interest until
dissolution of the Partnership on July 30, 1993.
Upon closing of the Rights Offering on July 30, 1993, the Company
issued 657,101 shares of HBI Common Stock and 535,087 Warrants for net
proceeds of approximately $2,600,000. In addition, the Common Stock issued to
the Partnership was distributed to its partners (including 18,847 shares to
HBI which
F-10
<PAGE>
were subsequently distributed to those who were HBI stockholders prior to the
Combination) and the Partnership was dissolved.
On May 3, 1994, the Company consummated a private placement of
1,780,457 shares of HBI Common Stock, raising approximately $2.8 million, net
of offering costs.
The Company has reserved (i) 1,192,714 shares of Common Stock for
issuance upon exercise of stock options under the Company's stock option plans
(see Note 8) and (ii) 4,521,625 shares of Common Stock for issuance upon
exercise of the Warrants.
Warrants
In addition to the 535,087 Warrants issued in the Rights Offering, to
qualify the Warrants for trading on the AMEX, the Company distributed pro rata
to holders of its Common Stock an additional 128,422 Warrants. The Warrants
are exercisable at $9.38 per share until expiration on June 30, 1998.
As a result of an adjustment feature contained in the terms of the
Rights Offering, on February 11, 1994, the Company distributed an additional
3,858,183 Warrants to the stockholders of record as of January 26, 1994 (one
Warrant for each share held). The Warrants were recorded at their fair market
value as a reduction to paid-in-capital. These Warrants contain the same
terms and conditions as the Warrants issued in conjunction with the Rights
Offering.
(8) EMPLOYEE BENEFIT PLANS
Stock Option Plans
On September 27, 1994, the stockholders approved the Houston
Biotechnology Incorporated 1994 Replacement Stock Option Plan (the
"Replacement Plan"). Participation in the Replacement Plan was limited to
those persons who held options under the Company's 1992 Subordinated Plan or
the Company's 1992 Unsubordinated Stock Option Plan (the "1992 Plans"). If
all the participants in the 1992 Plans surrender their existing options, no
options will remain outstanding under the 1992 Plans, and the 1992 Plans will
be terminated. Options under the Replacement Plan are issuable on the
following basis: (i) one fully vested stock option under the Replacement
Plan, at an exercise price of $2.00 per share, for each five options (or
lesser odd lot amount) held by an optionee under the 1992 Subordinated Stock
Option Plan, whether or not vested, and (ii) one fully vested stock option
under the Replacement Plan, exercisable at $1.25 (the fair market value of a
share of Common Stock on the date of grant), for each option held by an
optionee under the 1992 Unsubordinated Stock Option Plan, whether or not
vested. The total number of options available for grant under the Replacement
Plan is 384,714.
The stockholders also approved the Houston Biotechnology Incorporated
1994A Stock Option Plan (the "1994A Plan"). The 1994A Plan authorizes the
grant of stock options to eligible key employees, consultants, and directors
of the Company and its affiliates. The total number of options available for
grant under the 1994A Plan is 750,000.
Under the 1994A Plan, each non-employee director who was a director on
July 21, 1994, the date on which the 1994A Plan was approved by the Board of
Directors, automatically received a fully vested nonqualified option to
purchase an aggregate of (i) 10,000 shares of Common Stock, plus (ii) 10,000
shares of Common Stock for each calendar year, or portion thereof, subsequent
to 1991 and prior to 1994, for which such person served as a director of the
Company. Each non-employee director of the Company who becomes a director
after July 21, 1994 shall, on the date such director becomes a director,
automatically receive (i) a fully vested option to purchase 10,000 shares of
Common Stock and (ii) an unvested option to purchase 10,000 shares of Common
Stock that vests quarterly in arrears over the succeeding 12 months for so
long as the optionee continues to serve as a director. Thereafter, each
director who is a non-employee director on the day following any annual
meeting of stockholders of the Company, beginning with the first such meeting
in the calendar year following the calendar year in which such person first
became a director, on the date of such
F-11
<PAGE>
meeting, shall automatically receive an option to purchase 10,000 shares of
Common Stock, which option shall vest quarterly in arrears over the succeeding
12 months for so long as the optionee continues to serve as a director. The
exercise price of all options granted to non-employee directors will be the
fair market value of a share of Common Stock on the date of grant.
Since the exercise price of all grants equals or exceeds the market
value of the Common Stock at the date of grant and the date of stockholder
approval, no accounting entries are made until the options are exercised, at
which time the Common Stock account will be credited at par value and the
proceeds in excess of par will be credited to paid-in capital.
Transactions under the plans are summarized as follows:
<TABLE>
<CAPTION>
Replacement 1994A
------------ --------
1992 Plans Plan Plan Total
---------- ------------ -------- -----
<S> <C> <C> <C> <C>
Outstanding at December 31, 1992 900,000 -- -- 900,000
Granted in 1993 118,000 -- -- 118,000
Cancelled in 1993 (70,250) -- -- (70,250)
------------ ----------- ------- -------
Outstanding at December 31, 1993 947,750 -- -- 947,750
Granted in 1994 96,500 370,214 498,100 964,814
Cancelled in 1994 (971,750) (250) (10,500) (982,500)
------------ ----------- ------- -------
Outstanding at December 31, 1994 72,500 369,964 487,600 930,064
Granted in 1995 -- 10,000 55,250 65,250
Cancelled in 1995 (50,000) (10,250) (46,625) (106,875)
------------ ----------- ------- -------
Outstanding at December 31, 1995 22,500 369,714 496,225 888,439
============ ============ ======== ========
</TABLE>
On October 12, 1995, the Board of Directors approved amendments to
option agreements pertaining to an aggregate of 227,850 options held by
current officers, employees and consultants held under the 1994A Stock Option
Plan which reduced the exercise price from $1.25 to $.625 per share and
extended the option period to October 11, 2005. In connection with a
reduction of workforce effected February 1, 1995, the Board of Directors
approved amendments to 78,750 options held by terminated employees which
accelerated the vesting and extended the exercise period to December 31, 1996.
No raises were given to executive officers of the Company in 1994 and 1995,
and salaries of executive officers were reduced 20% from July 16 to December
31, 1995.
Savings Plan
In 1987, the Board of Directors of the Company adopted the Houston
Biotechnology Incorporated Savings Plan (the "Plan"), a plan that qualifies as
a salary deferral plan under Section 401(k) of the Internal Revenue Code.
Under the terms of the Plan, the Company will provide matching contributions
in the amount of 50% of the first 6% of salary deferral contributions made
each year by employees participating in the Plan provided further that the
Company's matching contributions to the account of a participating employee
shall not exceed $1,000 in any plan year. The Company contributed $23,885,
$25,432 and $10,602 to the Plan in 1993, 1994, and 1995, respectively.
(9) LOSS PER COMMON SHARE
Loss per common share has been computed by dividing the net loss by the
weighted average number of shares of Common Stock outstanding during the
periods. The weighted average number of shares of Common Stock outstanding
was 3,147,159, 5,043,581 and 5,638,707 for 1993, 1994 and 1995, respectively.
In all applicable years, all Common Stock equivalents were antidilutive and,
accordingly, were not included in the computation.
F-12
<PAGE>
(10) COMMITMENTS AND CONTINGENCIES
The Company is a party to severance agreements with certain officers
that require the Company to make a severance payment equal to annual
compensation and to extend certain benefits for one year in the event of the
officer's resignation following a change in control or termination without
cause.
In July 1993, HBI entered into a five year noncancellable operating
lease for existing and additional office and laboratory space with a company
which is a related party to a stockholder. The new lease commenced on
February 15, 1994, and expires on February 28, 1999, subject to two renewals.
The future minimum rental payments to be made under this lease are as follows:
YEAR AMOUNT
------ --------
1996....................$208,680
1997.................... 208,680
1998.................... 208,680
1999.................... 34,780
--------
$660,820
========
In addition to the minimum rental payments under the lease, HBI has
purchased certain leasehold assets related to the additional space included in
the lease. These assets were purchased for $245,000, $189,875 of which was
financed over the life of the lease by the related party at an interest rate
of 9.5%. The debt is secured by the assets purchased. Such amount, net of
the current portion, is included in long-term debt. Future principal payments
under this note is as follows:
YEAR AMOUNT
---- ------
1996...................$ 36,757
1997................... 40,405
1998................... 44,416
1999................... 11,776
--------
Future principal payments.. $133,354
========
In 1995, the Company subleased approximately 7,000 square feet of its
space to another company, reducing its net lease obligations by $62,419 in
1995. Effective January 1, 1995, the Company suspended payments to its lessor
under its premises lease, except for payments made to the Company under a
sublease. Effective June 1, 1995 the Company reached an agreement with its
lessor regarding its lease obligations, the terms of which included payment by
the Company to lessor of $73,754 representing rent, leasehold note payments
and related items for January through May 1995 (net of certain credits) and
deferral of seven months of rent, leasehold note payments, and related items.
The amounts deferred at December 31, 1995 are secured by a promissory note in
the principal amount of $155,591.87, with a 10% principal payment due prior to
April 1, 1996, and further payable in equal monthly installments of principal
and interest in the approximate amount of $2,600 beginning April 1, 1996, with
the balance due on March 31, 1998. In connection with the deferral of
payments, the Company will grant its lessor 15,000 options to purchase shares
of Common Stock exercisable at $1.25 per share until March, 2001.
F-13
<PAGE>
During 1993 and 1994, the Company entered into capital lease agreements
for certain manufacturing equipment. The leases have terms ranging from 36 to
60 months and allow for purchases of the equipment at the end of the leases.
Future payments under capital lease obligations are as follows:
YEAR AMOUNT
---- ------
1996................ $ 35,789
1997................ 17,304
1998................ 13,608
1999................ 10,753
---------
Total minimum lease payments.......... $ 77,454
Less interest......................... ( 11,180)
---------
Present value of future minimum lease
payments............................ $ 66,274
=========
F-14
<PAGE>
EXHIBIT 13.4
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
================================================================================
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
COMMISSION FILE NO. 1-12210
HOUSTON BIOTECHNOLOGY INCORPORATED
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0102032
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3608 RESEARCH FOREST DRIVE
THE WOODLANDS, TEXAS 77381 77381
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (713) 363-0999
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock
as of September 30, 1996, was 5,638,707 shares.
================================================================================
<PAGE>
HOUSTON BIOTECHNOLOGY INCORPORATED
INDEX
PART I FINANCIAL INFORMATION
ITEM 1 - Financial Statements................................3
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations...9
PART II OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K....................11
SIGNATURE ...............................................................12
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
The following unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. These condensed
financial statements should be read in conjunction with the annual report on
Form 10-K of the Company for its fiscal year ended December 31, 1995.
The information presented in the accompanying financial statements is
unaudited, but in the opinion of management, reflects all adjustments (which
include only normal recurring adjustments) necessary to present fairly such
information.
-3-
<PAGE>
HOUSTON BIOTECHNOLOGY INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1996 1995
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 163,674 $ 572,058
Prepaid and other assets ............................. 56,819 67,492
------------ ------------
Total current assets ............................... 220,493 639,550
FIXED ASSETS, net of accumulated depreciation of
$2,298,632 and $2,165,254, respectively .............. 324,145 457,523
OTHER ASSETS, net of accumulated amortization of
$63,521 and $62,146, respectively ................... 12,113 13,489
------------ ------------
Total assets ....................................... $ 556,751 $ 1,110,562
============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ............. $ 750,739 $ 843,717
Deferred license and development revenue ............. 275,000 --
Current portion of long-term debt
and capital lease obligations ...................... 83,034 255,538
------------ ------------
Total current liabilities .......................... 1,108,773 1,099,255
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS ............... 210,289 140,423
STOCKHOLDERS' INVESTMENT (DEFICIT):
Common stock, $0.01 par, 40,000,000 shares authorized,
5,638,707 shares issued and outstanding ............ 56,387 56,387
Warrants to purchase 4,521,558 shares of common stock 3,795,725 3,795,725
Additional paid-in capital ........................... 21,847,646 21,847,646
Accumulated deficit .................................. (26,462,069) (25,828,874)
------------ ------------
Total stockholders' investment (deficit) ........... (762,311) (129,116)
------------ ------------
Total liabilities and stockholders' investment ..... $ 556,751 $ 1,110,562
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-4-
<PAGE>
HOUSTON BIOTECHNOLOGY INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
--------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
License and development revenue .. $ 275,000 $ --- $ 925,000 $ ---
Grant and other revenue .......... 22,132 7,491 69,013 25,431
Investment income ................ 2,830 9,549 15,528 52,901
----------- ----------- ----------- -----------
Total revenues ................ 299,962 17,040 1,009,541 78,332
EXPENSES:
Research and development ......... 400,217 484,866 1,179,757 1,612,918
General, administrative, and other 119,070 141,497 462,977 594,096
----------- ----------- ----------- -----------
Total costs and expenses ....... 519,287 626,363 1,642,734 2,207,014
----------- ----------- ----------- -----------
Net loss ............................. $ (219,325) $ (609,323) $ (633,193) $(2,128,682)
=========== =========== =========== ===========
Net loss per common share ............ $ (0.04) $ (0.11) $ (0.11) $ (0.38)
=========== =========== =========== ===========
Weighted average shares used in
computing net loss per share ..... 5,638,707 5,638,707 5,638,707 5,638,707
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-5-
<PAGE>
HOUSTON BIOTECHNOLOGY INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
----------------------------
1996 1995
--------- -----------
<S> <C> <C>
Cash flows provided (used) by operating activities:
Net loss ...................................... $(633,193) $(2,128,682)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization ............. 134,753 185,671
Writedown of capitalized construction costs -- 52,297
Other ..................................... -- (11,527)
(Increase) decrease in operating assets:
Other current assets ...................... 10,673 28,369
Other assets .............................. -- 4,346
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities .. (92,979) 137,303
Deferred license and development revenue .. 275,000 --
--------- -----------
Cash provided (used) by operating
activities .......................... (305,746) (1,732,223)
Cash flows provided (used) by investing activities:
Purchases of fixed assets ..................... -- (8,237)
Cash flows provided (used) by financing activities:
Payments on debt and capital lease obligations (102,638) (49,363)
Proceeds from new debt ........................ 91,891
--------- -----------
Cash provided (used) by financing
activities .............................. (102,638) 42,528
--------- -----------
Increase (decrease) in cash and cash equivalents .... (408,384) (1,697,932)
Cash and cash equivalents at beginning of period .... 572,058 2,238,272
--------- -----------
Cash and cash equivalents at end of period .......... $ 163,674 $ 540,340
========= ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-6-
<PAGE>
HOUSTON BIOTECHNOLOGY INCORPORATED
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
(1) ORGANIZATION
The accompanying financial statements and related notes should be read
in conjunction with the annual report on Form 10-K for the year ended December
31, 1995 of Houston Biotechnology Incorporated ("HBI" or the "Company"). Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations. In the
opinion of management of the Company, the accompanying financial statements
reflect all adjustments (which include only normal recurring adjustments)
necessary to present fairly such information. The results of operations for the
period ended September 30, 1996 are not necessarily indicative of the results to
be expected for the full year.
Houston Biotechnology Incorporated, a Delaware corporation, was founded
in February 1984 and commenced substantial operations in May 1986. HBI is a
biotechnology company engaged in the development of biopharmaceutical products
to treat or prevent certain common ophthalmic diseases and disorders. The
principal objective of the Company is to develop products to treat conditions
for which no effective pharmaceutical treatment is currently available or for
which such products may provide advantages over existing treatments. The
Company's most advanced product is an immunotoxin for the prevention of
secondary cataract (the "4197X-RA Immunotoxin"), the most common complication
following primary cataract surgery.
(2) FINANCIAL CONDITION
The Company is engaged in research and development activities in
biotechnology, which involve a high degree of uncertainty and risk. Risks
include, but are not limited to, the following: the need for additional funding,
the early stage of development of the Company's products, the possibility of
competition and technological changes, uncertainties in the regulatory process,
uncertainties regarding product pricing and reimbursement, reliance on corporate
partners for funding, dependence on licenses, patents and know-how, possible
product liability and reliance on key personnel. The Company has not generated
any revenues from product sales and there is no assurance of any such revenues
in the future. HBI has experienced significant negative cash flow and incurred
accumulated losses of $26,462,069 through September 30, 1996, and must access
additional sources of financing.
Payments from Santen Pharmaceutical Co., Ltd. ("Santen") (see Note 3)
have been the principal source of funding of the Company's activities in 1996,
and recently, the Company has deferred payment to certain vendors. Such
deferrals may constitute default under certain vendor contracts, but the Company
has not received any notices of defaults and vendors are continuing to provide
goods and services to the Company. However, the Company must secure additional
funding by mid-December 1996 to continue operations. As previously reported, the
Company has engaged an investment banker and is working on a best efforts
offering of equity securities. There can be no assurance that the Company will
be able to raise funds in a timely manner.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements have been prepared
assuming the Company will continue as a going concern, and do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
-7-
<PAGE>
The Company's Common Stock and Warrants are listed on the American Stock
Exchange ("AMEX"). At this time, the Company fails to meet certain of the
financial guidelines for continued listing. Accordingly, there can be no
assurance that the Company will be able to maintain the listing of its
securities on the AMEX. Delisting of the Common Stock and Warrants could have an
adverse effect on their liquidity and could increase the difficulty encountered
by the Company in obtaining future financing.
(3) RESEARCH AND LICENSE AGREEMENTS
Effective December 29, 1995, HBI and Santen entered into a Codevelopment
and License Agreement (the "Santen License") covering the marketing in Japan of
the 4197X-RA Immunotoxin. To maintain exclusive marketing rights, Santen is
required to provide $7,750,000 over six years to support HBI's development of
the Immunotoxin. HBI received $250,000 in November 1995 from Santen under an
Option Agreement related to the Santen License, and the payment schedule for the
$7,750,000 is as follows: $750,000 in five installments through April 1996;
$250,000 quarterly for 1996 through 2001, and $1 million within 60 days of
delivery of an interim report on the Refined Product Safety Study or within 30
days of enrollment of the first patient in U.S. Phase III trials. At Santen's
option, Santen may elect not to make any payment, but in such event, the license
may be made non-exclusive or terminated by HBI. Santen is obligated to seek
regulatory approval for the product in Japan and is responsible for the
development cost associated with these efforts. Upon the commencement of
commercial sales by Santen in Japan, Santen will pay HBI earned royalties based
on net sales. Commencing six months after approval of the Immunotoxin by
Japanese regulatory authorities, Santen is required to pay minimum royalties.
HBI retains all manufacturing rights and Santen is required to purchase the
Immunotoxin from HBI. Amounts paid by Santen to HBI, except those amounts
related to the purchase of the Immunotoxin, are subject to a 10% withholding tax
imposed by the Japanese government. HBI receives U.S. income tax credits equal
to the amounts withheld, but HBI is not currently able to utilize such credits.
-8-
<PAGE>
HOUSTON BIOTECHNOLOGY INCORPORATED
- --------------------------------------------------------------------------------
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
HBI commenced substantial operations in 1986 and, since inception, has
been primarily engaged in research and product development of its lead product,
the 4197X-RA Immunotoxin, an immunotoxin being developed for the prevention of
secondary cataract. In addition, the Company is researching drug-conjugate
products to enhance the success of glaucoma filtering surgery.
PRODUCT DEVELOPMENT
Development of biopharmaceutical products involves a high degree of risk
and uncertainty and requires a large investment of cash and technical resources
before commercialization. The Company's realization of its investment in its
research and development efforts will not occur unless and until regulatory
approval to market is obtained and profits are generated at a future date. The
FDA requires compliance with strict regulatory procedures before it will grant
approval for a pharmaceutical product to be marketed in the United States. These
regulatory procedures require, among other things: (i) preclinical development
and filing an IND with the FDA, (ii) Phase I human clinical trials to test
safety, which normally take from one to three years, (iii) Phase II and III
human clinical trials to confirm the results of Phase I safety studies, prove
efficacy and observe any low-incidence adverse effects, which normally take from
two to three years each, and (iv) filing a PLA with the FDA containing the
results of the human clinical trials for review and approval by the FDA, a
process which normally takes approximately one to two years. The time required
to comply with the regulatory procedures normally is longer for treatments
addressing slowly developing diseases, such as secondary cataract. There is no
assurance that FDA approval of the 4197X-RA Immunotoxin or any product candidate
can be obtained within these time frames, if at all.
With respect to the 4197X-RA Immunotoxin, the Company filed the IND in
August 1990, filed a Phase I report with the FDA in January 1992 and commenced a
Phase I/II human clinical study in March 1993. Patient enrollment in this study
was completed in July 1994. Interim analyses of the data from the Phase I/II
clinical trial have revealed statistically significant differences in rates of
lens capsule opacification between the 50-unit dose and placebo at six, twelve
and eighteen months post cataract surgery. Patient enrollment in a Phase II
human clinical study of patients requiring cataract surgery in both eyes was
completed in January 1996.
The Company currently estimates that it will cost approximately an
additional $25 million to complete the product development, manufacturing
requirements and clinical trials necessary to allow commercial sale of the
4197X-RA Immunotoxin, based on current estimates of the size of the Phase III
clinical trials. Additional capital will be required to market the 4197X-RA
Immunotoxin once the product is approved for sale in the United States. In
addition, other funds will be required to defray general and administrative
expenses and to support the Company's other projects. Since research and
development projects such as the 4197X-RA Immunotoxin involve a number of
uncertainties, there can be no assurance that the project costs will not exceed
the current estimates. In any event, additional funds will be necessary to
successfully complete development and commercialization of the 4197X-RA
Immunotoxin as well as any other products.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $163,674 as of September
30, 1996, a decrease of $408,384 from $572,058 as of December 31, 1995. The
principal factors affecting the change in cash for the nine months ended
September 30, 1996 were the operating expenses (net of depreciation and
amortization) of $1,507,981, the reduction in accounts payable and accrued
liabilities of $92,979 and the net payments by Santen of $1,200,000. All of the
Company's cash equivalents and short-term
-9-
<PAGE>
investments are invested in United States government securities, high-grade
corporate investments, commercial paper and bankers acceptances.
Payments from Santen have been the principal source of funding of the
Company's activities in 1996, and recently, the Company has deferred payment to
certain vendors. Such deferrals may constitute default under certain vendor
contracts, but the Company has not received any notices of defaults and vendors
are continuing to provide goods and services to the Company. However, the
Company must secure additional funding by mid-December 1996 to continue
operations. As previously reported, the Company has engaged an investment banker
and is working on a best efforts offering of equity securities. There can be no
assurance that the Company will be able to raise funds in a timely manner.
These factors raise substantial doubt about the Company's ability to
continue as going concern. As a result of the foregoing, the Company's
independent accountants have included an explanatory paragraph in their report
on the Company's financial statements at December 31, 1995, that describes the
uncertainty regarding the Company's ability to continue as a going concern.
The Company's Common Stock and Warrants are listed on the American Stock
Exchange ("AMEX"). At this time, the Company fails to meet certain of the
financial guidelines for continued listing. Accordingly, there can be no
assurance that the Company will be able to maintain the listing of its
securities on the AMEX. Delisting of the Common Stock and Warrants could have an
adverse effect on their liquidity and could increase the difficulty encountered
by the Company in obtaining future financing.
RESULTS OF OPERATIONS
HBI had a net loss of $633,193 for the nine months ended September 30,
1996 compared to a net loss of $2,128,682 for the same period in 1995. Revenues
from operations for the nine months ended September 30, 1996 were $1,009,541
compared to $78,332 generated in the same period in 1995. Santen made net
payments of $1,200,000 during the nine months ended September 30, 1996, of which
$925,000 was recognized as revenue and $275,000 was deferred. Expenses from
operations for the nine months ended September 30, 1996 were $1,642,734 as
compared to $2,207,014 incurred in the same period in 1995, a decrease of 26%.
In general, the decrease in expenses was due to ongoing cost containment
efforts. More specifically, the decrease in research and development expenses
was due primarily to reduced employment and reduced utilization of consultants
and contractors in connection with clinical studies. The decrease in general and
administrative expenses was due primarily to reduced utilization of legal and
professional services.
CAUTIONARY DISCLOSURES
Item 2 of this document includes forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended. Although the
Company believes that the expectations reflected in such forward looking
statements are based upon reasonable assumptions, the Company can give no
assurance that these expectations will be achieved. Important factors that could
cause actual results to differ materially from the Company's expectations
include general economic, business and market conditions, development and
operating costs, changes in the regulatory framework and the factors that are
disclosed in conjunction with the forward looking statements included herein and
in the Company's most recent 10-K filed with the Securities and Exchange
Commission ("Cautionary Disclosures"). Subsequent written and oral forward
looking statements attributable to the Company or persons acting on its behalf
are expressly qualified in their entirety by the Cautionary Disclosures.
-10-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are filed with this report.
(b) No reports on Form 8-K were filed during the three months ended
September 30, 1996.
-11-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person on behalf of the
Registrant in the capacity and on the date indicated.
HOUSTON BIOTECHNOLOGY INCORPORATED
Dated: November 13, 1996 By:/s/J. RUSSELL DENSON
J. Russell Denson
President and Chief Executive Officer
(Principal executive and financial officer)
<PAGE>
[ARTICLE] 5
[LEGEND]
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM HOUSTON BIOTECHNOLOGY INCORPORATED 10Q DATED 9-30-96AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
[/LEGEND]
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] SEP-30-1996
[CASH] 163,674
[SECURITIES] 0
[RECEIVABLES] 0
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 220,493
[PP&E] 2,622,777
[DEPRECIATION] 2,298,632
[TOTAL-ASSETS] 556,751
[CURRENT-LIABILITIES] 1,108,773
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 56,387
[OTHER-SE] (818,698)
[TOTAL-LIABILITY-AND-EQUITY] 556,751
[SALES] 925,000
[TOTAL-REVENUES] 1,009,541
[CGS] 0
[TOTAL-COSTS] 1,642,734
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] (633,193)
[INCOME-TAX] 0
[INCOME-CONTINUING] (633,193)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (633,193)
[EPS-PRIMARY] (.11)
[EPS-DILUTED] (.11)
</TABLE>
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
-------------------------------
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 2, 1996, incorporated by reference in the Proxy
Statement of Houston Biotechnology Incorporated that is made a part of the
Registration Statement (Form S-4 No. 333-00000) and Prospectus of Medarex, Inc.
for the registration of 1,849,369 shares of its common stock and 822,924 common
stock purchase warrants.
Ernst & Young LLP
Princeton, New Jersey
January 20, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 12, 1996
included in Houston Biotechnology Incorporated's Form 10-K for the year ended
December 31, 1995 and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
January 21, 1997
<PAGE>
HOUSTON BIOTECHNOLOGY INCORPORATED
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON THURSDAY, FEBRUARY 27, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes, appoints and authorizes J. Russell Denson
and Donald S. Clark, Ph.D., as the true and lawful attorneys, agents and
proxies of the undersigned, with full power of substitution, to represent and
to vote all shares of common stock of Houston Biotechnology Incorporated
("HBI") held of record by the undersigned on January 24, 1997 at the Special
Meeting of Stockholders to be held at the offices of HBI at 3608 Research
Forest Drive, The Woodlands 77381, at 10:00 a.m., local time, on February 27,
1997, and at any adjournment(s) thereof, in accordance with the instructions
noted below, and with discretionary authority with respect to such other
matters, not known or determined at the time of solicitation of this Proxy, as
may properly come before said meeting or any adjournment(s) thereof. Receipt of
the notice of the meeting and the Proxy Statement and Prospectus dated January
, 1997, is hereby acknowledged.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WILL BE VOTED IN
ACCORDANCE WITH THE STOCKHOLDER'S SPECIFICATIONS HEREON. IN THE ABSENCE OF SUCH
SPECIFICATIONS, THE PROXY WILL BE VOTED "FOR" THE PROPOSALS SET OUT BELOW.
1. To consider and vote upon a proposal recommended by the Board of Directors
to approve and adopt a plan of merger in accordance with the Agreement and Plan
of Merger dated December 18, 1996, among HBI, Medarex, Inc. ("Medarex") and
Medarex Acquisition Corp. ("Merger Sub") pursuant to which (i) Merger Sub shall
be merged with and into HBI with HBI being the surviving corporation and
resulting in HBI being a wholly-owned subsidiary of Medarex, and (ii) each
share of common stock, par value $0.01 per share, of HBI shall be converted
into the right to receive 0.182 shares of Medarex common stock, par value $0.01
per share.
[_] FOR [_] AGAINST [_] ABSTAIN
2. To transact any and all other business that may properly come before the
Special Meeting or any adjournment or adjournments thereof.
IN THEIR DISCRETION, THE AFOREMENTIONED PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENT
THEREOF.
DATED: ______________________________, 1997.
--------------------------------------------
Signature of Stockholder
--------------------------------------------
Signature of Stockholder
*Please sign as name appears. Joint owners
each should sign. When signing as attorney,
trustee, administrator, executor, etc.,
please indicate your full title as such. If
signor is a corporation, please give full
corporate name by duly authorized officer.
If a partnership, please sign in
partnership name by authorized person.
PLEASE DATE, SIGN AND MAIL YOUR PROXY PROMPTLY.
PLEASE DO NOT FOLD THIS PROXY.
