<PAGE>
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
SCHEDULE 13D
(AMENDMENT NO. 10)
UNDER THE SECURITIES AND EXCHANGE ACT OF 1934
---------------------
SYSTEMIX, INC.
(Name of Subject Company)
NOVARTIS BIOTECH HOLDING CORP.
AND
NOVARTIS INC.
(Bidder)
COMMON STOCK, $.01 PAR VALUE
(Title of Class of Securities)
871872 10 7
(CUSIP Number of Class of Securities)
---------------------------
ROBERT L. THOMPSON, JR., ESQ.
NOVARTIS BIOTECH HOLDING CORP.
NOVARTIS INC.
C/O NOVARTIS CORPORATION
608 FIFTH AVENUE, 10TH FLOOR
NEW YORK, NEW YORK 10020
(212) 830-2401
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Bidder)
---------------------------
COPY TO:
DAVID W. HELENIAK, ESQ.
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
TELEPHONE: (212) 848-4000
JANUARY 17, 1997
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
TRANSACTION VALUATION AMOUNT OF FILING FEE
<S> <C>
$90,139,529.40* $18,027.90
</TABLE>
/ / Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid:_______________
Form or Registration No.:_____________
Filing Party:_________________________
Date Filed:___________________________
- ------------------------
* NOTE: The Transaction Value is calculated by multiplying $19.50, the per
share tender offer price, by 16,503,282, the sum of the number of shares of
common stock outstanding and the 2,003,188 shares of common stock subject
to options outstanding less the exercise price of the options.
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<PAGE>
CUSIP NO. 871872 10 7
<TABLE>
<C><S>
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of above Person
Novartis Biotech Holding Corp.
2 Check the Appropriate Box if a Member of a Group (See
Instructions) (a) / /
(b) /X/
3 SEC Use Only
4 Source of Funds (See Instructions)
AF
5 Check Box if Dislosure of Legal Proceedings is Required
Pursuant
to Items 2(d) or 2(e) / /
6 Citizenship or Place of Organization
Delaware
7 Aggregate Amount Beneficially Owned by Each Reporting Person
11,977,699 shares of Common Stock
8 Check if the Aggregate Amount in Row (7) Excludes Certain
Shares (See Instructions) / /
9 Percent of Class Represented by Amount in Row (7)
75.5%
10 Type of Reporting Person (See Instructions)
CO
</TABLE>
2
<PAGE>
CUSIP NO. 871872 10 7
1 Name of Reporting Person
S.S. or I.R.S. Identification No. of above Person
Novartis Inc.
2 Check the Appropriate Box if a Member of a Group (See
Instructions) (a) / /
(b) /X/
3 SEC Use Only
4 Source of Funds (See Instructions)
WC
5 Check Box if Dislosure of Legal Proceedings is Required
Pursuant
to Items 2(d) or 2(e) / /
6 Citizenship or Place of Organization
Switzerland
7 Aggregate Amount Beneficially Owned by Each Reporting Person
11,977,699 Shares of Common Stock
8 Check if the Aggregate Amount in Row (7) Excludes Certain
Shares (See Instructions) / /
9 Percent of Class Represented by Amount in Row (7)
75.5%
10 Type of Reporting Person (See Instructions)
CO
3
<PAGE>
This Tender Offer Statement on Schedule 14D-1 and Amendment No. 10 to
Schedule 13D (this "Statement") relates to the offer by Novartis Biotech Holding
Corp., a Delaware corporation ("Purchaser") and an indirect wholly owned
subsidiary of Novartis Inc., a company organized under the laws of Switzerland
("Parent"), to purchase all outstanding shares of Common Stock, par value $.01
per share (the "Common Stock"), of SyStemix, Inc. (the "Shares"), a Delaware
corporation, at a price of $19.50 per Share, net to the seller in cash, upon the
terms and subject to the conditions set forth in Purchaser's Offer to Purchase
dated January 17, 1997 (the "Offer to Purchase") and in the related Letter of
Transmittal (which together constitute the "Offer"), copies of which are
attached hereto as Exhibits (a)(1) and (a)(2), respectively.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is SyStemix, Inc., a Delaware
corporation (the "Company"), which has its principal executive offices at 3155
Porter Drive, Palo Alto, California 94304.
(b) The class of equity securities being sought is all the outstanding
shares of Common Stock, par value $.01 per share, of the Company. The
information set forth under "INTRODUCTION" and "THE TENDER OFFER -- Section 1.
Terms of the Offer; Expiration Date" of the Offer to Purchase is incorporated
herein by reference.
(c) The information concerning the principal market in which the Shares are
traded and certain high and low sales prices for the Shares in such principal
market set forth in "THE TENDER OFFER -- Section 6. Price Range of Shares;
Dividends" of the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) This Statement is filed by Purchaser and Parent. The
information concerning the name, state or other place of organization, principal
business and address of the principal office of each of Purchaser and Parent,
and the information concerning the name, business address, present principal
occupation or employment and the name, principal business and address of any
corporation or other organization in which such employment or occupation is
conducted, material occupations, positions, offices or employments during the
last five years and citizenship of each of the executive officers and directors
of Purchaser and Parent are set forth under "INTRODUCTION", "THE TENDER OFFER --
Section 8. Certain Information Concerning Purchaser and Parent" and Schedule I
of the Offer to Purchase and are incorporated herein by reference.
(e) and (f) During the last five years, none of Purchaser or Parent, and, to
the best knowledge of Purchaser and Parent, none of the persons listed in
Schedule I of the Offer to Purchase has been (i) convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or (ii) a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting activities
subject to, federal or state securities laws or finding any violation of such
laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) The information set forth under "SPECIAL FACTORS -- Background of the
Offer and the Merger", "SPECIAL FACTORS -- The Merger Agreement", "SPECIAL
FACTORS -- Related Party Transactions" and "THE TENDER OFFER -- Section 8.
Certain Information Concerning Purchaser and Parent" in the Offer to Purchase is
incorporated herein by reference.
(b) The information set forth under "INTRODUCTION", "SPECIAL FACTORS --
Background of the Offer and the Merger", "SPECIAL FACTORS -- Purpose and
Structure of the Offer and the Merger; Reasons of Parent and Purchaser for the
Offer and the Merger", "SPECIAL FACTORS -- Plans for the Company After the Offer
and the Merger; Certain Effects of the Offer", "SPECIAL FACTORS -- The
4
<PAGE>
Merger Agreement", "THE TENDER OFFER -- Section 7. Certain Information
Concerning the Company" and "THE TENDER OFFER -- Section 8. Certain Information
Concerning Purchaser and Parent" of the Offer to Purchase is incorporated herein
by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(c) The information set forth under "THE TENDER OFFER --Section 9.
Financing of the Offer and the Merger" of the Offer to Purchase is incorporated
herein by reference.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth under "INTRODUCTION", "SPECIAL FACTORS --
Background of the Offer and the Merger", "SPECIAL FACTORS -- Purpose and
Structure of the Offer and the Merger; Reasons of Parent and Purchaser for the
Offer and the Merger", "SPECIAL FACTORS -- Plans for the Company After the Offer
and the Merger; Certain Effects of the Offer" and "SPECIAL FACTORS -- The Merger
Agreement" of the Offer to Purchase is incorporated herein by reference.
(f) and (g) The information set forth under "SPECIAL FACTORS --Plans for the
Company After the Offer and the Merger; Certain Effects of the Offer" and "THE
TENDER OFFER -- Section 11. Effect of the Offer on the Market for the Shares,
NASDAQ Quotation and Exchange Act Registration" of the Offer to Purchase is
incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) and (b) The information set forth under "THE TENDER OFFER --Section 8.
Certain Information Concerning Purchaser and Parent" of the Offer to Purchase is
incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth under "INTRODUCTION", "SPECIAL FACTORS --
Background of the Offer and the Merger", "SPECIAL FACTORS -- Purpose and
Structure of the Offer and the Merger; Reasons of Parent and Purchaser for the
Offer and the Merger", "SPECIAL FACTORS -- Plans for the Company After the Offer
and the Merger; Certain Effects of the Offer", "SPECIAL FACTORS -- The Merger
Agreement" and "THE TENDER OFFER -- Section 8. Certain Information Concerning
Purchaser and Parent" of the Offer to Purchase is incorporated herein by
reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth under "INTRODUCTION", "SPECIAL FACTORS -- Opinion
of Lehman Brothers Inc.", "SPECIAL FACTORS -- Analysis of Financial Advisor to
Parent" and "THE TENDER OFFER -- Section 14. Fees and Expenses" of the Offer to
Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
Not applicable.
ITEM 10. ADDITIONAL INFORMATION.
(a) Not applicable.
(b)-(c) and (e) The information set forth under "THE TENDER OFFER -- Section
13. Certain Legal Matters and Regulatory Approvals" of the Offer to Purchase is
incorporated herein by reference.
5
<PAGE>
(d) The information set forth under "THE TENDER OFFER -- Section 11. Effect
of the Offer on the Market for the Shares, NASDAQ Quotation and Exchange Act
Registration" of the Offer to Purchase is incorporated herein by reference.
(f) The information set forth in the Offer to Purchase, Letter of
Transmittal and the Agreement and Plan of Merger, dated as of January 10, 1997,
among Parent, Purchaser and the Company, copies of which are attached hereto as
Exhibits (a)(1), (a)(2) and (c)(1), is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
(a)(1) Form of Offer to Purchase dated January 17, 1997.
(a)(2) Form of Letter of Transmittal.
(a)(3) Form of Notice of Guaranteed Delivery.
(a)(4) Form of Letter from Morgan Stanley & Co. Incorporated to Brokers, Dealers,
Commercial Banks, Trust Companies and Nominees.
(a)(5) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Nominees
to Clients.
(a)(6) Form of Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9.
(a)(7) Summary Advertisement as published in The Wall Street Journal on January 17, 1997.
(a)(8) Joint Press Release issued by the Company and Parent on January 13, 1997.
(b) None.
(c) Agreement and Plan of Merger, dated as of January 10, 1997, among Parent, Purchaser
and the Company.
(d) None.
(e) Not applicable.
(f) None.
</TABLE>
6
<PAGE>
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
January 17, 1997
NOVARTIS BIOTECH HOLDING CORP.
By: /s/ ROBERT L. THOMPSON, JR.
-----------------------------------------
Name: Robert L. Thompson, Jr.
Title: Vice President
7
<PAGE>
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
January 17, 1997
NOVARTIS INC.
By: /s/ ROBERT L. THOMPSON, JR.
-----------------------------------------
Name: Robert L. Thompson, Jr.
Title: Attorney-in-Fact
8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE IN SEQUENTIAL
NO. NUMBERING SYSTEM
- ----------- ---------------------
<C> <S> <C>
(a)(1) Form of Offer to Purchase dated January 17, 1997......................................
(a)(2) Form of Letter of Transmittal.........................................................
(a)(3) Form of Notice of Guaranteed Delivery.................................................
(a)(4) Form of Letter from Morgan Stanley & Co. Incorporated to Brokers, Dealers, Commercial
Banks, Trust Companies and Nominees...................................................
(a)(5) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Nominees
to Clients............................................................................
(a)(6) Form of Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9..............................................................................
(a)(7) Summary Advertisement as published in The Wall Street Journal on January 17, 1997.....
(a)(8) Joint Press Release issued by the Company and Parent on January 13, 1997..............
(c) Agreement and Plan of Merger, dated as of January 10, 1997, among Parent, Purchaser
and the Company.......................................................................
</TABLE>
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
SYSTEMIX, INC.
AT
$19.50 NET PER SHARE
BY
NOVARTIS BIOTECH HOLDING CORP.
AN INDIRECT WHOLLY OWNED SUBSIDIARY
OF
NOVARTIS INC.
--------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, FEBRUARY 14, 1997, UNLESS THE OFFER IS
EXTENDED.
---------------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED
AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER (I) NOT LESS THAN A
MAJORITY OF THE ISSUED AND OUTSTANDING SHARES OTHER THAN SHARES OWNED BY
NOVARTIS INC. ("PARENT") OR NOVARTIS BIOTECH HOLDING CORP. ("PURCHASER")
(THE "FIRST MINIMUM CONDITION") AND (II) AT LEAST THE NUMBER OF SHARES
THAT WHEN ADDED TO THE SHARES OWNED BY PARENT AND PURCHASER SHALL
CONSTITUTE 90% OF THE SHARES THEN OUTSTANDING (THE "SECOND MINIMUM
CONDITION"). THE FIRST MINIMUM CONDITION MAY NOT BE WAIVED WITHOUT
THE CONSENT OF A MAJORITY OF THE INDEPENDENT DIRECTORS (AS DEFINED
BELOW). PURCHASER HAS AGREED TO WAIVE THE SECOND MINIMUM
CONDITION UNDER CERTAIN CIRCUMSTANCES
DESCRIBED HEREIN.
---------------------
THE BOARD OF DIRECTORS OF SYSTEMIX, INC., BY UNANIMOUS VOTE OF ALL DIRECTORS
PRESENT AND VOTING (WITH ALL DIRECTORS WHO ARE DESIGNEES OF PARENT ABSTAINING),
BASED UPON, AMONG OTHER THINGS, THE UNANIMOUS RECOMMENDATION AND APPROVAL OF
THE DIRECTORS OF THE COMPANY WHO ARE NOT OFFICERS OR DIRECTORS OF PARENT
OR PURCHASER NOR OFFICERS OR CONSULTANTS OF THE COMPANY (THE
"INDEPENDENT DIRECTORS"), HAS DETERMINED THAT EACH OF THE OFFER AND
THE MERGER (AS DEFINED HEREIN) IS FAIR TO, AND IN THE BEST INTERESTS
OF, THE STOCKHOLDERS OF SYSTEMIX, INC. (OTHER THAN PARENT AND
PURCHASER), AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND
TENDER THEIR SHARES PURSUANT TO THE OFFER.
---------------------
IMPORTANT
ANY STOCKHOLDER DESIRING TO TENDER ALL OR ANY PORTION OF SUCH STOCKHOLDER'S
SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "COMMON STOCK"), OF
SYSTEMIX, INC. (THE "SHARES") SHOULD EITHER (1) COMPLETE AND SIGN THE LETTER OF
TRANSMITTAL (OR A FACSIMILE THEREOF) IN ACCORDANCE WITH THE INSTRUCTIONS IN THE
LETTER OF TRANSMITTAL AND MAIL OR DELIVER IT TOGETHER WITH THE CERTIFICATE(S)
EVIDENCING TENDERED SHARES, AND ANY OTHER REQUIRED DOCUMENTS, TO THE DEPOSITARY
OR TENDER SUCH SHARES PURSUANT TO THE PROCEDURE FOR BOOK-ENTRY TRANSFER SET
FORTH IN "THE TENDER OFFER -- SECTION 3. PROCEDURES FOR ACCEPTING THE OFFER AND
TENDERING SHARES" OR (2) REQUEST SUCH STOCKHOLDER'S BROKER, DEALER, COMMERCIAL
BANK, TRUST COMPANY OR OTHER NOMINEE TO EFFECT THE TRANSACTION FOR SUCH
STOCKHOLDER. ANY STOCKHOLDER WHOSE SHARES ARE REGISTERED IN THE NAME OF A
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE MUST CONTACT
SUCH BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE IF SUCH
STOCKHOLDER DESIRES TO TENDER SUCH SHARES.
ANY STOCKHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATES
EVIDENCING SUCH SHARES ARE NOT IMMEDIATELY AVAILABLE, OR WHO CANNOT COMPLY WITH
THE PROCEDURE FOR BOOK-ENTRY TRANSFER ON A TIMELY BASIS, MAY TENDER SUCH SHARES
BY FOLLOWING THE PROCEDURE FOR GUARANTEED DELIVERY SET FORTH IN "THE TENDER
OFFER -- SECTION 3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES".
QUESTIONS OR REQUESTS FOR ASSISTANCE MAY BE DIRECTED TO THE INFORMATION
AGENT OR THE DEALER MANAGER AT THEIR RESPECTIVE ADDRESSES AND TELEPHONE NUMBERS
SET FORTH ON THE BACK COVER OF THIS OFFER TO PURCHASE. ADDITIONAL COPIES OF THIS
OFFER TO PURCHASE, THE LETTER OF TRANSMITTAL AND THE NOTICE OF GUARANTEED
DELIVERY MAY ALSO BE OBTAINED FROM THE INFORMATION AGENT OR FROM BROKERS,
DEALERS, COMMERCIAL BANKS OR TRUST COMPANIES.
---------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY
OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
---------------------
THE DEALER MANAGER FOR THE OFFER IS
MORGAN STANLEY & CO.
INCORPORATED
JANUARY 17, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION.......................................................................... 1
SPECIAL FACTORS....................................................................... 3
Background of the Offer and the Merger.............................................. 3
Recommendation of the Company's Board; Fairness of the Offer and the Merger......... 4
Recommendation of the Company's Board............................................... 4
Fairness of the Offer and the Merger................................................ 5
Opinion of Lehman Brothers Inc. .................................................... 6
Company Financial Projections....................................................... 12
Position of Parent and Purchaser Regarding Fairness of the Offer and the Merger..... 13
Analysis of Financial Advisor to Parent............................................. 13
Purpose and Structure of the Offer and the Merger; Reasons of Parent and Purchaser
for the Offer and the Merger...................................................... 16
Plans for the Company After the Offer and the Merger; Certain Effects of the
Offer............................................................................. 17
Rights of Stockholders in the Merger................................................ 18
The Merger Agreement................................................................ 18
Interests of Certain Persons in the Offer and the Merger............................ 24
Beneficial Ownership of Common Stock................................................ 25
Related Party Transactions.......................................................... 26
Fees and Expenses................................................................... 27
THE TENDER OFFER...................................................................... 28
1. Terms of the Offer; Expiration Date............................................. 28
2. Acceptance for Payment and Payment for Shares................................... 29
3. Procedures for Accepting the Offer and Tendering Shares......................... 30
4. Withdrawal Rights............................................................... 32
5. Certain Federal Income Tax Consequences......................................... 33
6. Price Range of Shares; Dividends................................................ 34
7. Certain Information Concerning the Company...................................... 34
8. Certain Information Concerning Purchaser and Parent............................. 37
9. Financing of the Offer and the Merger........................................... 38
10. Dividends and Distributions..................................................... 38
11. Effect of the Offer on the Market for the Shares; NASDAQ Quotation and Exchange
Act Registration............................................................... 38
12. Certain Conditions of the Offer................................................. 39
13. Certain Legal Matters and Regulatory Approvals.................................. 41
14. Fees and Expenses............................................................... 42
15. Miscellaneous................................................................... 43
</TABLE>
<TABLE>
<S> <C> <C>
SCHEDULE I. Directors and Executive Officers of Parent and Purchaser............ I-1
SCHEDULE II. Opinion of Lehman Brothers Inc. .................................... II-1
SCHEDULE III. Summary of Stockholder Appraisal Rights and Text of Section 262 of
the General Corporation Law of the State of Delaware.............. III-1
SCHEDULE IV. Audited Financial Statements (and Related Notes) for the Company for
the Years Ended December 31, 1994 and December 31, 1995........... IV-1
SCHEDULE V. Unaudited Financial Statements (and Related Notes) for the Company
for the Period Ended September 30, 1996........................... V-1
</TABLE>
<PAGE>
To the Holders of Common Stock of
SyStemix, Inc.:
INTRODUCTION
Novartis Biotech Holding Corp., a Delaware corporation formerly known as
Sandoz Biotech Holdings Corporation ("Purchaser") and an indirect wholly owned
subsidiary of Novartis Inc., a corporation organized under the laws of
Switzerland ("Parent"), hereby offers to purchase all outstanding shares (the
"Shares") of common stock, par value $.01 per share (the "Common Stock"), of
SyStemix, Inc., a Delaware corporation (the "Company"), at a price of $19.50 per
Share, net to the seller in cash, upon the terms and subject to the conditions
set forth in this Offer to Purchase and in the related Letter of Transmittal
(which together constitute the "Offer"). Parent is the successor by merger to
Sandoz Ltd. resulting from the merger of Sandoz Ltd. and Ciba-Geigy Limited into
Parent.
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, stock transfer taxes with respect to the purchase of Shares by
Purchaser pursuant to the Offer. Purchaser will pay all charges and expenses of
Morgan Stanley & Co. Incorporated ("Morgan Stanley"), which is acting as Dealer
Manager for the Offer (in such capacity, the "Dealer Manager"), ChaseMellon
Shareholder Services, L.L.C. (the "Depositary") and Georgeson & Company Inc.
(the "Information Agent") incurred in connection with the Offer. See "THE TENDER
OFFER -- Section 14. Fees and Expenses".
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD"), BY UNANIMOUS VOTE OF
ALL DIRECTORS PRESENT AND VOTING (WITH ALL DIRECTORS WHO ARE DESIGNEES OF PARENT
ABSTAINING), BASED UPON, AMONG OTHER THINGS, THE UNANIMOUS RECOMMENDATION AND
APPROVAL OF THE DIRECTORS WHO ARE NOT OFFICERS OR DIRECTORS OF PARENT OR
PURCHASER NOR OFFICERS OR CONSULTANTS OF THE COMPANY (THE "INDEPENDENT
DIRECTORS"), HAS DETERMINED THAT EACH OF THE OFFER AND THE MERGER IS FAIR TO,
AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY (OTHER THAN
PURCHASER AND PARENT), AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND
TENDER THEIR SHARES PURSUANT TO THE OFFER.
The Company has advised Parent that Lehman Brothers Inc. ("Lehman Brothers")
has delivered to the Board its written opinion that the $19.50 per Share cash
consideration to be offered to the stockholders of the Company in each of the
Offer and the Merger (as defined below) is fair to such stockholders (other than
Parent) from a financial point of view. See "SPECIAL FACTORS -- Opinion of
Lehman Brothers" for further information concerning the opinion of Lehman
Brothers.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9"), which is being mailed to stockholders herewith.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER (I) NOT LESS
THAN A MAJORITY OF THE ISSUED AND OUTSTANDING SHARES OTHER THAN SHARES OWNED BY
PARENT OR PURCHASER (THE "FIRST MINIMUM CONDITION") AND (II) AT LEAST THE NUMBER
OF SHARES THAT WHEN ADDED TO THE SHARES OWNED BY PARENT AND PURCHASER SHALL
CONSTITUTE 90% OF THE SHARES THEN OUTSTANDING (THE "SECOND MINIMUM CONDITION").
THE FIRST MINIMUM CONDITION MAY NOT BE WAIVED WITHOUT THE CONSENT OF A MAJORITY
OF THE INDEPENDENT DIRECTORS. PURCHASER HAS AGREED TO WAIVE THE SECOND MINIMUM
CONDITION UNDER CERTAIN CIRCUMSTANCES DESCRIBED HEREIN. PURCHASER CURRENTLY OWNS
10,610,099 SHARES, CONSTITUTING APPROXIMATELY 73.2% OF THE CURRENTLY OUTSTANDING
SHARES. PURCHASER ALSO HAS WARRANTS TO ACQUIRE AN ADDITIONAL 1,367,600 SHARES
(THE "WARRANTS"), WHICH IT DOES NOT CURRENTLY INTEND TO EXERCISE. SEE "THE
TENDER OFFER -- SECTION 12. CERTAIN CONDITIONS OF THE OFFER", WHICH SETS FORTH
IN FULL THE CONDITIONS TO THE OFFER.
<PAGE>
The Company has advised Purchaser that as of January 10, 1997, (i)
14,500,094 Shares were issued and outstanding, (ii) no Shares were held in the
treasury of the Company and (iii) 2,003,188 Shares were reserved for future
issuance to employees pursuant to outstanding employee stock options granted
pursuant to the Company's stock option plans ("Options"), a maximum of 987,436
of which could become exercisable by February 14, 1997 ("Exercisable Options").
The Company has further advised Purchaser that prior to the announcement of the
Offer, there were approximately 153 holders of record of the issued and
outstanding Shares. Purchaser beneficially owns 11,977,699 Shares, (i) 5,993,827
of which it acquired pursuant to an Acquisition Agreement, dated as of December
16, 1991 (the "Acquisition Agreement"), among the Company, Parent and Purchaser,
(ii) 4,616,272 of which it acquired pursuant to a Stock and Warrant Purchase
Agreement, dated as of January 30, 1995, among the Company, Purchaser and Parent
(the "Stock and Warrant Purchase Agreement") and (iii) 1,367,600 of which it has
the right to acquire pursuant to Warrants granted under the Stock and Warrant
Purchase Agreement (see "SPECIAL FACTORS -- Background of the Offer and the
Merger"). Purchaser does not currently intend to exercise any of the Warrants,
which have an exercise price of $27.50 per Share. As a result, assuming
Purchaser does not exercise any of the Warrants but all Exercisable Options are
exercised, the First Minimum Condition would be satisfied if 2,438,716 Shares
were validly tendered in the Offer and not withdrawn and the Second Minimum
Condition would be satisfied if 3,328,678 Shares were validly tendered in the
Offer and not withdrawn.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of January 10, 1997 (the "Merger Agreement"), among Parent, Purchaser and the
Company. The Merger Agreement provides that, among other things, as soon as
practicable after the purchase of Shares pursuant to the Offer and the
satisfaction of the other conditions set forth in the Merger Agreement and in
accordance with the relevant provisions of the General Corporation Law of the
State of Delaware ("Delaware Law"), Purchaser will be merged with and into the
Company (the "Merger"). Following consummation of the Merger, the Company will
continue as the surviving corporation (the "Surviving Corporation") and will
become an indirect wholly owned subsidiary of Parent. At the effective time of
the Merger (the "Effective Time"), each Share issued and outstanding immediately
prior to the Effective Time (other than Shares held in the treasury of the
Company or owned by Purchaser, Parent or any direct or indirect wholly owned
subsidiary of Parent or the Company, and other than Shares held by stockholders
who shall have properly demanded and perfected appraisal rights under Section
262 of Delaware Law) will be cancelled and converted automatically into the
right to receive $19.50 in cash, or any higher price that may be paid per Share
pursuant to the Offer, without interest (the "Merger Consideration"). The Merger
Agreement is more fully described in "SPECIAL FACTORS -- The Merger Agreement".
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including the approval and adoption of the Merger Agreement
by the requisite vote of the stockholders of the Company. See "SPECIAL FACTORS
- -- The Merger Agreement". Under the Company's Certificate of Incorporation and
Delaware Law, the affirmative vote of the holders of a majority of the
outstanding Shares is required to approve and adopt the Merger Agreement and the
Merger. Consequently, Purchaser currently has sufficient voting power to approve
and adopt the Merger Agreement and the Merger without the vote of any other
stockholder.
Under Delaware Law, if Purchaser owns, following consummation of the Offer
or otherwise, at least 90% of the then outstanding Shares, Purchaser will be
able to approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger, without a vote of the Company's stockholders. In
such event, Parent, Purchaser and the Company have agreed to take all necessary
and appropriate action to cause the Merger to become effective as soon as
reasonably practicable after such acquisition, without a meeting of the
Company's stockholders. Purchaser's obligation to consummate the Offer is
conditioned on there being validly tendered and not withdrawn at least the
number of Shares that, when added to the 10,610,099 Shares owned by Purchaser,
shall constitute 90% of the Shares then outstanding, so as to enable Purchaser
to consummate the Merger without a vote of the Company's
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stockholders. If, however, fewer than such number of Shares are validly tendered
and not withdrawn, and all other conditions set forth in Annex A of the Merger
Agreement are satisfied, Purchaser may extend the Offer for a period not to
exceed 20 business days after the initial expiration date of the Offer, after
which time (or earlier if Parent did not extend the Offer) Purchaser is
obligated to waive the Second Minimum Condition and acquire such fewer number of
Shares (although it may not acquire less than a majority of the Shares
outstanding other than Shares owned by Parent or Purchaser without the consent
of a majority of the Independent Directors). In such case, a vote of the
Company's stockholders will be required under Delaware Law, and a significantly
longer period of time will be required to effect the Merger. See "SPECIAL
FACTORS -- Purpose and Structure of the Offer and the Merger; Reasons of Parent
and Purchaser for the Offer and the Merger".
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
SPECIAL FACTORS
BACKGROUND OF THE OFFER AND THE MERGER
On December 16, 1991, the Company, Purchaser and Parent entered into the
Acquisition Agreement, pursuant to which Purchaser subsequently acquired
5,993,827 Shares. Pursuant to the Acquisition Agreement, for a ten-year period
beginning at closing and subject to certain exceptions, Parent is prohibited
from acquiring additional Shares without the approval of the majority of the
Independent Directors. The Acquisition Agreement affords Parent representation
on the Board in direct proportion to its percentage stock ownership.
In April 1993, the Company entered into an agreement with Sandoz
Pharmaceutical Corporation, a wholly owned affiliate of Sandoz Pharma Ltd.
(collectively the "Sandoz entities"), to form a joint venture ("Progenesys")
with a primary mission to research and develop hematopoietic cell-based, somatic
gene therapies against HIV infection. The Company and the Sandoz entities
licensed certain initial technologies, within the field, to Progenesys. On
August 31, 1995, the Progenesys partnership was dissolved and replaced by a
collaborative agreement (the "HIV Gene Therapy Collaboration") between the
Company and the Sandoz entities, with terms and conditions substantially
equivalent to those of the partnership agreement. In November 1993, the Company
entered into a two-year collaboration agreement with Parent regarding
therapeutic anti-viral agents for HIV infection. The Company and Parent jointly
decided to terminate the agreement as of March 31, 1995. In March 1994, the
Company and Parent agreed to provide funding for a portion of the research
carried out at Stanford University School of Medicine. For a fuller description
of these arrangements, see "SPECIAL FACTORS -- Related Party Transactions".
In 1995, Purchaser increased its investment in the Company pursuant to the
Stock and Warrant Purchase Agreement, whereby Purchaser acquired 4,616,272
additional Shares and Warrants to acquire a further 1,367,600 Shares.
On May 23, 1996, Parent delivered a letter to the Board offering to acquire
all the issued and outstanding Shares not then owned by Purchaser for $17.00 per
Share in cash.
On May 24, 1996, the three Independent Directors (Messrs. Ruvane, Edgar and
Schollmaier) first met to consider Parent's proposal. On the same day they
retained their own independent counsel. In early June 1996, the Company advised
Parent that the Independent Directors had selected Lehman Brothers to serve as
financial advisor. The terms of Lehman Brothers' undertaking to render financial
advisory services to the Independent Directors is set forth below in "SPECIAL
FACTORS -- Opinion of Lehman Brothers Inc."
On June 13, 1996, Dr. Daniel L. Vasella, Chief Executive Officer of Parent,
invited Edgar Schollmaier, an Independent Director of the Company, to Parent's
corporate headquarters in Basle, Switzerland to
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meet and discuss Parent's proposal. At that meeting, Mr. Schollmaier indicated
to Dr. Vasella that the Independent Directors were likely to conclude that
Parent's $17.00 per Share proposal was insufficient.
During August 1996, Morgan Stanley and Lehman Brothers had various
discussions regarding the financial aspects of Parent's proposal.
On September 24, 1996, Joseph J. Ruvane, Jr., an Independent Director of the
Company, together with representatives from Lehman Brothers, met in New York
with Dr. Raymund Breu, Chief Financial Officer of Parent, and representatives of
Morgan Stanley. At the meeting, Morgan Stanley and Lehman Brothers
representatives discussed the terms of the outstanding offer made by Purchaser
and the Company's future financing needs.
From October 19 through October 26, 1996, Dr. Breu had telephone
conversations and discussions with Harold Edgar, an Independent Director of the
Company, regarding Purchaser's offer. Dr. Breu and Mr. Edgar discussed Parent's
reasons for such offer and the terms thereof.
On October 28, 1996, the Independent Directors rejected Parent's offer to
acquire the remaining Shares for $17.00 per Share.
On November 1, 1996, Mr. Schollmaier met with Dr. Breu and reviewed the
bases for the Independent Directors' rejection of Parent's proposal. Mr.
Schollmaier suggested that the Independent Directors would be willing to resume
negotiations at a higher price.
In mid-November 1996, Dr. Breu advised the Independent Directors that Parent
believed it might be mutually beneficial to reopen negotiations.
On December 19, 1996, Dr. Breu, Dr. Vasella and Dr. Paul Herrling, Head of
Research of the Pharma Division of Parent, met in New York with Messrs. Ruvane,
Edgar and Schollmaier to discuss the possibility of Purchaser increasing the
value of its offer. Parent's representatives indicated a willingness to consider
offering $19.50 per Share if acceptable mimimum conditions and other terms could
be agreed upon.
On December 30, 1996, Parent's counsel delivered an initial draft of the
Merger Agreement to the Independent Directors, the Company and their respective
counsel.
Negotiations continued over the next several days. On January 6, 1996, Dr.
Breu reiterated Parent's willingness to consider offering $19.50 per Share if
all remaining issues, including acceptable miminum conditions, were resolved.
All remaining issues were resolved on January 10, 1997.
The Board approved and adopted the Merger Agreement at a meeting held on
January 10 and the Merger Agreement was executed as of January 10, 1997.
RECOMMENDATION OF THE COMPANY'S BOARD; FAIRNESS OF THE OFFER AND THE MERGER
RECOMMENDATION OF THE COMPANY'S BOARD
On January 10, 1997, the Board, by a unanimous vote of all directors present
and voting (with all directors who are designees of Parent abstaining), based in
part on the unanimous recommendation and approval of the Independent Directors,
as required by the Acquisition Agreement, approved the Merger Agreement and the
transactions contemplated thereby and determined that each of the Offer and the
Merger is fair to, and in the best interests of, the stockholders of the Company
(other than Parent and Purchaser). The Board, by a unanimous vote of all
directors present and voting (with all directors who are designees of Parent
abstaining), has recommended that all holders of Shares accept the Offer and
tender their Shares pursuant to the Offer.
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FAIRNESS OF THE OFFER AND THE MERGER
In reaching its determinations referred to immediately above, the
Independent Directors considered the following factors, each of which, in the
view of the Independent Directors, supported such determinations:
(i) the Company's uncertain financial prospects as a result of (a) the
current rate at which the Company is utilizing its available funds, and (b)
uncertainty as to whether the Company would be able to raise additional
capital which would be adequate for its ongoing needs (particularly in light
of Parent's stated refusal to participate in any further financing and
Parent's ability to maintain its percentage interest in the Company through
certain "top-up" rights granted to Parent and Purchaser in connection with
their 1991 investment in the Company);
(ii) the risk that the Company would suffer the loss of key employees
and other adverse consequences if the Company did not accept the Offer and
had pursued other alternatives with the attendant delay;
(iii) the historical market prices and recent trading activity of the
Shares, including the fact that the $19.50 per Share cash consideration to
be paid to the Public Stockholders in the Offer and Merger represents a
premium of 77.3% over the reported cash price on the last full trading day
preceding the public announcement of the initial offer by Parent and
Purchaser and a premium of 34.5% over the average closing price for the
thirty days prior to January 3, 1997;
(iv) the history of the negotiations between the Independent Directors
and their representatives and Parent and its representatives, including the
facts that (a) the negotiations resulted in an increase in the price at
which Parent and Purchaser were prepared to acquire the Company's
outstanding Shares from $17.00 to $19.50 per Share, and (b) the Independent
Directors belief that Parent and Purchaser would not further increase the
Offer and that $19.50 per Share was the highest price which could be
obtained from Parent and Purchaser;
(v) the opinion of Lehman Brothers that the consideration to be offered
to the holders of Shares in each of the Offer and the Merger is fair to such
stockholders (other than Parent) from a financial point of view and the
report and analysis presented by Lehman Brothers;
(vi) the First Minimum Condition's requirement that the Offer not be
consummated unless at least a majority of those Shares not held by Parent or
Purchaser are validly tendered pursuant to the Offer and not withdrawn;
(vii) the stated unwillingness of Parent and Purchaser to consider a
sale of their interest in the Company which made pursuit of other potential
business combinations impracticable;
(viii) the availability of dissenters' rights under Delaware Law;
(ix) the likelihood that the proposed acquisition would be consummated,
based in part on the financial condition of Parent;
(x) the terms and conditions of the Merger Agreement, including the
absence of a financing condition; and
(xi) the structure of the transaction which is designed, among other
things, to result in receipt by the stockholders at the earliest practicable
time of the consideration to be paid in the Offer and the fact that the per
Share consideration to be paid in the Offer and the Merger is the same.
In reading its determinations referred to above, the Board considered the
recommendation of the Independent Directors and the factors set forth
immediately above, each of which, in view of the Board, supported such
determinations.
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The members of the Board, including the Independent Directors, evaluated the
various factors listed above in light of their knowledge of the business,
financial condition and prospects of the Company, and based upon the advice of
financial and legal advisors. In light of the number and variety of factors that
the Board and the Independent Directors considered in connection with their
evaluation of the Offer and the Merger, neither the Board nor the Independent
Directors found it practicable to assign relative weights to the foregoing
factors, and, accordingly, neither the Board nor the Independent Directors did
so. In addition to the factors listed above, the Board and the Independent
Directors had each considered the fact that consummation of the Offer and the
Merger would eliminate the opportunity of the Public Stockholders to participate
in any potential future growth in the value of the Company, but determined that
(i) this loss of opportunity was reflected in part by the price of $19.50 per
Share to be paid in the Offer and the Merger, and (ii) as noted above, there was
significant uncertainty as to the Company's long-term economic viability.
The Board, including the Independent Directors, believes that the Offer and
the Merger are procedurally fair because, among other things: (i) the
Independent Directors consisted of independent directors appointed to represent
the interests of the Public Stockholders; (ii) the Independent Directors
retained and were advised by independent legal counsel; (iii) the Independent
Directors retained Lehman Brothers as their independent financial advisor to
assist them in evaluating the Offer and the Merger; (iv) the existence of the
First Minimum Condition to the Offer; (v) the deliberations pursuant to which
the Independent Directors evaluated the Offer and the Merger and alternatives
thereto; and (vi) the fact that the $19.50 per Share price and the other terms
and conditions of the Merger Agreement resulted from active arm's length
bargaining between representatives of the Independent Directors, on the one
hand, and Parent, on the other.
The Board and the Independent Directors recognized that the Merger is not
structured to require the approval of a majority of the stockholders of the
Company other than Purchaser, and that Purchaser has sufficient voting power to
approve the Merger without the affirmative vote of any other stockholder of the
Company. Consummation of the Offer, however, is conditioned upon the decision of
holders of a majority of the Shares, other than those held by Parent or
Purchaser, to accept the Offer by tendering their Shares, and a condition to the
Merger is that the Purchaser shall have purchased all Shares tendered in the
Offer. While consummation of the Offer would result in the stockholders of the
Company receiving a premium for their Shares over the trading prices of the
Shares prior to the announcement of the Offer and the Merger, it would eliminate
any opportunity for stockholders of the Company other than Parent and Purchaser
to participate in the potential future growth prospects of the Company. The
Board and the Independent Directors, however, believed that this was reflected
in the Offer price to be paid.
OPINION OF LEHMAN BROTHERS INC.
Lehman Brothers has acted as financial advisor to the Independent Directors
in connection with the Merger, as described under "SPECIAL FACTORS -- Background
of the Offer and the Merger". As part of its role as financial advisor, Lehman
Brothers was engaged to render to the Board an opinion as to the fairness, from
a financial point of view, to the Company's stockholders (other than Parent) of
the consideration to be offered in the Offer and the Merger.
On January 6, 1997, in connection with the Independent Directors'
preliminary evaluation of the Offer, the Merger and the Merger Agreement, Lehman
Brothers made a preliminary presentation to the Independent Directors with
respect thereto (the "Lehman Brothers Report"). As part of the presentation,
Lehman Brothers reviewed with the Independent Directors certain of the
information and financial data described below.
Complete copies of the Lehman Brothers Report were delivered to the
Independent Directors on January 7, 1997, in connection with the Independent
Directors' final evaluation of the Offer, the Merger and the Merger Agreement.
On January 9, 1997, representatives of Lehman Brothers reviewed the information
included in the Lehman Brothers Report with John J. Schwartz, Ph.D. and Irving
L. Weissman, M.D. (the directors of the Company who are neither Independent
Directors nor designees of Parent).
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On January 10, 1997, Lehman Brothers reviewed with the Independent Directors
the matters set forth in the Lehman Brothers Report and rendered its oral
opinion to the Independent Directors that as of that date the proposed
consideration to be offered in the Offer and the Merger was fair, from a
financial point of view, to the stockholders of the Company, other than Parent.
Later on January 10, 1997, in connection with the Board's evaluation of the
Offer, the Merger and the Merger Agreement, Lehman Brothers reviewed with the
Board the matters set forth in the Lehman Brothers Report and rendered its oral
opinion to the Board that as of that date the proposed consideration to be
offered in the Offer and the Merger was fair, from a financial point of view, to
the stockholders of the Company, other than Parent.
Lehman Brothers delivered its written opinion to the Board on January 10,
1997 (the "Lehman Opinion"). A copy of the Lehman Opinion, which sets forth the
assumptions made, matters considered and limitations of review undertaken by
Lehman Brothers, is attached as Schedule II hereto.
No limitations were imposed by the Company or the Independent Directors on
the scope of Lehman Brothers' investigation or the procedures to be followed by
Lehman Brothers in rendering the Lehman Opinion, except that Lehman Brothers was
not authorized to solicit, and did not solicit, any indications of interest from
any third party with respect to a purchase of all or a part of the Company's
business. Lehman Brothers was not requested to and did not make any
recommendation to the Independent Directors or the Board as to the form or
amount of consideration to be offered to the stockholders in the Offer or the
Merger, which was determined through negotiations between the Independent
Directors and its financial and legal advisors (including Lehman Brothers) and
Parent and its financial and legal advisors. In arriving at the Lehman Opinion,
Lehman Brothers did not ascribe a specific range of value to the Company, but
rather made its determination as to the fairness, from a financial point of
view, of the consideration to be offered to the stockholders (other than Parent)
in the Offer and the Merger on the basis of the financial and comparative
analyses described below. The Lehman Opinion is for the use and benefit of the
Independent Directors and Messrs. Schwartz and Weissman and was rendered to them
in connection with their consideration of the Offer and the Merger and is not
intended to be and does not constitute a recommendation to any Public
Stockholder as to whether to accept the consideration to be offered to such
stockholder in the Offer or the Merger. Lehman Brothers was not requested to
opine as to, and the Lehman Opinion does not in any manner address, the
Company's underlying business decision to enter into the Merger Agreement.
In arriving at the Lehman Opinion, Lehman Brothers reviewed and analyzed:
(a) the Merger Agreement and the specific terms of the Offer and the Merger; (b)
publicly available information concerning the Company which Lehman Brothers
believed to be relevant to its analysis, including the Company's Form 10-K for
the year ended December 31, 1995 and the Company's Form 10-Q for the quarter
ended September 30, 1996; (c) other financial and operating information with
respect to the business, operations and prospects of the Company prepared by the
Company in 1996 and furnished to Lehman Brothers by the Company (including
financial projections for the fiscal years 1996-2005); (d) a trading history of
the Shares from August 7, 1991 to the present and a comparison of that trading
history with those of other companies that Lehman Brothers deemed relevant; (e)
a comparison of the historical financial results and present financial condition
of the Company with those of other companies that Lehman Brothers deemed
relevant; (f) an analysis of the cash required to fund the Company's near term
capital and operating requirements, the cash currently available to the Company
and the alternatives available to the Company to obtain additional financing;
and (g) a comparison of the financial terms of the Offer and the Merger with the
financial terms of certain other transactions that Lehman Brothers deemed
relevant. In addition, Lehman Brothers had discussions with the management of
the Company concerning its business, operations, assets, financial condition and
prospects, and undertook such other studies, analyses and investigations as
Lehman Brothers deemed appropriate.
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In arriving at the Lehman Opinion, Lehman Brothers assumed and relied upon
the accuracy and completeness of the financial information provided by the
Company and other information used by Lehman Brothers without assuming any
responsibility for independent verification of such information and further
relied upon the assurances of management of the Company that they were not aware
of any facts that would make the information provided by the Company inaccurate
or misleading. With respect to the financial projections of the Company, upon
advice of the Company, Lehman Brothers assumed that such projections were
reasonably prepared on a basis reflecting the best available estimates and
judgments of the management of the Company as to the future financial
performance of the Company. However, for purposes of its analysis, Lehman
Brothers also considered certain more conservative assumptions and estimates
which resulted in significant adjustments to the projections of the Company.
Lehman Brothers discussed these adjusted projections with the Company's
management and they have agreed that, because the Company's projections have
been prepared based on assumptions which include the success of each of its
products in human clinical trials and in the marketplace, it is appropriate for
Lehman Brothers to adjust such projections to reflect the uncertainties inherent
in the business and prospects of the Company and in the Company's ability to
secure adequate financing in the future to fund its capital and operating
requirements. Without agreeing with each particular adjustment Lehman Brothers
made, the Company's management believes that the overall extent of Lehman
Brothers' adjustments to the Company's projections is reasonable and that Lehman
Brothers' use of such adjusted projections in its analysis is appropriate. In
arriving at the Lehman Opinion, Lehman Brothers conducted a limited physical
inspection of the properties and facilities of the Company and did not make nor
obtain any evaluations or appraisals of the assets or liabilities of the
Company. The Lehman Opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
the Lehman Opinion.
The following paragraphs summarize the financial and comparative analyses
performed by Lehman Brothers in connection with the January 10, 1997 oral
opinions and presented initially to the Independent Directors and later to the
Board. The summary does not represent a complete description of the analyses
performed by Lehman Brothers.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial and comparative analysis
and the application of those methods to the particular circumstances and,
therefore, such an opinion is not readily susceptible to summary description.
Furthermore, in arriving at the Lehman Opinion, Lehman Brothers did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevancy of each
analysis and factor. Accordingly, Lehman Brothers believes that its analyses
must be considered as a whole and that considering any portions of its analyses
and of the factors considered by it, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
the Lehman Opinion. In its analyses, Lehman Brothers made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the Company's control. Any estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than as set forth therein. Additionally, analyses relating to the
value of businesses do not purport to be appraisals or to reflect the prices at
which businesses actually may be sold.
COMMON STOCK PRICE ANALYSIS. Lehman Brothers compared the Company's stock
price performance from August 7, 1991 to January 3, 1997 against the offer of
$19.50 per Share. Lehman Brothers noted that the offer of $19.50 per Share was
above the closing stock price for all but 42 trading days since February 1,
1993. Lehman Brothers also compared the price performance of the Company's
common stock from August 7, 1991 to January 3, 1997 with those of the AMEX
Biotechnology Index. Using August 7, 1991 as a base value of 100%, on January 3,
1997, the Company's stock price was 67.7% of its base value as compared to the
AMEX Biotechnology Index, which was 204.2% of its base value.
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COMMON STOCK TRADING VOLUME ANALYSIS. Lehman Brothers analyzed the
historical daily trading volume of the Company's common stock over various
periods. Lehman Brothers noted that since January 1, 1995, 3,285,900 common
shares had been traded. Of these shares, only 10.8% of the shares traded between
$17.88 to $18.63 per share; 36.3% of the shares traded between $15.88 and $17.88
per share; 37.1% of the shares traded between $13.88 to $15.88; and the
remaining 15.8% of the shares traded below $13.88 per share.
COMPARABLE PUBLIC COMPANY ANALYSIS. Lehman Brothers compared the historical
financial, operating and stock market performances of certain publicly traded
companies that it considered relevant with the historical financial and
operating performance of the Company, based upon information that was publicly
available at that time and based upon information provided to Lehman Brothers by
the management of the Company. The companies that Lehman Brothers included in
its universe of gene therapy companies were Avigen Inc., GeneMedicine, Inc.,
Ribozyme Pharmaceuticals, Inc., Somatix Therapy Corporation, Targeted Genetics
Corporation and Vical Incorporated (the "Comparable Gene Therapy Companies"),
and in its universe of cell therapy companies were Cell Genesys, Inc. and
CellPro Incorporated (the "Comparable Cell Therapy Companies"). Lehman Brothers
examined both the market value of the total outstanding common equity (the
"Market Value") and the Market Value minus "Cash" (the "Technology Value"), the
historical cash-burn rate, cash on hand and years of cash remaining for both
such groups of comparable companies. "Cash" equals cash and cash equivalents
plus short-term marketable securities.
Lehman Brothers noted that at the proposed purchase price of $19.50 per
Share, the fully-diluted Market Value for the Company of $287.4 million was
above the high end of the high/low range of $270.7 million to $36.1 million for
the Comparable Gene Therapy Companies, and above the high end of the high/ low
range of $196.1 million to $183.8 million for the Comparable Cell Therapy
Companies. The proposed purchase price represented a 145.2% premium to the mean
market valuation of $117.2 million, and a $187.7% premium to the median market
valuation of $99.9 million for the Comparable Gene Therapy Companies. The
proposed purchase price represented a 51.3% premium to the mean market valuation
of $189.9 million for the Comparable Cell Therapy Companies.
Lehman Brothers also noted that the proposed purchase price of $19.50 per
share, the fully-diluted Technology Value for the Company of $268.4 million was
above the high end of the high/low range of $219.9 million to $15.1 for the
Comparable Gene Therapy Companies, and above the high end of the high/ low range
of 104.8 million to $77.4 million for the Comparable Cell Therapy Companies. The
proposed purchase price represented a 239.8% premium to the mean technology
valuation of $79 million, and a 328.8% premium to the median technology
valuation of $62.6 million for the Comparable Gene Therapy Companies. The
proposed purchase price represented a 194.6% premium to the mean market
valuation of $91.1 million.
Lehman Brothers noted that, per discussions with the Company management, the
Company had approximately $25 million of cash and cash equivalents as of
December 31, 1996. Lehman Brothers noted that the Company's implied burn life,
calculated as the cash on hand divided by the latest twelve month cash burn rate
(defined as the product of net income and depreciation less capital
expenditures) of 0.8 years was 74.2% less than the mean implied burn life of 3.1
years for the Comparable Gene Therapy Companies and 91.8% less than the mean
implied burn life of 9.7 years for the Comparable Cell Therapy Companies.
Lehman Brothers also compared the price performance of the Common Stock from
January 2, 1995 to January 3, 1997 with those of an index of the Comparable Gene
Therapy and Cell Therapy Companies and the AMEX Biotechnology Index. Using
January 2, 1995 as the base of 100%, on January 3, 1997, the Common Stock price
was 88.6% of the base value, as compared to an index of the Comparable Gene
Therapy and Cell Therapy Companies and the AMEX Biotechnology Index values of
177.9% and 158.6% of their base value, respectively.
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Because of the inherent differences between the business, operations and
prospects of the Company and the businesses, operations and prospects of the
Comparable Gene Therapy Companies, the Comparable Cell Therapy Companies and
large capitalization biotechnology companies, Lehman Brothers believed that it
was inappropriate to, and therefore did not, rely solely on the quantitative
results of the analysis but rather also made qualitative judgments concerning
differences between the financial and operating characteristics and prospects of
the Company and the Comparable Gene Therapy Companies and the Comparable Cell
Therapy Companies that would affect the public trading values of each.
DISCOUNTED CASH FLOW ANALYSIS. Lehman Brothers performed a discounted cash
flow analysis on the projected financial information provided by the Company to
Lehman Brothers. Lehman Brothers noted that the Company's projections were
prepared based on assumptions that include, among other things, the success of
each of its products in human clinical trials and in the market place. For
purposes of its analysis, Lehman Brothers considered certain more conservative
assumptions and estimates that reflect the uncertainties inherent in the
Company's business and prospects. Using these more conservative assumptions and
estimates, Lehman Brothers prepared two scenarios, whereby the second scenario
contained more significant adjustments to the Company's projections than the
first scenario. Lehman Brothers discounted to present value the projected stream
of after-tax cash flows and the terminal year value (the "Terminal Value") of
the business. The Terminal Value for the discounted cash flow analysis of the
Company's projections was based upon, among other things, a range of 5.0x-8.0x
multiples of projected fiscal 2001 revenues. The Terminal Value for the
discounted cash flow analyses of Lehman Brothers' two adjusted scenarios were
based upon, among other things, ranges of 11.0x-15.0x multiples of projected
fiscal 2005 earnings before interest and taxes ("EBIT"). Lehman Brothers
analyzed the revenue and EBIT multiples of Amgen, Inc. and an index of U.S.
Pharmaceutical Companies. Lehman Brothers noted that in 1990 and 1991 Amgen had
revenue multiples of 4.7x and 9.8x, respectively. Lehman Brothers also noted
that based on Lehman Brothers equity research estimates, Amgen has a 1997
revenue multiple of 5.3x. Additionally, Lehman Brothers noted that an index of
U.S. Pharmaceutical Companies has a one year forward revenue multiple of 3.6x
and an EBIT multiple of 16.2x. Lehman Brothers also noted that, based on Lehman
Brothers equity research estimates, Amgen has a one year forward EBIT multiple
of 12.6x.
In performing this analysis, Lehman Brothers used discount rates ranging
from 35% to 50%, which were chosen based on several assumptions regarding
factors such as the current level of inflation, interest rates, the inherent
business risk in the Company's operations, as well as in the gene therapy and
biotechnology industry as a whole, and the cost of capital to the Company.
For the discounted cash flow analysis of the Company's projections, (i) the
firm value of the Company resulting from these analyses ranged from $372.3
million to $1,032.8 million and (ii) the equity value per Share of the Common
Stock on a fully-diluted basis resulting from these analyses ranged from $25.92
to $66.70 per Share. In the first of Lehman Brothers' scenarios, (i) the imputed
firm value of the Company resulting from these analyses ranged from $144.1
million to $571.7 million and (ii) the imputed equity value per Share of the
Common Stock on a fully-diluted basis resulting from these analyses ranged from
$11.82 to $38.23. In the second of Lehman Brothers' scenarios, (i) the imputed
firm value of the Company resulting from these analyses ranged from $83.1
million to $406.2 million, and (ii) the imputed equity value per Share of the
Common Stock on a fully diluted basis resulting from these analyses ranged from
$8.06 to $28.01.
COMPARABLE TRANSACTION ANALYSIS. Lehman Brothers compared the financial and
operating performance of certain companies that had engaged in recent merger or
alliance transactions, and which Lehman Brothers considered relevant, with the
historical financial and operating performance of the Company, based upon
information that was publicly available at the time and based upon information
provided to Lehman Brothers by the Company's management. The transactions that
Lehman Brothers considered comparable to the Merger included the transactions by
Bergen Brunswig Corp. with IVAX Corp., by Rhone-Poulenc Rorer, Inc. with Applied
Immune Sciences, Inc., by Sandoz AG with Genetic Therapy,
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Inc., by Chiron Corporation with Viagene, Inc., by Ligand Pharmaceuticals, Inc.
with Glycomed, Inc., by CIBA-GEIGY Limited with Chiron Corporation, by American
Cyanamid Company with Immunex Corporation,and by American Home Products with
Genetics Institute, Inc. Lehman Brothers analyzed the tender/merger price per
share for shares purchased directly from the target company (the "Merger
Purchase Price Per Share"). The Merger Purchase Price Per Share for each of
these transactions was then compared to the target stock price one day prior to
the announcement of the transaction to calculate the premium over such stock
price (the "Premium"). The Premium in the comparable transactions analyzed by
Lehman Brothers ranged from a high of 67.9% to a low of (13.4)%. In addition,
Lehman Brothers noted that the Premium for the Company at the proposed purchase
price of $19.50 per Share was 77.3% when compared to the price of $11.00 per
share one day prior to Parent's public announcement of its original proposal of
$17.00 on May 24, 1996. Lehman Brothers also noted that the premium for the
Company at the proposed purchase price of $19.50 per Share was 29.5% on January
3, 1997.
In addition, the Merger Purchase Price Per Share for each of these
transactions was then compared to: (i) the target's stock price 30 days prior to
the announcement of the transaction, (ii) the target's high stock price over the
last twelve months prior to announcement of the transaction and (iii) the
target's low stock price over the last twelve months prior to announcement of
the transaction. The high and low premiums were as follows: (i) 95.3% to
(11.3)%, (ii) 245.7% to (54.9)%; and (iii) 533.8% to 5.8%. The respective
premiums for the Company at the proposed purchase price of $19.50 per Share for
such dates or periods ending May 23, 1996 are as follows (i) 51.5%, (ii) 16.4%,
and (iii) 77.3%. Lehman Brothers also noted that the premiums for the Company at
the proposed purchase price of $19.50 per Share for such dates or periods ending
on January 3, 1997 were (i) 34.5%, (ii) 4.7% and (iii) 77.3%.
Because the reasons for and the circumstances surrounding each of the
transactions analyzed were specific to each transaction and because of the
inherent difference between the businesses, operations and the prospects of the
Company and the business, operations and prospects of the selected acquired
companies analyzed, Lehman Brothers believed that it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the analysis, but
rather also made qualitative judgments concerning differences between the
characteristics of these transactions and the Offer and the Merger that would
affect the acquisition values of the Company and such acquired companies.
HISTORICAL AND PROJECTED FINANCIAL STATEMENTS. Lehman Brothers reviewed
historical financial statements of the Company and projected financial
statements of the Company through 2005 referred to above as well as the
assumptions underlying the Company's projections. In order to analyze the
Company's projections, Lehman Brothers compared the Company's projected revenue
and EBIT growth rates for five years after initial product launch to Amgen and
Genentech's revenue and EBIT growth rates for five years after initial product
launch. Lehman Brothers also reviewed the projected financial performance versus
actual financial performance in terms of sales, sales growth and net income for
Genentech and Genetics Institute. Lehman Brothers also reviewed the projections
of Applied Immune Science disclosed publicly in 1993 and compared these
projections to Applied Immune Sciences' projections disclosed publicly in 1995.
Additionally, Lehman Brothers compared the Company's projected sales disclosed
publicly in 1992 to actual sales during 1992 to 1996. Lehman Brothers also
compared the Company's projected EBIT margin ("EBIT margin") in 2005 to the 1995
EBIT margins of several large capitalization pharmaceutical companies (the
"Pharmaceutical Companies") and noted that the Company's projected EBIT margin
in year 2005 was substantially higher than the highest EBIT margin in the year
1995 of the Pharmaceutical Companies. Lehman Brothers also compared the
Company's projected selling, general and administrative expenses ("SG&A") as a
percentage of revenues and projected 2005 research and development expenses
("R&D") as a percentage of revenues to the SG&A as a percentage of revenues and
R&D as a percentage of revenues for several large capitalization pharmaceutical
and biotechnology companies (the "Pharmaceutical and Biotechnology Companies").
Lehman Brothers noted that the Company's projected SG&A as a percentage of
revenues and R&D as a percentage of revenues was lower than the lowest SG&A as a
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percentage of revenues and lower than the mean R&D as a percentage of revenues
for the Pharmaceutical and Biotechnology Companies.
ALTERNATIVES CONSIDERED. Lehman Brothers reviewed the recent weak financing
environment for biotechnology companies and also analyzed the stock price
changes of certain large biotechnology companies from May 1, 1996 to January 3,
1997. Lehman Brothers noted the decrease in stock prices for the following
companies: Amgen Inc., (0.7%); Centocor, Inc., (10.5%); Chiron Corporation,
(20.1%); and Genzyme Corporation, (15.7%).
Lehman Brothers analyzed the changes in original filing price to offered
price for biotechnology initial public offerings from July 1, 1996 to January 3,
1997. Lehman Brothers noted that the mean, median, high and low change of offer
price from midpoint of the filing range for initial public offerings was
(16.5%), (16.7%), 7.1% and (41.7%), respectively. Lehman Brothers also analyzed
the change in original filing price to offered price for biotechnology follow-on
offerings from July 1, 1996 to January 3, 1997. Lehman Brothers noted that the
mean, median, high and low change of offer price from the original filing price
for follow-on offerings was (31.0%), (26.3%), (13.5%) and (52.6%), respectively.
Lehman Brothers analyzed the possible dilutive effects of a public offering
on the Company's existing stockholders and the dilutive effect of Parent's
"top-up" rights under their existing agreements with the Company. Lehman
Brothers also reviewed the viability of the Company pursuing certain other
strategic alternatives and considered, in particular, the fact that Parent has
indicated that it is unwilling to facilitate another potential strategic partner
making an offer for the Company.
The full text of the written opinion of Lehman Brothers dated as of January
10, 1997, which sets forth the assumptions made, matters considered and
limitations on the review undertaken, is attached as Schedule II hereto. Lehman
Brothers' opinion is directed only to the fairness of the consideration to be
received by the stockholders of the Company (other than Parent) from a financial
point of view and has been provided for the use of the Board and the Independent
Directors in their evaluation of the Offer and the Merger, does not address any
other aspect of the Offer and the Merger or any related transaction and does not
constitute a recommendation to any stockholder of the Company as to whether such
stockholder should accept the Offer. The summary of the opinion of Lehman
Brothers set forth herein is qualified in its entirety by reference to the full
text of such opinion.
COMPANY FINANCIAL PROJECTIONS
The Company does not, as a matter of course, make public forecasts or
projections as to future sales, earnings or other income statement data.
However, in connection with Purchaser's and Parent's review of the transactions
contemplated by the Merger Agreement, Parent examined certain projections
prepared by the Company in 1993, the most current projections then in the
possession of Parent, including the following:
<TABLE>
<CAPTION>
PROJECTED YEARS ENDING DECEMBER 31,
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996E 1997E 1998E 1999E 2000E 2001E 2002E 2003E
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue......................... $ 1,800 $ 2,300 $ 22,579 $ 87,231 $ 147,378 $ 219,492 $ 284,592 $ 339,906
Total operating expenses.............. 59,980 67,286 68,648 65,592 66,271 69,217 72,311 75,560
Pretax earnings/(loss)................ (60,095) (66,987) (54,128) 1,745 50,228 111,022 160,512 201,912
<CAPTION>
<S> <C>
2004E
---------
<S> <C>
Total revenue......................... $ 393,162
Total operating expenses.............. 78,972
Pretax earnings/(loss)................ 245,503
</TABLE>
THE FOREGOING PROJECTIONS WERE BASED ON ASSUMPTIONS CONCERNING THE COMPANY'S
PRODUCTS AND BUSINESS PROSPECTS IN 1993, INCLUDING THE ASSUMPTION THAT THE
COMPANY WOULD CONTINUE TO OPERATE UNDER THE SAME OWNERSHIP STRUCTURE AS THEN
EXISTED. THE PROJECTIONS WERE ALSO BASED ON OTHER REVENUE AND OPERATING
ASSUMPTIONS. PROJECTED INFORMATION OF THIS TYPE IS BASED ON ESTIMATES AND
ASSUMPTIONS THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO
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PREDICT AND MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL. ACCORDINGLY, THERE
CAN BE NO ASSURANCE THAT THE PROJECTED RESULTS WOULD BE REALIZED OR THAT ACTUAL
RESULTS WOULD NOT BE SIGNIFICANTLY HIGHER OR LOWER THAN THOSE SET FORTH ABOVE.
IN ADDITION, THESE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC
DISCLOSURE OR COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE COMMISSION OR THE
GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
REGARDING PROJECTIONS AND FORECASTS AND ARE INCLUDED IN THIS OFFER TO PURCHASE
ONLY BECAUSE SUCH INFORMATION WAS MADE AVAILABLE TO PURCHASER AND PARENT BY THE
COMPANY. NONE OF PARENT, PURCHASER, THE COMPANY OR ANY OTHER PARTY ASSUMES ANY
RESPONSIBILITY FOR THE ACCURACY OR VALIDITY OF THE FOREGOING PROJECTIONS.
POSITION OF PARENT AND PURCHASER REGARDING FAIRNESS OF THE OFFER AND THE MERGER
Parent and Purchaser believe that the consideration to be received by the
Company's stockholders, other than Parent and Purchaser, pursuant to the Offer
and the Merger is fair to the Company's stockholders. Parent and Purchaser base
their belief solely on (i) the fact that the Company's Board and the Independent
Directors concluded that the Offer and the Merger are fair to and in the best
interests of the Company's stockholders (other than Parent and Purchaser), (ii)
the fact that all designees of Parent on the Board abstained from the votes
approving the Merger Agreement and the transactions contemplated thereby and
recommending the Offer and the Merger, (iii) the presentation of Morgan Stanley
to Parent described below, (iv) the fact that the Acquisition Agreement imposes
substantial restrictions on Parent's ability to acquire additional Shares, and
that the parties consequently negotiated the terms of the Offer and the Merger
and the Merger Agreement with the Company on an arm's-length basis, (v) the fact
that the consideration to be paid in the Offer and the Merger represents a
premium of approximately 77% over the reported closing price for the Shares on
the last trading day prior to the public announcement of Parent's original offer
to acquire the remaining equity in the Company and (vi) the historical financial
performance of the Company and its financial results. Parent and Purchaser have
reviewed the factors considered by the Board in support of its decision, as
described in the Schedule 14D-9 and above, and had no basis to question their
consideration of or reliance on those factors. In reaching their conclusion,
Parent and Purchaser also considered generally the current and historical market
prices for the Shares. Neither Parent nor Purchaser found it practicable to
assign, nor did either of them assign, relative weights to the individual
factors considered in reaching its conclusion as to fairness.
ANALYSIS OF FINANCIAL ADVISOR TO PARENT
On January 6, 1997, representatives of Morgan Stanley discussed its written
presentation regarding the Company (the "Morgan Stanley Presentation") with
senior executives of Parent and certain of its affiliates.
The Morgan Stanley Presentation included a premium analysis, an historical
and comparative market overview of the Company, an analysis of precedent
transactions involving certain biotechnology and other companies and a
discounted cash flow analysis of the Company, each of which is summarized below.
Morgan Stanley was not requested to, and did not, render any opinion with
respect to the fairness of the consideration to be paid pursuant to the Offer or
the Merger. Neither Parent nor any of its affiliates imposed any limitations on
the scope of Morgan Stanley's evaluation.
PREMIUM ANALYSIS. The Morgan Stanley Presentation included a premium
analysis which indicated that the $19.50 per Share to be paid in the Offer and
the Merger represented a 51.5% premium over the April 24, 1996 per Share price
(the price 30 days prior to Parent's initial offer to the Company), a 77.3%
premium over the May 23, 1996 per Share price (the last full trading day prior
to Parent's initial offer to Company), a 17.3% premium over the implied per
Share price of Purchaser's previous investment in the Company made on January
31, 1995 and a 16.4% premium over the January 5, 1996 per Share price (the
latest 12 month high prior to the announcement of Parent's initial offer on May
24, 1996). In addition, the premium analysis indicated that the $19.50 per Share
to be paid in the Offer and the Merger represented a 29.5% premium over the
January 3, 1997 per Share price.
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COMPANY HISTORICAL COMMON STOCK PERFORMANCE. Morgan Stanley's analysis of
the Company's Common Stock performance consisted of an historical analysis of:
(i) the closing prices and trading volumes of the Shares from January 2, 1996 to
January 3, 1997, (ii) the price performance of the Shares compared against the
Tier I Biotech Index (as defined below), the Gene Therapy and Transgenic Index
(as defined below), the Pharmaceutical Index (as defined below) and the Standard
& Poor's 500 Index from May 24, 1996 to January 3, 1997 (the "Post-Offer
Analysis") and (iii) the price performance of the Shares compared against the
foregoing indices from December 2, 1991 to January 3, 1997 (the "Five-Year
Analysis"). The Tier I Biotech Index included the following publicly traded
companies: Amgen Inc., Biogen, Inc., Centocor, Inc., Chiron Corporation,
Genentech, Inc., Genetics Institute, Inc., Gensia, Inc., Genzyme Corporation,
Immunex Corporation and Synergen, Inc. The Gene Therapy and Transgenic Index
included the following companies: Applied Immune Sciences, Inc., Cell Genesys,
Inc., Cellpro Incorporated, Cephalon, Inc., The Immune Response Corporation and
Vical Incorporated. The Pharmaceutical Index included the following companies:
Abbott Laboratories, American Home Products Corporation, Bristol-Myers Squibb
Company, Johnson & Johnson, Eli Lilly and Company, Mark Resources, Inc., Merck &
Co., Inc., Pfizer Inc., Rhone-Poulenc Rorer Inc., Schering-Plough Corporation,
Syntex Corporation, The Upjohn Company and Warner-Lambert Company. Both the
Post-Offer Analysis and the Five-Year Analysis showed that, during the
respective comparison periods, the price performance of each of the indices used
for comparative purposes was superior to the price performance of the Company's
Common Stock.
PRECEDENT TRANSACTION PREMIUM ANALYSIS. The Morgan Stanley Presentation
summarized the results of Morgan Stanley's precedent transaction premium
analysis. The Morgan Stanley Presentation grouped transactions (without
identifying them by name) in categories identified as biotechnology minority
squeeze-outs, biotechnology 100% control transactions, selected biotechnology
majority partial purchases, minority squeeze-outs generally and selected
biotechnology minority investments, and also analyzed the premiums in the
Rhone-Poulenc Rorer Inc./Applied Immune Sciences, Inc. transaction, the
abandoned American Home Products Corporation/Immunex ("AHP/IMNX") transaction
and in Purchaser's prior investments in the Company. The precedent transaction
premium analysis, excluding the abandoned AHP/ IMNX transaction and Purchaser's
prior investments in the Company, indicated premiums over the unaffected market
price (the price 30 days in advance of public announcement of the transaction),
ranging from 11.0% to 57.9% and premiums over the price one day prior to public
announcement ranging from 14.0% to 67.9%. In the Rhone-Poulenc Rorer/Applied
Immune Sciences, Inc. transaction, the sole precedent transaction where a
majority stockholder acquired the minority interest in a biotechnology company,
the premium over the unaffected market price was 46.9% and the premium over the
price one day prior to public announcement was 67.9%. As part of the precedent
transactions analysis, Morgan Stanley averaged for each category the premium
over the unaffected market price with the premium for such category one day
prior to public announcement, and using such average category premium calculated
an average implied stock price for the Shares. Excluding the abandoned AHP/IMNX
transaction and Purchaser's prior investments in the Company, this analysis
indicated a range of implied prices of from $13.42 to $18.69 per Share.
DISCOUNTED CASH FLOW ANALYSIS. The Morgan Stanley Presentation included a
discounted cash flow analysis to estimate the present value of the stand-alone
unleveraged free cash flows that the Company may be expected to generate based
upon estimates prepared by Morgan Stanley without access to any recent
confidential information concerning the Company. Morgan Stanley's estimates were
based upon publicly available information and upon financial forecasts prepared
by the Company and examined by Parent in 1993. See "SPECIAL FACTORS -- Company
Financial Projections". The Company currently derives no significant revenues
from the sale of any products for patient treatment. The Company's 1993
forecasts indicated that they did not reflect any assumptions regarding
probability of success of current research and development efforts of the
Company and, consequently, Morgan Stanley revised such forecasts to reflect such
factors. Morgan Stanley's discounted cash flow analysis was based upon estimates
that assumed different probability weightings by year for achieving the
projected financial performance of
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<PAGE>
the Company. Morgan Stanley prepared two different cases, one based on
probability weightings for achieving projected financial performance of 100%
prior to estimated product launch in 2001, 100% for 2001-2002, 75% for 2003 and
50% thereafter (the "Base Case"), and one based on probability weightings for
achieving projected financial performance of 100% prior to estimated product
launch in 2001, 100% for 2001-2002, 50% for 2003 and 33% thereafter (the
"Downside Case"). Morgan Stanley discounted the estimated unleveraged free cash
flows over an eleven-year period ending with the 2007 calendar year using
discount rates of 15.0%, 15.5% and 16.0% and assuming a terminal value based on
a range of net income multiples of 17x to 20x. Unleveraged free cash flows were
calculated as the after-tax operating earnings of the Company (excluding any
interest income or expense) plus depreciation and amortization, plus (or minus)
net changes in non-cash working capital, minus projected capital expenditures.
Morgan Stanley added to the present value of the cash flows the derived terminal
value for the Company in 2007 using the range of net income multiples and
discount rates described above. Assuming the range of discount rates and net
income multiples described above, Morgan Stanley calculated Base Case equity
values per fully diluted Share (assuming the exercise of all Options with an
exercise price less than or equal to $19.50) ranging from $12.62 to $19.72. The
Morgan Stanley analysis showed, however, that small changes in assumptions
regarding the probability of success rate for current research and development
efforts produced significant changes in derived per Share equity values. In the
Downside Case, comparably calculated equity values per fully diluted Share
ranged from $2.70 to $7.24.
A copy of the Morgan Stanley Presentation has been filed as an Exhibit to
the Transaction Statement on Schedule 13E-3 filed with the Commission in
connection with the Offer and the Merger. Copies thereof will be made available
for inspection and copying at the principal executive offices of the Company
during regular business hours by any interested stockholder of the Company, or
his representative who has been so designated in writing, and may also be
obtained in the manner described under "THE TENDER OFFER -- Section 7. Certain
Information Concerning the Company" (except that copies are not available at the
regional offices of the Commission).
The summary set forth above does not purport to be a complete description of
the Morgan Stanley Presentation.
In performing its analyses, Morgan Stanley made numerous assumptions (and
may have deemed various assumptions more or less probable than others) with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Parent or the Company.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual values, which may be significantly more or less favorable than those
suggested by such analyses. Such analyses do not purport to be appraisals or to
reflect the prices at which the Company might actually be sold.
In preparing its analyses, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed for purposes of its presentation. With respect to the financial
forecasts referred to above, Morgan Stanley assumed that they had been
reasonably prepared on bases reflecting the best available estimates and
judgments of the future financial performance of the Company at the time they
were prepared. Morgan Stanley did not make any independent valuation or
appraisal of the assets or liabilities of the Company, nor has it been furnished
with any such appraisals. Morgan Stanley's analyses were necessarily based on
economic, market and other conditions on, and the information made available to
Morgan Stanley as of, the date of its presentation. As described above, the
Morgan Stanley Presentation was one of many factors taken into consideration by
Parent in making its determination to present the Offer. Consequently, the
Morgan Stanley Presentation should not be viewed as determinative of Parent's or
Purchaser's decision to proceed with the Offer and the Merger.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and for corporate and other
15
<PAGE>
purposes. Morgan Stanley was retained by Parent as financial advisor to evaluate
a possible acquisition of the Company based upon its qualifications, expertise
and reputation, as well as Morgan Stanley's prior investment banking
relationship and familiarity with Parent and Purchaser.
Morgan Stanley is a full service securities firm engaged in securities
trading and brokerage activities, as well as providing investment banking and
financial advisory services. In the ordinary course of its trading and brokerage
activities, Morgan Stanley or its affiliates may at any time hold long or short
positions, and may trade or otherwise effect transactions for its own account or
the accounts of customers, in debt or equity securities of Parent, Parent's
affiliates or the Company.
PURPOSE AND STRUCTURE OF THE OFFER AND THE MERGER; REASONS OF PARENT AND
PURCHASER FOR THE OFFER AND THE MERGER
The purpose of the Offer and the Merger is for Parent indirectly to acquire
control of, and the entire equity interest in, the Company. The purpose of the
Merger is for Parent indirectly to acquire all Shares not purchased pursuant to
the Offer. Upon consummation of the Merger, the Company will become an indirect
wholly owned subsidiary of Parent. The acquisition of the entire equity interest
in the Company has been structured as a cash tender offer followed by a cash
merger in order to provide a prompt and orderly transfer of ownership of the
Company from the public stockholders to Purchaser and to provide stockholders
with cash for all of their Shares.
Under Delaware Law, the approval of the Board and the affirmative vote of
the holders of a majority of the outstanding Shares are required to approve and
adopt the Merger Agreement and the transactions contemplated thereby, including
the Merger. The Board of Directors of the Company has approved and adopted the
Merger Agreement and the transactions contemplated thereby, and, unless the
Merger is consummated pursuant to the short-form merger provisions under
Delaware Law described below, the only remaining required corporate action of
the Company is the approval and adoption of the Merger Agreement and the
transactions contemplated thereby by the affirmative vote of the holders of a
majority of the Shares. Purchaser already has sufficient voting power to cause
the approval and adoption of the Merger Agreement and the transactions
contemplated thereby without the affirmative vote of any other stockholder of
the Company.
In the Merger Agreement, the Company has agreed to take all action necessary
to convene a meeting of its stockholders as soon as practicable after the
consummation of the Offer for the purpose of considering and taking action on
the Merger Agreement and the transactions contemplated thereby, if such action
is required by Delaware Law. Parent and Purchaser have agreed that all Shares
owned by them and their subsidiaries will be voted in favor of the Merger
Agreement and the transactions contemplated thereby.
Under Delaware Law, if Purchaser acquires, pursuant to the Offer or
otherwise, the number of Shares that, when added to the Shares owned by Parent,
Purchaser or any of their affiliates, equals at least 90% of the Shares then
outstanding, Purchaser will be able to approve the Merger without a vote of the
Company's stockholders. In such event, Parent, Purchaser and the Company have
agreed in the Merger Agreement to take all necessary and appropriate action to
cause the Merger to become effective as soon as reasonably practicable after
such acquisition, without a meeting of the Company's stockholders. Purchaser's
obligation to consummate the Offer is conditioned on there being validly
tendered and not withdrawn at least the number of Shares that, when added to the
10,610,099 Shares owned by Purchaser, shall constitute 90% of the Shares then
outstanding, so as to enable Purchaser to consummate the Merger without a vote
of the Company's stockholders. If, however, fewer than such number of Shares are
validly tendered and not withdrawn, and all other conditions set forth in Annex
A of the Merger Agreement are satisfied, Purchaser may extend the Offer for a
period not to exceed 20 business days after the initial expiration date of the
Offer, after which time Purchaser shall waive the Second Minimum Condition and
acquire such fewer number of Shares (although it may not acquire less than a
majority of the Shares
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<PAGE>
outstanding other than Shares owned by Parent or Purchaser without the consent
of a majority of the Independent Directors). In such case, a vote of the
Company's stockholders will be required under Delaware Law, and a significantly
longer period of time will be required to effect the Merger.
Parent believes that cell and cell-based gene therapy will become a major
component of medical treatment of major disorders of the blood and immune system
during the next century. Parent believes that the Company is one of the leaders
in cellular gene therapy research and that its technology and personnel could
provide Parent with a platform for developing this technology. Because of
Parent's leading role in the pharmaceuticals industry, its development resources
and its worldwide distribution network, Parent believes that it offers the
Company a greatly enhanced opportunity to develop and market commercially viable
products.
Parent considered various means of expanding its collaboration with the
Company, including attempting to achieve such an alignment or integration
through an expansion of the parties' commercial relationship without increasing
Parent's ownership of Shares and through such an expansion of the commercial
relationship coupled with some increase in Parent's ownership of Shares. Parent
concluded, however, that these approaches would not enable Parent to take full
advantage of market opportunities and to achieve the desired level of technology
exchange and cooperation. Parent concluded that these benefits were most likely
to be achieved if the Company were under common control with Parent, so that
their efforts could be jointly directed without the conflicts of interest that
might otherwise arise. Consequently, Parent concluded that an acquisition by
Parent of the entire equity interest in the Company should be considered. Parent
chose to undertake the transaction at this time because the businesses in which
Parent and the Company operate are subject to rapid change and Parent wished to
take advantage of commercial opportunities that might no longer be available at
a later time.
PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER; CERTAIN EFFECTS OF THE
OFFER
Pursuant to the Merger Agreement, upon completion of the Offer, Parent and
Purchaser intend to effect the Merger in accordance with the terms of the Merger
Agreement. See "SPECIAL FACTORS -- The Merger Agreement".
Parent's management has begun, and intends to continue, a review of the
Company and its assets, corporate structure, capitalization, operations,
properties, policies, management and personnel to determine what changes, if
any, would be desirable in order best to organize and integrate the activities
of the Company and Parent. Parent and Purchaser expressly reserve the right to
make any changes that they deem necessary or appropriate in light of their
review or in light of future developments or that would be desirable to permit
Parent more effectively to manage the Company and function more efficiently as
an integrated worldwide enterprise. Except as otherwise disclosed in this Offer
to Purchase, Parent has no present plans or proposals that would result in an
extraordinary corporate transaction involving the Company or any of its
subsidiaries, such as a merger, reorganization, liquidation, relocation of
operations, or sale or transfer of a material amount of assets.
As a result of the Offer, the interest of Parent in the Company's net book
value and net earnings will increase to the extent of the number of Shares
acquired under the Offer. If the Merger is consummated, Parent's interest in
such items will increase to 100% and Parent and its subsidiaries will be
entitled to all benefits resulting from that interest, including all income
generated by the Company's operations and any future increase in the Company's
value. Similarly, Parent will also bear the risk of losses generated by the
Company's operations and any decrease in the value of the Company after the
Merger. Upon consummation of the Merger, the Surviving Corporation will become a
privately held corporation. Accordingly, stockholders will not have the
opportunity to participate in the earnings and growth of the Surviving
Corporation after the Merger and will not have any right to vote on corporate
matters. Similarly, stockholders will not face the risk of losses generated by
the Company's operations or decline in the value of the Company after the
Merger.
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<PAGE>
Following the consummation of the Merger, the Shares will no longer be
quoted on NASDAQ and the registration of the Shares under the Securities
Exchange Act of 1934 (the "Exchange Act") will be terminated. Accordingly,
following the Merger there will be no publicly traded equity securities of the
Company outstanding and the Company will no longer be required to file periodic
reports with the Commission. See "THE TENDER OFFER -- Section 11. Effect of the
Offer on the Market for Shares; NASDAQ Quotation and Exchange Act Registration".
It is expected that, if Shares are not accepted for payment by Purchaser
pursuant to the Offer and the Merger is not consummated, the Company's current
management, under the general direction of the Board, will continue to manage
the Company as an ongoing business.
RIGHTS OF STOCKHOLDERS IN THE MERGER
No appraisal rights are available in connection with the Offer. However, if
the Merger is consummated, stockholders who have not tendered their Shares will
have certain rights under Delaware Law to dissent and demand appraisal of, and
to receive payment in cash of the fair value of, their Shares. Such rights to
dissent, if the statutory procedures are complied with, could lead to a judicial
determination of the fair value of the Shares, as of the day prior to the date
on which the stockholders' vote was taken approving the Merger or similar
business combination (excluding any element of value arising from the
accomplishment or expectation of the Merger), required to be paid in cash to
such dissenting holders for their Shares. In addition, such dissenting
stockholders would be entitled to receive payment of a fair rate of interest
from the date of consummation of the Merger on the amount determined to be the
fair value of their Shares. In determining the fair value of the Shares, the
court is required to take into account all relevant factors. Accordingly, such
determination could be based upon considerations other than, or in addition to,
the market value of the Shares, including, among other things, asset values and
earning capacity. In WEINBERGER V. UOP, INC., the Delaware Supreme Court stated,
among other things, that "proof of value by any techniques or methods which are
generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in an appraisal proceeding. Therefore,
the value so determined in any appraisal proceeding could be the same as or more
or less than the purchase price per Share in the Offer or the Merger
Consideration.
In addition, several decisions by Delaware courts have held that, in certain
circumstances, a controlling stockholder of a company involved in a merger has a
fiduciary duty to other stockholders which requires that the merger be fair to
such other stockholders. In determining whether a merger is fair to minority
stockholders, Delaware courts have considered, among other things, the type and
amount of consideration to be received by the stockholders and whether there was
fair dealing among the parties. The Delaware Supreme Court stated in WEINBERGER
and RABKIN V. PHILIP A. HUNT CHEMICAL CORP. that the remedy ordinarily available
to minority stockholders in a cash-out merger is the right to appraisal
described above. However, a damages remedy or injunctive relief may be available
if a merger is found to be the product of procedural unfairness, including
fraud, misrepresentation or other misconduct.
See Schedule III attached hereto for a description of appraisal rights under
Delaware Law, as well as a reproduction of the text of Section 262 of Delaware
Law.
THE MERGER AGREEMENT
The following is a summary of the Merger Agreement, a copy of which is filed
as an Exhibit to the Schedule 14D-1 filed by Purchaser and Parent with the
Commission in connection with the Offer. Such summary is qualified in its
entirety by reference to the Merger Agreement.
THE OFFER. The Merger Agreement provides for the commencement of the Offer
as promptly as reasonably practicable after the date thereof, but in no event
later than five business days after the initial public announcement of
Purchaser's intention to commence the Offer. Purchaser shall not, without the
consent of a majority of the Independent Directors, accept for payment any
Shares tendered pursuant to
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<PAGE>
the Offer unless at least a majority of the then issued and outstanding Shares,
other than Shares owned by Parent and Purchaser, shall have been validly
tendered and not withdrawn prior to the expiration of the Offer. The obligation
of Purchaser to accept for payment and pay for Shares tendered pursuant to the
Offer is subject to the satisfaction of the Second Minimum Condition and certain
other conditions that are described in "THE TENDER OFFER -- Section 12. Certain
Conditions of the Offer" hereof. Purchaser and Parent have agreed that no change
in the Offer may be made which decreases the price per Share payable in the
Offer or which reduces the maximum number of Shares to be purchased in the Offer
or which imposes conditions to the Offer in addition to those set forth in "THE
TENDER OFFER -- Section 12. Certain Conditions of the Offer". Pursuant to the
Merger Agreement, in the event all conditions set forth in the Merger Agreement
shall have been satisfied other than the Second Minimum Condition, Purchaser may
extend the Offer for a period or periods aggregating not more than 20 business
days after the later of (i) the initial expiration date of the Offer and (ii)
the date on which all other conditions set forth in the Merger Agreement shall
have been satisfied, after which time (or earlier if Parent does not extend the
Offer) Purchaser shall waive the Second Minimum Condition and consummate the
Offer.
THE MERGER. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, and in accordance with Delaware Law, at the Effective
Time, Purchaser shall be merged with and into the Company. As a result of the
Merger, the separate corporate existence of Purchaser will cease and the Company
will continue as the Surviving Corporation of the Merger and will become an
indirect wholly owned subsidiary of Parent. Upon consummation of the Merger,
each issued and then outstanding Share (other than any Shares held in the
treasury of the Company or owned by Purchaser, Parent or any direct or indirect
wholly owned subsidiary of Parent or the Company, and other than Shares held by
stockholders who shall not have voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing appraisal for
such Shares in accordance with Section 262 of Delaware Law) shall be cancelled
and shall be converted automatically into the right to receive the Merger
Consideration.
Pursuant to the Merger Agreement, each share of common stock, par value $.01
per share, of Purchaser issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock, par value $.01 per share, of
the Surviving Corporation.
The Merger Agreement provides that the directors of Purchaser immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation and that the officers of the Company immediately prior to the
Effective Time will be the initial officers of the Surviving Corporation. The
Merger Agreement provides that, at the Effective Time, the Certificate of
Incorporation of Purchaser will be the Certificate of Incorporation of the
Surviving Corporation; PROVIDED, HOWEVER, that, at the Effective Time, Article I
of the Certificate of Incorporation of the Surviving Corporation will be amended
to read as follows: "The name of the corporation is SyStemix, Inc." The Merger
Agreement also provides that the By-laws of Purchaser will be the By-laws of the
Surviving Corporation.
Immediately prior to the Effective Time, each outstanding option and warrant
to purchase Shares (in each case, a "Stock Option"), whether or not then
exercisable, may be surrendered by the holder of such Stock Option for
cancellation by the Company, and each holder of a cancelled Stock Option shall
be entitled to receive an amount in cash from Purchaser, in consideration for
the cancellation of each such Stock Option, at the same time as the Merger
Consideration is received by the holders of Shares, equal to the product of (i)
the number of Shares to be issued upon the exercise of such Stock Option and
(ii) the excess, if any, of the amount paid per Share pursuant to the Offer over
the exercise price per Share previously subject to such Stock Option; PROVIDED,
HOWEVER, that any Stock Options owned by Purchaser, Parent or any direct or
indirect wholly owned subsidiary of Parent or of the Company immediately prior
to the Effective Time shall be cancelled without any conversion thereof and no
payment or distribution shall be made with respect thereto. The Company shall
use all reasonable efforts to obtain such consents as may
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<PAGE>
be necessary or required so that, immediately prior to the Effective Time, each
Stock Option may be and shall be cancelled by the Company.
Purchaser or the designated paying agent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to the Merger
Agreement to any holder of Shares and/or Stock Options such amounts that
Purchaser or the paying agent is required to deduct and withhold with respect to
the making of such payment under the United States Internal Revenue Code of
1986, as amended, the rules and regulations promulgated thereunder or any
provision of state, local or foreign tax law.
AGREEMENTS OF PARENT, PURCHASER AND THE COMPANY. Pursuant to the Merger
Agreement, the Company shall, if required by applicable law in order to
consummate the Merger, duly call, give notice of, convene and hold an annual or
special meeting of its stockholders as soon as practicable following
consummation of the Offer for the purpose of considering and taking action on
the Merger Agreement and the transactions contemplated thereby (the
"Stockholders' Meeting"). At the Stockholders' Meeting, Parent and Purchaser
shall cause all Shares then owned by them to be voted in favor of the approval
and adoption of the Merger Agreement and the transactions contemplated thereby.
Purchaser currently has sufficient voting power to approve the Merger, even if
no other stockholder votes in favor of the Merger. In the event that Purchaser
acquires such number of Shares that, when taken together with the Shares
previously owned by Purchaser, constitute at least 90% of the then outstanding
Shares, the parties have agreed to take all necessary and appropriate action to
cause the Merger to become effective, in accordance with Section 253 of Delaware
Law, as soon as reasonably practicable after such acquisition, without a meeting
of the stockholders of the Company.
The Merger Agreement provides that the Company shall, if required by
applicable law, as soon as practicable following consummation of the Offer, file
a proxy statement with the Commission under the Exchange Act (the "Proxy
Statement"), and shall use its best efforts to have the Proxy Statement cleared
by the Commission. Parent, Purchaser and the Company shall cooperate with each
other in the preparation of the Proxy Statement, and the Company shall notify
Parent of the receipt of any comments of the Commission with respect to the
Proxy Statement and of any requests by the Commission for any amendment or
supplement thereto or for additional information and shall provide to Parent
promptly copies of all correspondence between the Company or any representative
of the Company and the Commission. The Company shall give Parent and its counsel
the opportunity to review the Proxy Statement prior to its being filed with the
Commission and shall give Parent and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and all responses to requests
for additional information and replies to comments prior to their being filed
with, or sent to, the Commission. The Company and its counsel shall be given the
opportunity to review and comment on the Offer documents and any amendments
thereto prior to the filing thereof with the Commission. Parent and Purchaser
shall provide the Company and its counsel with a copy of any written comments or
telephonic notification of any verbal comments Parent or Purchaser may receive
from the Commission or its staff with respect to the Offer documents promptly
after the receipt thereof and shall provide the Company and its counsel with a
copy of any written responses and telephonic notification of any verbal
responses of Parent, Purchaser or their counsel. Each of the Company, Parent and
Purchaser agrees to use its reasonable best efforts, after consultation with the
other parties, to respond promptly to all such comments of and requests by the
Commission and to cause the Proxy Statement and all required amendments and
supplements thereto to be mailed to the holders of Shares entitled to vote at
the Stockholders' Meeting at the earliest practicable time.
Pursuant to the Merger Agreement, the Company has covenanted and agreed
that, between the date of the Merger Agreement and the Effective Time, unless
Parent shall otherwise agree in writing, the businesses of the Company and its
subsidiaries 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 the Company shall use its best efforts to preserve
substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the current officers, employees
and consultants of the
20
<PAGE>
Company and its subsidiaries and to preserve the current relationships of the
Company and its subsidiaries with customers, suppliers and other persons with
which the Company or any of its subsidiaries has significant business relations.
The Company and Parent are each obligated under the Merger Agreement to give
each other prompt notice of (i) the occurrence, or non-occurrence, of any event
the occurrence, or non-occurrence, of which would be likely to cause any
representation or warranty contained in the Merger Agreement to be untrue or
inaccurate and (ii) any failure of the Company, Parent or Purchaser, as the case
may be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it thereunder.
Pursuant to the Merger Agreement, the By-laws of the Surviving Corporation
shall contain provisions no less favorable with respect to indemnification than
those set forth in Article XV of the By-laws of the Company, which provisions
shall not be amended, repealed or otherwise modified for a period of six years
from the Effective Time in any manner that would affect adversely the rights
thereunder of individuals who at the Effective Time were directors, officers,
employees, fiduciaries or agents of the Company, unless such modification shall
be required by law.
Pursuant to the Merger Agreement, the Company shall, to the fullest extent
permitted under applicable law and regardless of whether the Merger becomes
effective, indemnify and hold harmless, and, after the Effective Time, the
Surviving Corporation shall, to the fullest extent permitted under applicable
law, indemnify and hold harmless, each present and former director, officer,
employee, fiduciary and agent of the Company and each of its subsidiaries and
each fiduciary and agent of each such director and officer (collectively, the
"Indemnified Parties") against all costs and expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and settlement
amounts paid in connection with any claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), whether
civil, criminal, administrative or investigative, arising out of or pertaining
to any action or omission in their capacity as an officer, director, employee,
fiduciary or agent, whether occurring before or after the Effective Time, until
the expiration of the statute of limitations relating thereto (and shall pay any
expenses in advance of the final disposition of such action or proceeding to
each Indemnified Party to the fullest extent permitted under Delaware Law, upon
receipt from the Indemnified Party to whom expenses are advanced of any
undertaking to repay such advances required under Delaware Law). In the event of
any such claim, action, suit, proceeding or investigation, (i) the Company or
the Surviving Corporation, as the case may be, shall pay the reasonable fees and
expenses of counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to the Company or the Surviving Corporation, promptly
after statements therefor are received and (ii) the Company and the Surviving
Corporation shall cooperate in the defense of any such matter; PROVIDED,
HOWEVER, that neither the Company nor the Surviving Corporation shall be liable
for any settlement effected without its written consent (which consent shall not
be unreasonably withheld); and PROVIDED FURTHER that neither the Company nor the
Surviving Corporation shall be obligated to pay the fees and expenses of more
than one counsel (plus appropriate local counsel) for all Indemnified Parties in
any single action except (x) that the persons who served as directors of the
Company who were not designees of Parent shall be entitled to retain one
additional counsel (plus appropriate local counsel) to represent them at the
expense of the Company or the Surviving Corporation, and (y) to the extent that
two or more of such Indemnified Parties shall have conflicting interests in the
outcome of such action, in which case such additional counsel (including local
counsel) as may be required to avoid any such conflict or likely conflict may be
retained by the Indemnified Parties at the expense of the Company or the
Surviving Corporation; and PROVIDED FURTHER that, in the event that any claim
for indemnification is asserted or made within the period prior to the
expiration of the applicable statute of limitations, all rights to
indemnification in respect of such claim shall continue until the disposition of
such claim. Parent has agreed to guarantee the foregoing obligations of the
Surviving Corporation and, following consummation of the Offer, the Company.
The Merger Agreement provides that the Surviving Corporation shall use its
reasonable efforts to maintain in effect for six years from the Effective Time,
if available, the current directors' and officers'
21
<PAGE>
liability insurance policies maintained by the Company (provided that the
Surviving Corporation may substitute therefor policies of at least the same
coverage containing terms and conditions which are not materially less
favorable) with respect to matters occurring prior to the Effective Time;
PROVIDED, HOWEVER, that in no event shall the Surviving Corporation be required
to expend more than an amount per year equal to 175% of current annual premiums
paid by the Company for such insurance. In the event that, but for the proviso
to the immediately preceding sentence, the Surviving Corporation would be
required to expend more than 175% of current annual premiums, the Surviving
Corporation shall obtain the maximum amount of such insurance obtainable by
payment of annual premiums equal to 175% of current annual premiums. In the
event the Company or the Surviving Corporation or any of their respective
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of the Company or the
Surviving Corporation, as the case may be, or at Parent's option, Parent, shall
assume the foregoing indemnification obligations.
Pursuant to the terms of the Merger Agreement and subject to the conditions
thereof, each of the parties thereto shall (i) 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
the Merger Agreement, including, without limitation, using its reasonable best
efforts to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company and its subsidiaries as are necessary for the consummation of
the transactions and to fulfill the conditions to the Offer and the Merger. In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of the Merger Agreement, the proper officers
and directors of each party to the Merger Agreement and the Surviving
Corporation shall use their reasonable best efforts to take all such action.
Pursuant to the Merger Agreement, the parties thereto agreed that each of
the Acquisition Agreement and the Stock and Warrant Purchase Agreement shall be
terminated as of the Effective Time. For purposes of clarity, it is understood
by the parties that all representations, warranties and agreements between the
parties which, by the terms of such agreements, survive either or both the
Closing Date (as that term is defined in each of the Acquisition Agreement and
the Stock and Warrant Purchase Agreement) or the termination of such agreements
shall all be terminated as of the Effective Time.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties of the parties thereto, including
representations by the Company, Parent and Purchaser as to the enforceability of
the Merger Agreement and by the Company as to the absence of certain changes or
events concerning the Company's business, compliance with law, corporate status
and capitalization and the accuracy of financial statements and filings with the
Commission.
CONDITIONS TO THE MERGER. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of the following conditions: (a) to the extent
required by Delaware Law and the Company's Certificate of Incorporation, the
Merger Agreement and the transactions contemplated thereby shall have been
approved and adopted by the affirmative vote of the stockholders of the Company;
(b) no foreign, United States or state governmental authority or other agency or
commission or foreign, United States or state court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of: (i) making the acquisition of Shares by Parent or Purchaser or any affiliate
of either of them illegal or otherwise restricting, preventing or prohibiting
consummation of the transactions contemplated by the Merger Agreement, (ii)
seeking to prohibit or limit materially the ownership or operation by the
Company, Parent or any of their respective subsidiaries of all or any material
portion of the business or assets of the Company, Parent or any of their
respective
22
<PAGE>
subsidiaries as a result of the transactions contemplated by the Merger
Agreement or (iii) compelling the Company, Parent, Purchaser or any of their
respective subsidiaries to dispose of or hold separate all or any material
portion of the business or assets of the Company, Parent or Purchaser or any of
their respective subsidiaries as a result of the transactions contemplated by
the Merger Agreement; and (c) Purchaser or its permitted assignee shall have
purchased all Shares validly tendered and not withdrawn pursuant to the Offer;
PROVIDED, HOWEVER, that this condition shall not be applicable to the
obligations of Parent or Purchaser if, in breach of the Merger Agreement,
Purchaser fails to purchase any Shares validly tendered and not withdrawn
pursuant to the Offer.
TERMINATION; FEES AND EXPENSES. The Merger Agreement may be terminated and
the Merger and the other transactions may be abandoned at any time prior to the
Effective Time, notwithstanding any requisite approval and adoption of the
Merger Agreement and the transactions contemplated thereby by the stockholders
of the Company: (a) by mutual written consent duly authorized by the Boards of
Directors of Parent, Purchaser and the Company, if such termination is also
approved by a majority of the Independent Directors; or (b) by either Parent,
Purchaser or the Company if (i) the Effective Time shall not have occurred on or
before June 30, 1997; PROVIDED, HOWEVER, that such right to terminate shall not
be available to any party whose failure to fulfill any obligation under the
Merger Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date or (ii) any court of competent
jurisdiction or other governmental authority shall have issued an order, decree,
ruling or taken any other action restraining, enjoining or otherwise prohibiting
the Merger and such order, decree, ruling or other action shall have become
final and nonappealable; or (c) by Parent if due to an occurrence or
circumstance that would result in a failure to satisfy any condition to the
Offer, Purchaser shall have (i) failed to commence the Offer within 60 days
following the date of the Merger Agreement, (ii) terminated the Offer without
having accepted any Shares for payment thereunder or (iii) failed to pay for
Shares pursuant to the Offer within 90 days following the commencement of the
Offer, unless such failure to pay for Shares shall have been caused by or
resulted from the failure of Parent or Purchaser to perform in any material
respect any material covenant or agreement of either of them contained in the
Merger Agreement or the material breach by Parent or Purchaser of any material
representation or warranty of either of them contained in the Merger Agreement;
or (d) by the Company, upon approval of the Board and a majority of the
Independent Directors, if due to an occurrence or circumstance that would result
in a failure to satisfy any of the conditions to the Offer, Purchaser shall have
(i) failed to commence the Offer within 60 days following the date of the Merger
Agreement, (ii) terminated the Offer without having accepted any Shares for
payment thereunder or (iii) failed to pay for Shares pursuant to the Offer
within 90 days following the commencement of the Offer, unless such failure to
pay for Shares shall have been caused by or resulted from the failure of the
Company to perform in any material respect any material covenant or agreement of
it contained in the Merger Agreement or the material breach by the Company of
any material representation or warranty of it contained in the Merger Agreement;
or (e) by the Company, upon approval of the Board and a majority of the
Independent Directors, (i) if any representation or warranty of Parent and
Purchaser in the Merger Agreement which is qualified as to materiality shall not
be true and correct or any such representation or warranty that is not so
qualified shall not be true and correct in any material respect, in each case as
if such representation or warranty was made as of such time on or after the date
of the Merger Agreement, or (ii) Parent or Purchaser shall have failed to
perform in any material respect any obligation or to comply in any material
respect with any agreement or covenant of Parent or Purchaser to be performed or
complied with by it under the Merger Agreement.
In the event of the termination of the Merger Agreement, the Merger
Agreement shall forthwith become void.
Except as set forth below, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby shall be
paid by the party incurring such fees and expenses, whether or not the
transactions contemplated by the Merger Agreement are consummated.
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<PAGE>
In the event that the Merger Agreement is terminated prior to consummation
of the Offer and the Merger, other than a termination by the consent of the
parties or a termination by Parent or Purchaser which results from any
representation or warranty of the Company in the Merger Agreement not being true
and correct or the failure of the Company to perform any obligation or to comply
with any agreement or covenant of the Company to be performed or complied with
by it under the Merger Agreement, then, in any such event, Purchaser shall, and
Parent shall cause Purchaser to, pay all actual out-of-pocket fees and expenses
incurred by the parties, including all fees and expenses payable to investment
banking firms, counsel and accountants, in connection with the structuring,
negotiation, preparation, execution and performance of the Merger Agreement, as
well as all printing and advertising expenses.
INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER
In considering the recommendation of the Board and the Independent Directors
with respect to the Offer and the Merger and the fairness of the consideration
to be received in the Offer and the Merger, stockholders should be aware that
certain officers and directors of the Company have interests in the Offer and
the Merger which are described below and which may present them with certain
potential conflicts of interest. Stockholders also should be aware that Parent
and Purchaser have certain interests that present actual or potential conflicts
of interest in connection with the Offer and the Merger. As a result of
Purchaser's current ownership of approximately 73.2% of the outstanding Shares
and its nominees constituting a majority of the Company's directors, Purchaser
may be deemed to control the Company. The Board was aware of these actual and
potential conflicts of interest and considered them along with the other matters
described under "SPECIAL FACTORS -- Recommendation of the Company's Board;
Fairness of the Offer and the Merger".
Parent and Purchaser have not been advised by the executive officers,
directors or affiliates of the Company whether any of such persons intends to
tender Shares owned by them pursuant to the Offer.
STOCK AND STOCK OPTION OWNERSHIP. Purchaser owns (i) 5,993,827 Shares which
it acquired pursuant to the Acquisition Agreement, (ii) 4,616,272 Shares which
it acquired pursuant to the Stock and Warrant Purchase Agreement and (iii)
Warrants to acquire 1,367,600 Shares which it acquired pursuant to the Stock and
Warrant Purchase Agreement. Assuming exercise of the Warrants, Purchaser would
beneficially own 11,977,699 Shares, representing approximately 67% of the Shares
outstanding on a fully diluted basis and 75.5% of the Shares outstanding.
Assuming no exercise of the Warrants, Purchaser would own 10,610,099 Shares,
representing 64.3% of the Shares outstanding on a fully diluted basis and 73.2%
of the Shares outstanding.
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<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information, as of January 10, 1997,
regarding the ownership of Common Stock by each person known by the Company to
be the beneficial owner of more than 5% of the outstanding Common Stock, each
director of the Company, the Chief Executive Officer of the Company, the other
officers of the Company, and all executive officers and directors of the Company
as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
OF COMMON STOCK COMMON STOCK
NAME OF BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER OWNED OWNED
- ----------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Novartis Biotech Holding Corp.(1)............................................ 11,977,699(3) 75.5%
Morgan Guaranty Trust Company of New York(2)................................. 1,251,871 8.6%
Iris Brest................................................................... 6,550(4) *
Linda M. Burch............................................................... 43,155(5) *
James T. DePalma............................................................. 6,100(6) *
Harold Edgar................................................................. 50,214(7) *
Edgar J. Fullager............................................................ --(8) --
Stephan Guttmann, Ph.D....................................................... --(8) --
Paul Herrling, Ph.D.......................................................... --(8) --
Wendy R. Hitchcock........................................................... 15,374(9) *
Audrey F. Jakubowski, M.D.................................................... 1,500(10) *
Christopher A. Juttner, M.D.................................................. 7,000(11) *
Didier L. Lanson, Ph.D....................................................... 16,497(12) *
Hugh Lewis................................................................... 19,442(13) *
Fred J. Meyer................................................................ 7,834(8 14) *
Ulrich Oppikofer, Ph.D....................................................... --(8) --
Joseph J. Ruvane, Jr......................................................... 55,862(15) *
Edgar Schollmaier............................................................ --(16) --
John J. Schwartz, Ph.D....................................................... 177,326(17) 1.2%
Roland G. Scollay, Ph.D...................................................... 1,500(18) *
Daniel L. Vasella, M.D....................................................... --(8) --
Irving L. Weissman, M.D...................................................... 158,062(19) 1.1%
All directors and executive officers as a group (20 persons)................. 566,416(20) 3.9%
</TABLE>
- ------------------------
* Represents less than 1%.
(1) Purchaser is an indirect wholly owned subsidiary of Parent. The address of
the principal executive offices of Parent is Schwarzwaldallee 215,
CH-4002, Basle, Switzerland.
(2) The address of the principal executive offices of Morgan Guaranty Trust
Company of New York is 60 Wall Street, New York, NY 10260.
(3) Represents 10,610,099 Shares and Warrants to purchase 1,367,600 Shares.
(4) Includes 4,750 Shares purchasable upon the exercise of stock options
granted pursuant to the Company's stock option plans, which are
exercisable or become so within 60 days of January 10, 1997 ("Presently
Exercisable Options"). Ms. Brest also holds options to purchase 19,539
Shares which are not Presently Exercisable Options.
(5) Includes 38,155 Presently Exercisable Options. Ms. Burch also holds
options to purchase 28,265 Shares which are not Presently Exercisable
Options.
(6) Represents Presently Exercisable Options. Mr. DePalma also holds 8,448
Shares which are not Presently Exercisable Options.
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<PAGE>
(7) Includes 41,939 Presently Exercisable Options. Mr. Edgar also holds
options to purchase 7,500 Shares which are not Presently Exercisable
Options.
(8) Excludes 11,977,699 Shares beneficially held by Purchaser of which such
person may be considered an affiliate. Such person disclaims beneficial
ownership of any shares held by Purchaser or its affiliates.
(9) Includes 13,374 Shares of Presently Exercisable Options. Ms. Hitchcock
also holds 23,233 Shares which are not Presently Exercisable Options.
(10) Dr. Jakubowski also holds 20,000 Shares which are not Presently
Exercisable Options.
(11) Includes 5,000 Presently Exercisable Options. Dr. Juttner also holds
options to purchase 20,781 Shares which are not Presently Exercisable
Options.
(12) Includes 14,694 Presently Exercisable Options. Dr. Lanson also holds
options to purchase 14,689 Shares which are not Presently Exercisable
Options.
(13) Includes 17,942 Presently Exercisable Options. Mr. Lewis also holds 23,927
Shares which are not Presently Exercisable Options.
(14) Represents Presently Exercisable Options. Mr. Meyer also holds options to
purchase 13,125 Shares which are not Presently Exercisable Options.
(15) Represents Presently Exercisable Options. Mr. Ruvane also holds options to
purchase 7,500 Shares which are not Presently Exercisable Options.
(16) Mr. Schollmaier holds options to purchase 13,463 Shares which are not
Presently Exercisable Options.
(17) Includes 146,326 Presently Exercisable Options. Dr. Schwartz also holds
options to purchase 99,161 Shares which are not Presently Exercisable
Options.
(18) Dr. Scollay also holds 18,000 Shares which are not Presently Exercisable
Options.
(19) Includes 13,459 Presently Exercisable Options. Dr. Weissman also holds
options to purchase 7,500 Shares which are not Presently Exercisable
Options.
(20) Includes 365,438 Presently Exercisable Options.
RELATED PARTY TRANSACTIONS
In April 1993, the Company entered into an agreement with the Sandoz
entities to form the Progenesys joint venture with a primary mission to research
and develop hematopoietic cell-based, somatic gene therapies against HIV
infection. The Company and the Sandoz entities licensed certain initial
technologies, within the field, to Progenesys. On August 31, 1995, the
Progenesys partnership was dissolved and replaced by the HIV Gene Therapy
Collaboration between the Company and the Sandoz entities, with terms and
conditions substantially equivalent to those of the partnership agreement. For
the year ended December 31, 1995 (through the date of dissolution), the
Company's share of Progenesys' operating loss was $2.94 million. Revenue earned
by the Company under the HIV Gene Therapy Collaboration was $1.94 million for
the year ended December 31, 1995.
In November 1993, the Company entered into a two-year collaboration
agreement with Parent regarding therapeutic anti-viral agents for HIV infection.
The collaboration focused on the underlying pathogenic mechanisms of HIV
disease, the identification of new potential targets for anti-viral therapy and
the IN VIVO testing of anti-HIV agents under development. The Company and Parent
jointly decided to terminate the agreement as of March 31, 1995. Revenue earned
by the Company under the agreement for the year ended December 31, 1995, was
$250,000.
26
<PAGE>
In March 1994, the Company and Parent agreed to provide funding for a
portion of the research carried out at Stanford University School of Medicine.
The research is directed by Dr. Irving Weissman as Principal Investigator. Dr.
Weissman, a faculty member at Stanford University, is a director, consultant and
chairman of the scientific advisory board of the Company. The agreement provides
that the Company and Parent have the right to negotiate with Stanford for a
license on commercially reasonable terms for intellectual property, if any, that
results from the funding. As amended, the agreement provides for funding through
December 31, 1995. The Company provided $796,000 of funding in 1995. The Company
provided $150,000 of funding and has contributed certain in-kind services during
1996. The agreement has been extended through August 1997.
FEES AND EXPENSES
The following is an estimate of expenses to be incurred in connection with
the Offer and the Merger, other than: (i) the fees and expenses of Lehman
Brothers (see "SPECIAL FACTORS -- Opinion of Lehman Brothers" and "THE TENDER
OFFER -- Section 14. Fees and Expenses"); and (ii) the fees and expenses of
Morgan Stanley (see "SPECIAL FACTORS -- Analysis of Financial Advisor to Parent"
and "THE TENDER OFFER -- Section 14. Fees and Expenses"). The Merger Agreement
provides that all costs and expenses incurred in connection with the Offer and
the Merger will be paid by the party incurring such costs and expenses, unless
the Merger Agreement is terminated prior to consummation of the Offer and the
Merger (other than a termination by the consent of the parties or a termination
by Parent or Purchaser which results from any representation or warranty of the
Company in the Merger Agreement not being true and correct or the failure of the
Company to perform any obligation or to comply with any agreement or covenant of
the Company to be performed or complied with by it under the Merger Agreement),
in which case Purchaser shall, and Parent shall cause Purchaser to, pay all
actual out-of-pocket fees and expenses incurred by the parties.
<TABLE>
<S> <C>
EXPENSES TO BE PAID BY PURCHASER AND ITS AFFILIATES:
Legal Fees..................................................... $ 300,000
Printing and Mailing........................................... 110,000
Advertising.................................................... 74,000
Filing Fees.................................................... 18,100
Depositary Fees................................................ 100,000
Information Agent Fees......................................... 12,500
Miscellaneous.................................................. 150,000
---------
Total........................................................ $ 764,600
---------
---------
EXPENSES TO BE PAID BY THE COMPANY:
Legal Fees and Expenses........................................ $ 400,000
Printing and Mailing........................................... 50,000
Miscellaneous.................................................. 100,000
---------
Total........................................................ $ 550,000
---------
---------
</TABLE>
27
<PAGE>
THE TENDER OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of such extension or amendment), Purchaser will accept for
payment, and will pay for, all Shares validly tendered prior to the Expiration
Date (as hereinafter defined) and not withdrawn as permitted by "THE TENDER
OFFER -- Section 4. Withdrawal Rights". The term "Expiration Date" means 12:00
midnight, New York City time, on Friday, February 14, 1997, unless and until
Purchaser, in its sole discretion (but subject to the terms and conditions of
the Merger Agreement), shall have extended the period during which the Offer is
open, in which event the term "Expiration Date" shall mean the latest time and
date at which the Offer, as so extended by Purchaser, shall expire.
Purchaser expressly reserves the right, in its sole discretion (but subject
to the terms and conditions of the Merger Agreement), at any time and from time
to time, to extend for any reason the period of time during which the Offer is
open, including the occurrence of any of the conditions specified in "THE TENDER
OFFER -- Section 12. Certain Conditions of the Offer", by giving oral or written
notice of such extension to the Depositary. During any such extension, all
Shares previously tendered and not withdrawn will remain subject to the Offer,
subject to the rights of a tendering stockholder to withdraw such stockholder's
Shares. See "THE TENDER OFFER --Section 4. Withdrawal Rights".
Subject to the applicable regulations of the Commission, Purchaser also
expressly reserves the right, in its sole discretion (but subject to the terms
and conditions of the Merger Agreement), at any time and from time to time, (i)
to delay acceptance for payment of, or, regardless of whether such Shares were
theretofore accepted for payment, payment for, any Shares, pending receipt of
any regulatory approval specified in "THE TENDER OFFER -- Section 13. Certain
Legal Matters and Regulatory Approval", (ii) to terminate the Offer and not
accept for payment any Shares upon the occurrence of any of the conditions
specified in "THE TENDER OFFER -- Section 12. Certain Conditions of the Offer"
and (iii) to waive any condition, except for the First Minimum Condition, or
otherwise amend the Offer in any respect, by giving oral or written notice of
such delay, termination, waiver or amendment to the Depositary and by making a
public announcement thereof. The Merger Agreement provides that, without the
consent of the Company, Purchaser will not (i) decrease the price per Share
payable pursuant to the Offer, (ii) reduce the maximum number of Shares to be
purchased in the Offer or (iii) impose conditions to the Offer in addition to
those set forth in "THE TENDER OFFER -- Section 12. Certain Conditions of the
Offer". In the event all conditions set forth in the Merger Agreement shall have
been satisfied other than the Second Minimum Condition, Purchaser may extend the
Offer for a period or periods aggregating not more than 20 business days after
the later of (i) the initial expiration date of the Offer and (ii) the date on
which all other conditions set forth in the Merger Agreement shall have been
satisfied, after which time Purchaser shall waive the Second Minimum Condition.
Purchaser acknowledges that (i) Rule 14e-1(c) under the Exchange Act requires
Purchaser to pay the consideration offered or return the Shares tendered
promptly after the termination or withdrawal of the Offer and (ii) Purchaser may
not delay acceptance for payment of, or payment for (except as provided in
clause (i) of the first sentence of this paragraph), any Shares upon the
occurrence of any of the conditions specified in "THE TENDER OFFER -- Section
12. Certain Conditions of the Offer" without extending the period of time during
which the Offer is open.
Any such extension, delay, termination, waiver or amendment will be followed
as promptly as practicable by public announcement thereof, such announcement in
the case of an extension to be made no later than 9:00 a.m., New York City time,
on the next business day after the previously scheduled Expiration Date. Subject
to applicable law (including Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act, which require that material changes be promptly disseminated to
stockholders in a manner reasonably designed to inform them of such changes) and
without limiting the manner in which Purchaser may choose to make any public
announcement, Purchaser shall have no obligation to publish, advertise or
28
<PAGE>
otherwise communicate any such public announcement other than by issuing a press
release to the Dow Jones News Service.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, Purchaser will extend the Offer to the extent required by Rules 14d-4(c),
14d-6(d) and 14e-1 under the Exchange Act.
Subject to the terms of the Merger Agreement, if, prior to the Expiration
Date, Purchaser should decide to decrease the number of Shares being sought or
to increase or decrease the consideration being offered in the Offer, such
decrease in the number of Shares being sought or such increase or decrease in
the consideration being offered will be applicable to all stockholders whose
Shares are accepted for payment pursuant to the Offer and, if at the time notice
of any such decrease in the number of Shares being sought or such increase or
decrease in the consideration being offered is first published, sent or given to
holders of such Shares, the Offer is scheduled to expire at any time earlier
than the period ending on the tenth business day from and including the date
that such notice is first so published, sent or given, the Offer will be
extended at least until the expiration of such ten business day period. For
purposes of the Offer, a "business day" means any day other than a Saturday,
Sunday or federal holiday and consists of the time period from 12:01 a.m.
through 12:00 midnight, New York City time.
The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares whose names appear on the Company's
stockholder list and will be furnished, for subsequent transmittal to beneficial
owners of Shares, to brokers, dealers, commercial banks, trust companies and
similar persons whose names, or the names of whose nominees, appear on the
stockholder list or, if applicable, who are listed as participants in a clearing
agency's security position listing.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and
subject to the conditions of the Offer (including, if the Offer is extended or
amended, the terms and conditions of any such extension or amendment), Purchaser
will accept for payment, and will pay for, all Shares validly tendered prior to
the Expiration Date and not properly withdrawn, promptly after the latest to
occur of (i) the Expiration Date and (ii) the satisfaction or waiver of the
conditions to the Offer set forth in "THE TENDER OFFER -- Section 12. Certain
Conditions of the Offer". Subject to applicable rules of the Commission and the
terms and conditions of the Merger Agreement, Purchaser expressly reserves the
right to delay acceptance for payment of, or payment for, Shares pending receipt
of any regulatory approvals specified in "THE TENDER OFFER -- Section 13.
Certain Legal Matters and Regulatory Approvals" or in order to comply in whole
or in part with any other applicable law.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i) the
certificates evidencing such Shares (the "Share Certificates") or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such
Shares into the Depositary's account at The Depository Trust Company, the
Midwest Securities Trust Company or the Philadelphia Depository Trust Company
(each, a "Book-Entry Transfer Facility" and, collectively, the "Book-Entry
Transfer Facilities") pursuant to the procedures set forth in "THE TENDER OFFER
- -- Section 3. Procedures for Accepting the Offer and Tendering Shares", (ii) the
Letter of Transmittal (or a facsimile thereof), properly completed and duly
executed, with any required signature guarantees or, in the case of a book-entry
transfer, an Agent's Message (as defined below) in lieu of the Letter of
Transmittal and (iii) any other documents required under the Letter of
Transmittal.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance for payment of such Shares pursuant to the
Offer. Upon the terms and subject to the conditions of the Offer, payment for
Shares accepted for payment pursuant to the Offer will be made by deposit of the
purchase price therefor with the Depositary,
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<PAGE>
which will act as agent for tendering stockholders for the purpose of receiving
payments from Purchaser and transmitting such payments to tendering stockholders
whose Shares have been accepted for payment. Under no circumstances will
interest on the purchase price for Shares be paid, regardless of any delay in
making such payment.
If any tendered Shares are not accepted for payment for any reason pursuant
to the terms and conditions of the Offer, or if Share Certificates are submitted
evidencing more Shares than are tendered, Share Certificates evidencing
unpurchased Shares will be returned, without expense to the tendering
stockholder (or, in the case of Shares tendered by book-entry transfer into the
Depositary's account at a Book-Entry Transfer Facility pursuant to the procedure
set forth in "THE TENDER OFFER -- Section 3. Procedures for Accepting the Offer
and Tendering Shares", such Shares will be credited to an account maintained at
such Book-Entry Transfer Facility), as promptly as practicable following the
expiration or termination of the Offer.
If, prior to the Expiration Date, Purchaser shall increase the consideration
offered to any holders of Shares pursuant to the Offer, such increased
consideration shall be paid to all holders of Shares that are purchased pursuant
to the Offer, whether or not such Shares were tendered prior to such increase in
consideration.
Purchaser reserves the right to transfer or assign, in whole or from time to
time in part, to one or more of its affiliates, the right to purchase all or any
portion of the Shares tendered pursuant to the Offer, but any such transfer or
assignment will not relieve Purchaser of its obligations under the Offer and
will in no way prejudice the rights of tendering stockholders to receive payment
for Shares validly tendered and accepted for payment pursuant to the Offer.
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES. In order for a
holder of Shares validly to tender Shares pursuant to the Offer, the Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed,
together with any required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message in lieu of the Letter of Transmittal) and any other
documents required by the Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the back cover of this Offer to
Purchase and either (i) the Share Certificates evidencing tendered Shares must
be received by the Depositary at such address or such Shares must be tendered
pursuant to the procedure for book-entry transfer described below and a
Book-Entry Confirmation must be received by the Depositary (including an Agent's
Message if the tendering stockholder has not delivered a Letter of Transmittal),
in each case prior to the Expiration Date, or (ii) the tendering stockholder
must comply with the guaranteed delivery procedures described below. The term
"Agent's Message" means a message, transmitted by a Book-Entry Transfer Facility
to, and received by, the Depositary and forming a part of a Book-Entry
Confirmation, which states that such Book-Entry Transfer Facility has received
an express acknowledgement from the participant in such Book-Entry Transfer
Facility tendering the Shares which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that Purchaser may enforce such agreement
against such participant.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
BOOK-ENTRY TRANSFER. The Depositary will establish accounts with respect to
the Shares at the Book-Entry Transfer Facilities for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of any Book-Entry Transfer
Facility may make a book-entry delivery of Shares by causing such Book-Entry
Transfer Facility to transfer such
30
<PAGE>
Shares into the Depositary's account at such Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedures for such
transfer. However, although delivery of Shares may be effected through
book-entry transfer at a Book-Entry Transfer Facility, either the Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed,
together with any required signature guarantees, or an Agent's Message in lieu
of the Letter of Transmittal, and any other required documents, must, in any
case, be received by the Depositary at one of its addresses set forth on the
back cover of this Offer to Purchase prior to the Expiration Date, or the
tendering stockholder must comply with the guaranteed delivery procedure
described below. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES
NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
SIGNATURE GUARANTEES. Signatures on all Letters of Transmittal must be
guaranteed by a firm which is a member of the Medallion Signature Guarantee
Program, or by any other "eligible guarantor institution", as such term is
defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing referred
to as an "Eligible Institution"), except in cases where Shares are tendered (i)
by a registered holder of Shares who has not completed either the box entitled
"Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. If a Share Certificate is registered in the name of a
person other than the signer of the Letter of Transmittal, or if payment is to
be made, or a Share Certificate not accepted for payment or not tendered is to
be returned, to a person other than the registered holder(s), then the Share
Certificate must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name(s) of the registered holder(s) appear on
the Share Certificate, with the signature(s) on such Share Certificate or stock
powers guaranteed by an Eligible Institution. See Instructions 1 and 5 of the
Letter of Transmittal.
GUARANTEED DELIVERY. If a stockholder desires to tender Shares pursuant to
the Offer and the Share Certificates evidencing such stockholder's Shares are
not immediately available or such stockholder cannot deliver the Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date, or such stockholder cannot complete the procedure for delivery
by book-entry transfer on a timely basis, such Shares may nevertheless be
tendered, provided that all the following conditions are satisfied:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by Purchaser, is received
prior to the Expiration Date by the Depositary as provided below; and
(iii) the Share Certificates (or a Book-Entry Confirmation) evidencing
all tendered Shares, in proper form for transfer, in each case together with
the Letter of Transmittal (or a facsimile thereof), properly completed and
duly executed, with any required signature guarantees, and any other
documents required by the Letter of Transmittal are received by the
Depositary within three NASDAQ trading days after the date of execution of
such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by telegram or facsimile transmission to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the form
of Notice of Guaranteed Delivery made available by Purchaser.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of the
Share Certificates evidencing such Shares, or a Book-Entry Confirmation of the
delivery of such Shares, and the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
and any other documents required by the Letter of Transmittal.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by Purchaser in its sole discretion, which
determination shall be final and binding on all parties. Purchaser reserves the
absolute right to reject
31
<PAGE>
any and all tenders determined by it not to be in proper form or the acceptance
for payment of which may, in the opinion of its counsel, be unlawful. Subject to
the terms of the Merger Agreement, Purchaser also reserves the absolute right to
waive any condition of the Offer or any defect or irregularity in the tender of
any Shares of any particular stockholder, whether or not similar defects or
irregularities are waived in the case of other stockholders. No tender of Shares
will be deemed to have been validly made until all defects and irregularities
have been cured or waived. None of Purchaser, Parent, the Dealer Manager, the
Depositary, the Information Agent or any other person will be under any duty to
give notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification. Purchaser's interpretation
of the terms and conditions of the Offer (including the Letter of Transmittal
and the instructions thereto) will be final and binding.
OTHER REQUIREMENTS. By executing the Letter of Transmittal as set forth
above, a tendering stockholder irrevocably appoints designees of Purchaser as
such stockholder's proxies, each with full power of substitution, in the manner
set forth in the Letter of Transmittal, to the full extent of such stockholder's
rights with respect to the Shares tendered by such stockholder and accepted for
payment by Purchaser (and with respect to any and all other Shares or other
securities issued or issuable in respect of such Shares on or after January 10,
1997). All such proxies shall be considered coupled with an interest in the
tendered Shares. Such appointment will be effective when, and only to the extent
that, Purchaser accepts such Shares for payment. Upon such acceptance for
payment, all prior proxies given by such stockholder with respect to such Shares
(and such other Shares and securities) will be revoked without further action,
and no subsequent proxies may be given nor any subsequent written consent
executed by such stockholder (and, if given or executed, will not be deemed to
be effective) with respect thereto. The designees of Purchaser will, with
respect to the Shares for which the appointment is effective, be empowered to
exercise all voting and other rights of such stockholder as they in their sole
discretion may deem proper at any annual or special meeting of the Company's
stockholders or any adjournment or postponement thereof, by written consent in
lieu of any such meeting or otherwise. Purchaser reserves the right to require
that, in order for Shares to be deemed validly tendered, immediately upon
Purchaser's payment for such Shares, Purchaser must be able to exercise full
voting rights with respect to such Shares.
The acceptance for payment by Purchaser of Shares pursuant to any of the
procedures described above will constitute a binding agreement between the
tendering stockholder and Purchaser upon the terms and subject to the conditions
of the Offer.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT TO
CERTAIN STOCKHOLDERS OF THE PURCHASE PRICE OF SHARES PURCHASED PURSUANT TO THE
OFFER, EACH SUCH STOCKHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH STOCKHOLDER'S
CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH STOCKHOLDER IS NOT
SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE
FORM W-9 IN THE LETTER OF TRANSMITTAL. IF BACKUP WITHHOLDING APPLIES WITH
RESPECT TO A STOCKHOLDER, THE DEPOSITARY IS REQUIRED TO WITHHOLD 31% OF ANY
PAYMENTS MADE TO SUCH STOCKHOLDER. SEE INSTRUCTION 9 OF THE LETTER OF
TRANSMITTAL.
4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer are
irrevocable except that such Shares may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment by Purchaser
pursuant to the Offer, may also be withdrawn at any time after March 17, 1997.
If Purchaser extends the Offer, is delayed in its acceptance for payment of
Shares or is unable to accept Shares for payment pursuant to the Offer for any
reason, then, without prejudice to Purchaser's rights under the Offer, the
Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares,
and such Shares may not be withdrawn except to the extent that tendering
stockholders are entitled to withdrawal rights as described in this Section 4.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover page of this Offer to Purchase.
Any such notice of withdrawal must specify the name of the person who tendered
the
32
<PAGE>
Shares to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder of such Shares, if different from that of the person who
tendered such Shares. If Share Certificates evidencing Shares to be withdrawn
have been delivered or otherwise identified to the Depositary, then, prior to
the physical release of such Share Certificates, the serial numbers shown on
such Share Certificates must be submitted to the Depositary and the signature(s)
on the notice of withdrawal must be guaranteed by an Eligible Institution,
unless such Shares have been tendered for the account of an Eligible
Institution. If Shares have been tendered pursuant to the procedure for
book-entry transfer as set forth in "THE TENDER OFFER -- Section 3. Procedures
for Accepting the Offer and Tendering Shares", any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Shares.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by Purchaser, in its sole discretion,
whose determination will be final and binding. None of Purchaser, Parent, the
Dealer Manager, the Depositary, the Information Agent or any other person will
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
re-tendered at any time prior to the Expiration Date by following one of the
procedures described in "THE TENDER OFFER -- Section 3. Procedures for Accepting
the Offer and Tendering Shares".
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The receipt of cash for Shares
pursuant to the Offer or in the Merger will be a taxable transaction for federal
income tax purposes and may also be a taxable transaction under applicable
state, local or foreign tax laws. In general, a stockholder will recognize gain
or loss for federal income tax purposes equal to the difference between the
amount of cash received in exchange for the Shares sold and such stockholder's
adjusted tax basis in such Shares. Assuming the Shares constitute capital assets
in the hands of the stockholder, such gain or loss will be capital gain or loss
and will be long-term capital gain or loss if the holder will have held the
Shares for more than one year at the time of the sale. Gain or loss will be
calculated separately for each block of Shares tendered pursuant to the Offer.
Legislative proposals have been under consideration that would reduce the
rate of federal income taxation of certain capital gains. Such legislation, if
enacted, might apply only to gain realized on sales occurring after a date
specified in the legislation. It cannot be predicted whether any such
legislation ultimately will be enacted and, if enacted, when its effective date
will be.
In general, in order to prevent backup federal income tax withholding at a
rate of 31% on the cash consideration to be received in the Offer, each
stockholder who is not otherwise exempt from such requirements must provide such
holder's correct taxpayer identification number (and certain other information)
by completing the Substitute Form W-9 in the Letter of Transmittal.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO CERTAIN TYPES OF
STOCKHOLDERS, INCLUDING BROKER-DEALERS, STOCKHOLDERS WHO ACQUIRED SHARES
PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION,
INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES AND FOREIGN
CORPORATIONS.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. STOCKHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE
OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE
ALTERNATIVE MINIMUM TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS.
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<PAGE>
6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are listed and principally
traded on NASDAQ under the symbol "STMX". The following table sets forth, for
the quarters indicated, the high and low bid prices per Share on NASDAQ as
reported by the Dow Jones News Service.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995:
First Quarter.............................................................. $18 1/2 $12 1/4
Second Quarter............................................................. 14 1/2 11 3/4
Third Quarter.............................................................. 14 1/4 11 3/4
Fourth Quarter............................................................. 16 3/8 13 3/8
1996:
First Quarter.............................................................. $16 3/4 $12 1/2
Second Quarter............................................................. 20 1/2 10 3/4
Third Quarter.............................................................. 18 14 1/2
Fourth Quarter............................................................. 17 1/2 12 3/4
1997:
First Quarter (through January 10, 1997)................................... $15 1/2 $14 3/4
</TABLE>
Although there is no legal or contractual restriction on the payment of
dividends by the Company, historically the Company has never declared or paid
dividends and has no future plans to do so. The Company currently intends to
retain any future earnings for the development of its business.
On May 23, 1996, the last full trading day prior to the announcement of
Parent's original offer to acquire the Company, the closing price per Share as
reported on NASDAQ was $11. On January 10, 1997, the last full trading day prior
to the public announcement of the execution of the Merger Agreement, the closing
price per Share as reported on NASDAQ was $15 5/16. On January 16, 1997, the
last full trading day prior to the commencement of the Offer, the closing price
per Share as reported on NASDAQ was $19 1/4.
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
7. CERTAIN INFORMATION CONCERNING THE COMPANY. Except as otherwise set
forth herein, the information concerning the Company contained in this Offer to
Purchase, including financial information, has been furnished by the Company or
has been taken from or based upon publicly available documents and records on
file with the Commission and other public sources. Neither Purchaser nor Parent
assumes any responsibility for the accuracy or completeness of the information
concerning the Company furnished by the Company or contained in such documents
and records or for any failure by the Company to disclose events which may have
occurred or may affect the significance or accuracy of any such information but
which are unknown to Purchaser or Parent.
GENERAL. The Company is a Delaware corporation with its principal executive
offices located at 3155 Porter Drive, Palo Alto, California 94304. The Company
is a biotechnology company focused on creating new cellular and cell-based gene
therapies for major disorders of the blood and immune system based on the use of
the human hematopoietic stem cell (the "HSC"). The Company believes the special
properties of the HSC should produce long-lasting, highly efficient cell, gene
replacement and gene modification therapies for cancer, AIDS and other
infectious diseases and genetic diseases.
In 1991, the Company completed an initial public offering of Common Stock
and, since that time, has made no additional underwritten public offerings of
Common Stock.
34
<PAGE>
FINANCIAL INFORMATION. Set forth below is certain selected financial
information relating to the Company which has been excerpted or derived from the
audited financial statements contained in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995 (the "Form 10-K") and the
unaudited financial statements contained in the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1996 (the "Form 10-Q"). More
comprehensive financial information is included in the Form 10-K and Form 10-Q
and other documents filed by the Company with the Commission. The financial
information that follows is qualified in its entirety by reference to such
reports and other documents, including the financial statements and related
notes contained therein. Such reports and other documents may be examined and
copies may be obtained from the offices of the Commission in the manner set
forth below. In addition, Schedules IV and V hereto set forth the Company's
audited financial statements for the fiscal year ended December 31, 1995 and the
Company's unaudited financial statements for the period ended september 30,
1996, respectively.
SYSTEMIX, INC.
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------- ----------------------
<S> <C> <C> <C> <C>
1996 1995 1995 1994
--------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Collaborative research from related parties...................... $ 2,975 $ 474 $ 2,168 $ 3,211
Collaborative research........................................... 32 -- 152 --
Research grants.................................................. 15 117 992 234
Contract testing................................................. -- -- 165 669
Other............................................................ 31 44 139 --
--------- ---------- ---------- ----------
Total revenues................................................. 3,053 635 3,616 4,114
Expenses:
Research and development
Collaborative research........................................... 3,007 739 3,422 4,142
Research grants.................................................. 15 117 992 234
Contract testing................................................. -- -- 150 422
Gene therapy joint venture....................................... -- 862 2,940 3,997
Company-sponsored................................................ 7,462 9,280 39,229 31,740
--------- ---------- ---------- ----------
Total research and development................................. 10,484 10,998 46,733 40,535
General and administrative....................................... 2,082 1,868 8,110 8,819
--------- ---------- ---------- ----------
Total operating expenses....................................... 12,566 12,866 54,843 49,354
--------- ---------- ---------- ----------
Loss from operations............................................... (9,513) (12,231) (51,227 (45,240)
Other income (expense)............................................. 666 990 3,140 852
--------- ---------- ---------- ----------
Net loss........................................................... $ (8,847) $ (11,241) $ (48,087) $ (44,388)
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Net loss per share................................................. $ (.61) $ (.78) $ (3.43) $ (4.54)
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Weighted average shares outstanding................................ 14,493 14,434 14,028 9,773
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30 AT DECEMBER 31,
------------------------ ------------------------
<S> <C> <C> <C> <C>
1996 1995 1995 1994
----------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets
Current assets:
Cash and cash equivalents........................................ $ 1,995 $ 28,765 $ 1,679 $ 1,474
Short-term investments........................................... 48,373 37,128 65,836 6,916
Accounts receivable.............................................. 259 1,332 256 243
Prepaid expenses and other current assets........................ 1,164 1,282 1,336 1,145
----------- ----------- ----------- -----------
Total current assets........................................... 51,791 68,507 69,107 9,778
----------- ----------- ----------- -----------
Property and equipment, net........................................ 44,862 52,645 50,553 51,998
Long-term investments.............................................. -- 5,698 -- 18,155
Investment in gene therapy joint venture........................... -- -- -- 1,753
Deposits and other assets.......................................... 617 504 542 613
----------- ----------- ----------- -----------
Total assets................................................... $ 97,270 $ 127,354 $ 120,202 $ 82,297
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities......................... $ 6,744 $ 3,836 $ 3,873 $ 3,332
Accrued compensation............................................. -- -- 2,808 2,332
Current portion of capital lease obligation...................... 1,951 1,792 1,831 1,681
Deferred revenue from related party.............................. 8,400 643 3,097 890
Current portion of accrued rent.................................. 54 -- 69 --
----------- ----------- ----------- -----------
Total current liabilities...................................... 17,149 6,271 11,678 8,235
Noncurrent portion of capital lease obligation..................... 4,037 5,989 5,518 7,348
Accrued rent, less current portion................................. 4,730 4,336 4,536 3,013
Commitments
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
none issued.................................................... -- -- -- --
Common stock, $.01 par value; 30,0000,000 shares authorized;
14,463,094 and 9,788,283 shares issued and outstanding at
December 31, 1995 and 1994, respectively....................... 165 157 157 110
Additional paid-in capital....................................... 246,827 246,256 246,536 164,430
Deferred compensation............................................ (293) (275) (404) (408)
Unrealized gain (loss) on short-term investments................. 688 (18) 390 (309)
Accumulated deficit.............................................. (176,033) (135,362) (148,209) (100,122)
----------- ----------- ----------- -----------
Total stockholders' equity..................................... 71,354 110,758 98,470 63,701
----------- ----------- ----------- -----------
$ 97,270 $ 127,354 $ 120,202 $ 82,297
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
36
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES; BOOK VALUE PER SHARE. The ratio of
earnings to fixed charges for the two most recent fiscal years is not relevant
for the Company, given that the Company has had negative earnings in the last
two fiscal years. The book value per Share was $6.81 at December 31, 1995 and
$4.92 per Share at September 30, 1996.
The Company is subject to the informational filing requirements of the
Exchange Act and, in accordance therewith, is required to file periodic reports,
proxy statements and other information with the Commission relating to its
business, financial condition and other matters. Information as of particular
dates concerning the Company's directors and officers, their remuneration, stock
options granted to them, the principal holders of the Company's securities and
any material interest of such persons in transactions with the Company is
required to be disclosed in proxy statements distributed to the Company's
stockholders and filed with the Commission. Such reports, proxy statements and
other information should be available for inspection at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and also should be available for inspection at the
Commission's regional offices located at Seven World Trade Center, 13th Floor,
New York, New York 10048 and the Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials may also be obtained by
mail, upon payment of the Commission's customary fees, by writing to its
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The
information should also be available for inspection at the National Association
of Securities Dealers, Inc., 1735 K Street N.W., Washington, D.C. 20006.
8. CERTAIN INFORMATION CONCERNING PURCHASER AND PARENT. Purchaser is a
Delaware corporation and has not carried on any activities other than in
connection with the purchase of securities of the Company pursuant to the
Acquisition Agreement and the Stock and Warrant Purchase Agreement, the holding
of such securities and activities in connection with the Offer and the Merger.
The principal offices of Purchaser are located at 608 Fifth Avenue, New York,
New York 10020. Purchaser is an indirect, wholly owned subsidiary of Parent.
Parent is a corporation organized under the laws of Switzerland. Its
principal offices are located at Schwarzwaldallee 215, CH-4002 Basle,
Switzerland. The principal business of Parent and its subsidiaries is Life
Sciences, which includes pharmaceuticals, consumer health and vision care
products, agribusiness (including crop protection, animal health and seeds) and
nutrition products.
The name, citizenship, business address, principal occupation or employment
and five-year employment history for each of the directors and executive
officers of Purchaser and Parent and certain other information are set forth in
Schedule I hereto.
Purchaser owns 10,610,099 Shares, representing approximately 73.2% of the
14,500,094 Shares outstanding at January 10, 1997, (i) 5,993,827 of which it
acquired pursuant to the Acquisition Agreement for an average price of $65.37
per Share and (ii) 4,616,272 of which it acquired pursuant to the Stock and
Warrant Purchase Agreement. Purchaser also has Warrants to acquire 1,367,600
Shares which it acquired pursuant to the Stock and Warrant Purchase Agreement.
The aggregate purchase price for the Shares and Warrants acquired pursuant to
the Stock and Warrant Purchase Agreement was $80 million.
Except as described in this Offer to Purchase, (i) none of Purchaser, Parent
nor, to the best knowledge of Purchaser and Parent, any of the persons listed in
Schedule I to this Offer to Purchase or any associate or majority-owned
subsidiary of Purchaser, Parent or any of the persons so listed beneficially
owns or has any right to acquire, directly or indirectly, any Shares and (ii)
none of Purchaser, Parent nor, to the best knowledge of Purchaser and Parent,
any of the persons or entities referred to above nor any director, executive
officer or subsidiary of any of the foregoing has effected any transaction in
the Shares during the past 60 days.
Except as provided in the Merger Agreement and as otherwise described in
this Offer to Purchase, none of Purchaser, Parent nor, to the best knowledge of
Purchaser and Parent, any of the persons listed in Schedule I to this Offer to
Purchase, has any contract, arrangement, understanding or relationship with any
other person with respect to any securities of the Company, including, but not
limited to, any contract,
37
<PAGE>
arrangement, understanding or relationship concerning the transfer or voting of
such securities, finder's fees, joint ventures, loan or option arrangements,
puts or calls, guarantees of loans, guaranties against loss, guaranties of
profits, division of profits or loss or the giving or withholding of proxies.
Except as set forth in this Offer to Purchase, since January 1, 1995, neither
Purchaser nor Parent nor, to the best knowledge of Purchaser and Parent, any of
the persons listed on Schedule I hereto, has had any business relationship or
transaction with the Company or any of its executive officers, directors or
affiliates that is required to be reported under the rules and regulations of
the Commission applicable to the Offer. Except as set forth in this Offer to
Purchase, since January 1, 1995, there have been no contacts, negotiations or
transactions between any of Purchaser, Parent, or any of their subsidiaries or,
to the best knowledge of Purchaser and Parent, any of the persons listed in
Schedule I to this Offer to Purchase, on the one hand, and the Company or its
affiliates, on the other hand, concerning a merger, consolidation or
acquisition, tender offer or other acquisition of securities, an election of
directors or a sale or other transfer of a material amount of assets.
9. FINANCING OF THE OFFER AND THE MERGER. The total amount of funds
required by Purchaser to consummate the Offer and the Merger and to pay related
fees and expenses is estimated to be approximately $83.8 million. Parent will
ensure that Purchaser has sufficient funds to acquire all the outstanding Shares
pursuant to the Offer and the Merger. Parent will provide such funds from its
working capital or its affiliates' working capital or from existing credit
facilities or new credit facilities established for this purpose or from a
combination of the foregoing. No decision has been made concerning which of the
foregoing sources Parent will utilize. Such decision will be made based on
Parent's review from time to time of the advisability of particular actions, as
well as on prevailing interest rates and financial and other economic conditions
and such other factors as Parent may deem appropriate.
Parent anticipates that any indebtedness incurred through borrowings under
credit facilities will be repaid from a variety of sources, which may include,
but may not be limited to, funds generated internally by Parent and its
affiliates (including, following the Merger, funds generated by the Surviving
Corporation), bank refinancing, and the public or private sale of debt or equity
securities. No decision has been made concerning the method Parent will employ
to repay such indebtedness. Such decision will be made based on Parent's review
from time to time of the advisability of particular actions, as well as on
prevailing interest rates and financial and other economic conditions and such
other factors as Parent may deem appropriate.
10. DIVIDENDS AND DISTRIBUTIONS. If, on or after January 10, 1997, the
Company should declare or pay any dividend on the Shares or make any other
distribution (including the issuance of additional shares of capital stock
pursuant to a stock dividend or stock split, the issuance of other securities or
the issuance of rights for the purchase of any securities) with respect to the
Shares that is payable or distributable to stockholders of record on a date
prior to the transfer to the name of Purchaser or its nominee or transferee on
the Company's stock transfer records of the Shares purchased pursuant to the
Offer, then, without prejudice to Purchaser's rights under "THE TENDER OFFER --
Section 12. Certain Conditions of the Offer", (i) the purchase price per Share
payable by Purchaser pursuant to the Offer will be reduced (subject to the
Merger Agreement) to the extent any such dividend or distribution is payable in
cash and (ii) any non-cash dividend, distribution or right shall be received and
held by the tendering stockholder for the account of Purchaser and will be
required to be promptly remitted and transferred by each tendering stockholder
to the Depositary for the account of Purchaser, accompanied by appropriate
documentation of transfer. Pending such remittance and subject to applicable
law, Purchaser will be entitled to all the rights and privileges as owner of any
such non-cash dividend, distribution or right and may withhold the entire
purchase price or deduct from the purchase price the amount or value thereof, as
determined by Purchaser in its sole discretion.
11. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; NASDAQ QUOTATION AND
EXCHANGE ACT REGISTRATION. The purchase of Shares by Purchaser pursuant to the
Offer will reduce the number of Shares that
38
<PAGE>
might otherwise trade publicly and will reduce the number of holders of Shares,
which could adversely affect the liquidity and market value of the remaining
Shares held by the public.
Parent intends to cause the Shares not to be listed for quotation by NASDAQ
following consummation of the Offer.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the standards for continued inclusion in NASDAQ.
According to NASDAQ's published guidelines, the Shares would not be eligible to
be included for listing if, among other things, the number of Shares publicly
held falls below 200,000, the number of holders of Shares falls below 400 or the
aggregate market value of such publicly held Shares does not exceed $1,000,000.
If these standards are not met, quotations might continue to be published in The
NASDAQ SmallCap Market, Inc., but if the number of holders of the Shares falls
below 300, or if the number of publicly held Shares falls below 100,000, or if
the aggregate market value of such publicly held Shares does not exceed $200,000
or there are not at least two registered and active market makers, one of which
may be a market maker entering a stabilizing bid, NASDAQ rules provide that the
securities would no longer qualify for inclusion in NASDAQ and NASDAQ would
cease to provide any quotations. Shares held directly or indirectly by an
officer or director of the Company or by a beneficial owner of more than 10% of
the Shares will ordinarily not be considered as being publicly held for this
purpose. In the event the Shares were no longer eligible for NASDAQ quotation,
quotations might still be available from other sources. The extent of the public
market for the Shares and the availability of such quotations would, however,
depend upon the number of holders of such Shares remaining at such time, the
interest in maintaining a market in such Shares on the part of securities firms,
the possible termination of registration of such Shares under the Exchange Act
as described below and other factors.
The Shares are currently "margin securities", as such term is defined under
the rules of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), which has the effect, among other things, of allowing brokers
to extend credit on the collateral of such securities. Depending upon factors
similar to those described above regarding listing and market quotations,
following the Offer it is possible that the Shares might no longer constitute
"margin securities" for purposes of the margin regulations of the Federal
Reserve Board, in which event such Shares could no longer be used as collateral
for loans made by brokers.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application by the Company to the Commission
if the Shares are not listed on a national securities exchange and there are
fewer than 300 record holders. The termination of the registration of the Shares
under the Exchange Act would substantially reduce the information required to be
furnished by the Company to holders of Shares and to the Commission and would
make certain provisions of the Exchange Act, such as the short-swing profit
recovery provisions of Section 16(b), the requirement of furnishing a proxy
statement in connection with shareholders' meetings and the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions, no
longer applicable to the Shares. In addition, "affiliates" of the Company and
persons holding "restricted securities" of the Company may be deprived of the
ability to dispose of such securities pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended. If registration of the Shares under the
Exchange Act were terminated, the Shares would no longer be "margin securities"
or be eligible for NASDAQ reporting. Purchaser currently intends to seek to
cause the Company to terminate the registration of the Shares under the Exchange
Act as soon after consummation of the Offer as the requirements for termination
of registration are met.
12. CERTAIN CONDITIONS OF THE OFFER. Purchaser shall not, without the
consent of a majority of the Independent Directors, accept for payment any
Shares tendered pursuant to the Offer unless at least a majority of the then
issued and outstanding Shares, other than Shares owned by Parent and Purchaser,
shall have been validly tendered and not withdrawn prior to the expiration of
the Offer. Notwithstanding any other provision of the Offer, Purchaser shall not
be required to accept for payment or pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer and may postpone the acceptance for
payment of, and payment for, Shares tendered, if (i) immediately prior to the
expiration of
39
<PAGE>
the Offer the Second Minimum Condition shall not have been satisfied or (ii) at
any time on or after the date of the Merger Agreement, and prior to the
acceptance for payment of Shares, any of the following conditions shall exist:
(a) an order shall have been entered in any action or proceeding before
any federal or state court or governmental agency or other regulatory body
or a permanent injunction by any federal or state court of competent
jurisdiction in the United States shall have been issued and remain in
effect (i) making illegal the purchase of, or payment for, any Shares by
Parent, Purchaser or any affiliate of Parent or Purchaser; (ii) otherwise
preventing the consummation of any of the transactions contemplated by the
Merger Agreement; (iii) imposing limitations on the ability of Parent,
Purchaser or any affiliate of Parent or Purchaser to exercise effectively
full rights of ownership of any Shares, including, without limitation, the
right to vote any Shares acquired by Purchaser pursuant to the Offer on all
matters properly presented to the Company's stockholders, which would effect
a material diminution in the value of the Shares acquired by Purchaser;
(b) there shall have been any federal or state statute, rule or
regulation enacted or promulgated on or after the date of the Offer that
could reasonably be expected to result, directly or indirectly, in any of
the consequences referred to in clauses (i) through (iii) of paragraph (a)
above;
(c) any representation or warranty of the Company in the Merger
Agreement which is qualified as to materiality shall not be true and correct
or any such representation or warranty that is not so qualified shall not be
true and correct in any material respect, in each case as if such
representation or warranty was made as of such time on or after the date of
this Agreement;
(d) there shall have occurred and be remaining in effect (i) any general
suspension of, or limitation on prices for, trading in securities of the
Company on NASDAQ, (ii) any material change in United States or Switzerland
currency exchange rates or a suspension of, or limitation on, currency
exchange markets in the United States or Switzerland, (iii) a declaration of
a banking moratorium or any suspension of payments in respect of banks in
the United States or Switzerland, (iv) a commencement of a war or armed
hostilities or other national or international calamity directly or
indirectly involving the United States or Switzerland or (v) in the case of
any of the foregoing existing on the date hereof, a material acceleration or
worsening thereof;
(e) the Merger Agreement shall have been terminated in accordance with
its terms; or
(f) Purchaser and the Company (with the approval of a majority of the
Independent Directors) shall have agreed that Purchaser shall terminate the
Offer or postpone the acceptance for payment of or payment for Shares
thereunder;
which, in the reasonable judgment of Purchaser in any such case, and regardless
of the circumstances (including any action or inaction by Parent or any of its
affiliates) giving rise to any such condition, makes it inadvisable to proceed
with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Purchaser and Parent
and may be asserted by Purchaser or Parent regardless of the circumstances
giving rise to any such condition or may be waived by Purchaser or Parent in
whole or in part at any time and from time to time in their sole discretion;
PROVIDED, HOWEVER, that Purchaser and Parent may not waive the First Minimum
Condition without the consent of a majority of the Independent Directors.
Purchaser has agreed to waive the Second Minimum Condition under certain
circumstances described herein. See "SPECIAL FACTORS -- The Merger Agreement".
The failure by Parent or Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right; the waiver of any such
right with respect to particular facts and other circumstances shall not be
deemed a waiver with respect to any other facts and circumstances; and each such
right shall be deemed an ongoing right that may be asserted at any time and from
time to time.
40
<PAGE>
13. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS.
GENERAL. Based upon its examination of publicly available information with
respect to the Company and the review of certain information furnished by the
Company to Parent and discussions of representatives of Parent with
representatives of the Company during Parent's investigation of the Company (see
"SPECIAL FACTORS -- Background of the Offer and the Merger"), neither Purchaser
nor Parent is aware of any license or other regulatory permit that appears to be
material to the business of the Company, which might be adversely affected by
the acquisition of Shares by Purchaser pursuant to the Offer or, except as set
forth below, of any approval or other action by any domestic (federal or state)
or foreign governmental, administrative or regulatory authority or agency which
would be required prior to the acquisition of Shares by Purchaser pursuant to
the Offer. Should any such approval or other action be required, it is
Purchaser's present intention to seek such approval or action. Purchaser does
not currently intend, however, to delay the purchase of Shares tendered pursuant
to the Offer pending the outcome of any such action or the receipt of any such
approval (subject to Purchaser's right to decline to purchase Shares if any of
the conditions in Section 12 shall have occurred). There can be no assurance
that any such approval or other action, if needed, would be obtained without
substantial conditions or that adverse consequences might not result to the
business of the Company, Purchaser or Parent or that certain parts of the
businesses of the Company, Purchaser or Parent might not have to be disposed of
or held separate or other substantial conditions complied with in order to
obtain such approval or other action or in the event that such approval was not
obtained or such other action was not taken. Purchaser's obligation under the
Offer to accept for payment and pay for Shares is subject to certain conditions,
including conditions relating to the legal matters discussed in this Section 13.
See "THE TENDER OFFER -- Section 12. Certain Conditions of the Offer".
STATE TAKEOVER LAWS. The Company is incorporated under the laws of the
State of Delaware. In general, Section 203 of Delaware Law prevents an
"interested stockholder" (generally a person who owns or has the right to
acquire 15% or more of a corporation's outstanding voting stock, or an affiliate
or associate thereof) from engaging in a "business combination" (defined to
include mergers and certain other transactions) with a Delaware corporation for
a period of three years following the date such person became an interested
stockholder unless, among other things, prior to such date the board of
directors of the corporation approved either the business combination or the
transaction in which the interested stockholder became an interested
stockholder. Parent became an interested stockholder in 1992 and thus the
three-year limitation on a business combination between the Company and Parent
is no longer in effect. Accordingly, Section 203 is inapplicable to the Offer
and the Merger.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or have
substantial assets, stockholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects, in such states. In EDGAR V. MITE CORP., the Supreme Court of
the United States invalidated on constitutional grounds the Illinois Business
Takeover Statute, which, as a matter of state securities law, made takeovers of
corporations meeting certain requirements more difficult. However, in 1987 in
CTS CORP. V. DYNAMICS CORP. OF AMERICA, the Supreme Court held that the State of
Indiana may, as a matter of corporate law and, in particular, with respect to
those aspects of corporate law concerning corporate governance, constitutionally
disqualify a potential acquiror from voting on the affairs of a target
corporation without the prior approval of the remaining stockholders. The state
law before the Supreme Court was by its terms applicable only to corporations
that had a substantial number of stockholders in the state and were incorporated
there.
The Company conducts business in a number of states throughout the United
States, some of which have enacted takeover laws. Purchaser does not know
whether any of these laws will, by their terms, apply to the Offer or the Merger
and has not complied with any such laws. Should any person seek to apply any
state takeover law, Purchaser will take such action as then appears desirable,
which may include challenging the validity or applicability of any such statute
in appropriate court proceedings. In the event it is asserted that one or more
state takeover laws are applicable to the Offer or the Merger, and an
41
<PAGE>
appropriate court does not determine that it is inapplicable or invalid as
applied to the Offer, Purchaser might be required to file certain information
with, or receive approvals from, the relevant state authorities. In addition, if
enjoined, Purchaser might be unable to accept for payment any Shares tendered
pursuant to the Offer, or be delayed in continuing or consummating the Offer and
the Merger. In such case, Purchaser may not be obligated to accept for payment
any Shares tendered. See "THE TENDER OFFER --Section 12. Certain Conditions of
the Offer".
ANTITRUST. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
and the rules that have been promulgated thereunder by the Federal Trade
Commission (the "FTC"), certain transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice and the FTC and certain waiting period requirements have
been satisfied. The acquisition of Shares by Purchaser pursuant to the Offer,
however, is not subject to such requirements because Purchaser currently owns in
excess of 50% of the outstanding Shares. See "THE TENDER OFFER -- Section 2.
Acceptance for Payment and Payment for Shares".
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares by
Purchaser pursuant to the Offer. At any time before or after the purchase of
Shares pursuant to the Offer by Purchaser, the FTC or the Antitrust Division
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the purchase of
Shares pursuant to the Offer or seeking the divestiture of Shares purchased by
Purchaser or the divestiture of substantial assets of Parent, the Company or
their respective subsidiaries. Private parties and state attorneys general may
also bring legal action under federal or state antitrust laws under certain
circumstances. Based upon an examination of information available to Parent
relating to the businesses in which Parent, the Company and their respective
subsidiaries are engaged, Parent and Purchaser believe that the Offer will not
violate the antitrust laws. Nevertheless, there can be no assurance that a
challenge to the Offer on antitrust grounds will not be made or, if such a
challenge is made, what the result would be. See "THE TENDER OFFER -- Section
12. Certain Conditions of the Offer".
LITIGATION. Shortly after the May 24, 1996 announcement by Parent that it
proposed to acquire those Shares of the Company that it did not already own, six
cases were filed in the Delaware Court of Chancery challenging the fairness of
the proposed transaction to the minority stockholders: WERBOWSKY V. SANDOZ LTD.
ET AL. (filed May 24, 1996), VOSLER V. SYSTEMIX, INC. ET AL. (filed May 24,
1996), CINCOTTA V. SANDOZ LTD. ET AL. (filed May 28, 1996), CRANDON CAPITAL
PARTNERS V. RUVANE ET AL. (filed May 28, 1996), ROSENBERG V. RUVANE ET AL.
(filed May 28, 1996) and TRACY V. BARLOCHER ET AL. (filed May 30, 1996). These
cases, all filed as putative class actions, were subsequently consolidated as IN
RE SYSTEMIX, INC. SHAREHOLDERS LITIGATION. In substance, the complaints alleged
that the acquisition price initially proposed by Parent was not the result of
arms' length negotiations and that, in proposing an allegedly inadequate price,
Parent was not treating the minority stockholders fairly. The plaintiffs also
claimed that the defendants -- Parent, the Company, certain subsidiaries of
Parent and several individuals serving as directors of one or more of those
companies--breached their fiduciary duties to the public stockholders of the
Company by failing to insist on a fair and adequate price. The relief sought by
the plaintiffs includes an injunction against consummation of the transaction;
in the alternative, an order requiring the defendants to evaluate alternatives
to the proposed transaction; rescission of the transaction if consummated; an
accounting; and damages in an unspecified amount.
14. FEES AND EXPENSES. Except as set forth below, Purchaser will not pay
any fees or commissions to any broker, dealer or other person for soliciting
tenders of Shares pursuant to the Offer.
Morgan Stanley is acting as Dealer Manager in connection with the Offer and
has provided certain financial advisory services in connection with the
acquisition of the Company. In accordance with the letter agreement dated
December 5, 1991 between Sandoz Pharma Ltd. and Morgan Stanley relating to
Purchaser's initial investment in the Company, Morgan Stanley is not receiving
any additional compensation from Purchaser or Parent for its advisory services
or its role as Dealer Manager in connection with the
42
<PAGE>
Offer. Parent has agreed to reimburse Morgan Stanley for all reasonable
out-of-pocket expenses incurred by Morgan Stanley, including the reasonable fees
and expenses of legal counsel, and to indemnify Morgan Stanley against certain
liabilities and expenses in connection with its engagement, including certain
liabilities under the federal securities laws.
Purchaser and Parent have retained Georgeson & Company Inc., as the
Information Agent, and ChaseMellon Shareholder Services, L.L.C., as the
Depositary, in connection with the Offer. The Information Agent may contact
holders of Shares by mail, telephone, telecopy, telegraph and personal interview
and may request banks, brokers, dealers and other nominee stockholders to
forward materials relating to the Offer to beneficial owners.
As compensation for acting as Information Agent in connection with the
Offer, Georgeson & Company Inc. will be paid a fee of $12,500 and will also be
reimbursed for certain out-of-pocket expenses and may be indemnified against
certain liabilities and expenses in connection with the Offer, including certain
liabilities under the federal securities laws. Purchaser will pay the Depositary
reasonable and customary compensation for its services in connection with the
Offer, plus reimbursement for out-of-pocket expenses, and will indemnify the
Depositary against certain liabilities and expenses in connection therewith,
including certain liabilities under federal securities laws. Brokers, dealers,
commercial banks and trust companies will be reimbursed by Purchaser for
customary handling and mailing expenses incurred by them in forwarding material
to their customers.
15. MISCELLANEOUS. Purchaser is not aware of any jurisdiction in which the
making of the Offer is prohibited by any administrative or judicial action
pursuant to any valid state statute. If Purchaser becomes aware of any valid
state statute prohibiting the making of the Offer or the acceptance of Shares
pursuant thereto, Purchaser will make a good faith effort to comply with any
such state statute. If, after such good faith effort, Purchaser cannot comply
with any such state statute, the Offer will not be made to (nor will tenders be
accepted from or on behalf of) the holders of Shares in such state. In any
jurisdiction where the securities, blue sky or other laws require the Offer to
be made by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of Purchaser by the Dealer Manager or by one or more registered brokers
or dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER, PARENT OR THE COMPANY NOT CONTAINED IN
THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
Pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, Parent and Purchaser have filed with the Commission the Schedule
14D-1 together with exhibits, furnishing additional information with respect to
the Offer. Pursuant to Rule 14d-9 promulgated under the Exchange Act, the
Company has filed with the Commission the Schedule 14D-9 with respect to the
Offer, and may file amendments thereto. Parent, Purchaser and the Company have
filed a statement on Schedule 13E-3 with respect to the Offer and may file
amendments to the Schedule 13E-3. Such statements, including exhibits and any
amendments thereto, which furnish certain additional information with respect to
the Offer, may be inspected at, and copies may be obtained from, the same places
and in the same manner as set forth in "THE TENDER OFFER -- Section 7. Certain
Information Concerning the Company" (except that they will not be available at
the regional offices of the Commission).
NOVARTIS BIOTECH HOLDING CORP.
January 17, 1997
43
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF
PARENT AND PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of Parent. Unless otherwise indicated, the
current business address of each person is Novartis Inc., Schwarzwaldallee 215,
CH-4002, Basle, Switzerland. Unless otherwise indicated, each such person is a
citizen of Switzerland.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
Dr. Alex Krauer Chairman of the Board of Directors, Member of the Committee of the
Board, Novartis Inc.; Chairman of the Board of Directors, Member of the
Committee of the Board, and Chief Executive Officer, Ciba-Geigy Limited,
Klybeckstrasse 141, CH-4002, Basle, Switzerland, from 1987 until
December 1996; Director, Baloise Holding, Aeschengraben 21, CH-4051,
Basle, Switzerland, since 1980; Director, Swiss Bank Corporation,
Aeschenplatz 6, CH-4052 Basle, Switzerland, since 1988; Director, Chiron
Corporation, 4560 Horton Street, Emeryville, California 94608, USA,
since 1995.
Dr. Daniel Vasella President, Member of the Committee of the Board, Chairman of the
Novartis Inc. Executive Committee, Novartis Inc.; Head of Pharmaceuticals Division,
Lichtstrasse 35 Sandoz Ltd., from May 1995 until December 1996; held various positions
CH-4002 Basle within the Sandoz Group during previous five years, Lichtstrasse 35,
Switzerland CH-4002, Basle, Switzerland.
Hans-Jorg Rudloff* Vice-Chairman, Member of the Committee of the Board, Novartis Inc.;
Commercial Union Tower Vice-Chairman, Director, Sandoz Ltd., from 1994 through December 1996;
One Undershaft Chairman, MC Securities Ltd., London, England, since 1994; Chairman,
London EC3A 8LH MC-BBL Eastern European (Holdings) SA, Luxembourg, since 1994; Director
England or Chairman, other MC Group companies; Chairman and Chief Executive
Officer, Credit Suisse First Boston, London, England, from 1989 to 1993;
c/o MC Securities Geneve SA Member of Executive Board, Credit Suisse Holding, Zurich, Switzerland,
84, Rue du Rhone from 1993 to 1994; Director or Member of the Executive Board, other
CH-1200 Geneva Credit Suisse Companies; Vice Chairman, Clariden Bank, Zurich,
Switzerland Switzerland, 1987 through 1995; Director, Pargesa Holding SA, Geneva,
Switzerland, since 1994; Chairman, Cofinec SA, Paris, France, from 1995
through 1996; Director, Orior, Switzerland, since 1994; Director, HEA
Parametre Finance SA, Geneva, Switzerland, since 1996; Chairman of the
Supervisory Board, Patria Finance, Czech Republic, since 1995; Director,
Bank am Bellevue, Zurich, Switzerland, from 1994 through 1995; Director,
TBG Holdings NV, Monaco, since 1995.
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
Prof. Dr. Helmut Sihler** Vice Chairman, Member of the Committee of the Board, Novartis Inc.;
c/o Henkel KGaA Retired President and CEO, Henkel KGaA, Germany, from June 1980 through
Henkelstrasse June 1992; Member of the Shareholders' Committee, Henkel KGaA, Germany,
D-40191 Dusseldorf since June 1992; Vice-Chairman, Ciba-Geigy Limited, from May 1993 until
Germany December 1996; Director, Ciba-Geigy Limited, May 1983 through December
1996; Member of the Supervisory Board, Adam Opel AG, Russelsheim, Ger-
many, June 1985 through April 1993; Member of the Supervisory Board,
Allianz Lebensversicherungs AG, Stuttgart, Germany, from June 1988
through June 1993; Chairman of the Supervisory Board, Degussa AG,
Frankfurt, Germany, since April 1991; Chairman of the Supervisory Board,
Deutsch Post AG, Frankfurt, Germany, from February 1995 through July
1996; Chairman of the Supervisory Board, Deutsch Telekom AG, Bonn,
Germany, since July 1996; Member of the Shareholder's Committee,
Freudenberg & Co., Weinheim, Germany, from June 1991 through June 1995;
Director, Guinness Plc, London, England, since May 1992; Chairman of the
Supervisory Board, Infratest-Burke AG, Munchen, Germany, from October
1992 through April 1996; Director, IBM, Armonk, N.Y., USA, from July
1989 through July 1993; Member of the Supervisory Board, Leipziger Messe
GmbH, Leipzig, Germany, since March 1992; Chairman of the Supervisory
Board, Dr. Ing. h. c. F. Porsche AG, Stuttgart, Germany, since March
1993.
Prof. Dr. Duillo Arigoni Director, Novartis Inc.; Director, Sandoz Ltd. more than five years
Organic Chemistry Laboratory until December 1996; Chemistry Professor Emeritus, ETH-Zurich for more
Federal Institute of Technology than five years; Member of the Board of Governors, Weizman Institute,
(ETH-Z) Rehovot, Israel.
Universitatstrasse 16
CH-8092 Zurich
Switzerland
Birgit Breuel* Director, Novartis Inc.; Director, Ciba-Geigy Limited, from October 1994
Wallstrasse 15/15A through December 1996; Minister of Finance, Government of Niedersachsen,
D-10179 Berlin from 1986 through 1990; President, Treuhandanstalt, Berlin, from 1990
Germany until December 1994; Commissioner General, World Exposition EXPO 2000,
Government of Germany, since 1995.
Prof. Dr. Peter Burckhardt Director, Novartis Inc.; Chief and Professor of Medicine, University
Centre Hospitalier Universitiare Hospital, Lausanne, Switzerland, since 1972.
CHUV
CH-1011 Lausanne
Switzerland
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
Dr. Kaspar V. Cassani Director, Novartis Inc.; Retired Vice Chairman, IBM Corporation, since
Haldenstrasse 53 1994; Director, Ciba-Geigy Limited, from 1987 through December 1996;
CH-8142 Uitikon Director, Zurich Insurance Company, Zurich, Switzerland, since 1987;
Switzerland Director, Zurich Life (Vita), Zurich, Switzerland, since 1987; Director,
CS Holding, Zurich, Switzerland, from 1988 through May 1996; Director,
SKA Credit Suisse, Zurich, Switzerland, 1988 through May 1996; Director,
Royal Dutch Petroleum Ltd., The Hague, Netherlands, since 1989;
Director, IBM Germany GmbH, Stuttgart, Germany, since 1976.
Dr. Hans-Ulrich Doerig Director, Novartis Inc.; Chief Executive Officer, Credit Suisse First
c/o Credit Suisse First Boston Boston; Member of the Executive Board, Credit Suisse Group Zurich,
Uetlibergstrasse 231 Switzerland; Member of various Boards of Directors of Credit Suisse
CH-8070 Zurich Group affiliates; Director, Clariant AG, Muttenz, Switzerland, July 1995
Switzerland through June 1996; Director, Coca-Cola AG, Zurich, Switzerland, since
June 1983; Director, Coca-Cola Trading AG, Zurich, Switzerland, since
February 1988; Director, Elektrizitats-Gesellschaft Laufenburg AG,
Laufenburg, Switzerland, since January 1993; Director, Elektrowatt Ltd.,
Zurich, Switzerland, since October 1987; Director, Alusuisse-Lonza
Holding Ltd., Zurich, Switzerland, since April 1988; Director, EXOR
Group S.A., Luxembourg, since June 1984; Director, Hesta AG, Zug,
Switzerland, since November 1993; Director, Hesta Tex AG, Zug,
Switzerland, since June 1995; Director, HIAG Holding AG, Baar,
Switzerland, since April 1991; Director, Konsum Verein Zurich, Zurich,
Switzerland, since June 1994; Director Kraftubertragungswerke
Rheinfelden AG, Rheinfelden, Germany, since January 1991; Director,
Kraftwerk Laufenburg, Laufenburg, Switzerland, since June 1990;
Director, Orell Fussli Werbe AG, Zurich, Switzerland, April 1990 through
April 1993; Director, Rank Xerox AG, Zurich, Switzerland, since May
1983; Director Societe Luxembourgeoise de Centrales Nucleaires, S. A.,
Luxembourg, since May 1983; Director, Swiss American Corporation, New
York, New York, USA, since April 1982; Director, Swiss American
Securities, Inc., New York, New York, USA, since March 1983.
Walter G. Frehner Director, Novartis Inc.; Chairman of the Board of Directors, Swiss Bank
Inzlingerstrasse 276 Corporation, Basle, Switzerland, from April 1993 through May 1996;
CH-4125 Riehen President of the Executive Board, Swiss Bank Corporation, Basle,
Switzerland Switzerland, January 1987 through April 1993; Director Ciba-Geigy
Limited, from 1994 through December 1996; Director, Baloise Holding,
since June 1989; Director, SMH Swiss Corporation for Microelectronics
and Watchmaking Industries Ltd., Biel, Switzerland, since November 1978;
Director, Nestle AG, Vevey, Switzerland, May 1993 through June 1995;
Director, Schindler Holding AG, Hergiswil, Switzerland, since August
1984.
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
Robert L. Genillard Director, Novartis Inc.; Director, Sandoz Ltd., more than five years
1, Quai de Mont Blanc until December 1996; Director, Credit Suisse, Zurich, Switzerland;
CH-1211 Geneva Director, CS Holding, Zurich, Switzerland; Vice Chairman of the
Switzerland Supervisory Board, TBG Holdings NV, Monaco; Director, Clariden Bank,
Zurich, Switzerland; Director Leu Holding AG, Switzerland, from 1990
until 1995; Director, CS First Boston Group, Inc., New York, New York,
USA, since 1991.
Alexandre F. Jetzer Director, Novartis Inc.; Member of the Executive Committee, Head of
Novartis International Inc. International Coordination, Human Resources, Legal, Tax, Novartis Inc.,
Lichtstrasse 35 since December 1996; President of the Executive Board, Sandoz Ltd.,
CH-4002 Basle Lichtstrasse 35, CH-4002 Basle, Switzerland from January 1996 through
Switzerland December 1996; Vice Chairman and CEO, Sandoz Corporation, 608 Fifth
Avenue, New York, New York 10020, USA, from July 1995 through December
1995; Chairman and Chief Executive Officer, Sandoz Pharmaceuticals
Corporation, 59 Route 10, East Hanover, New Jersey, USA, from July 1995
through December 1995; Member of the Group Executive Board, Sandoz Ltd.,
Basle, Switzerland, for more than five years until June 1995; Director,
Winterthur Insurance Ltd., Winterthur, Switzerland; Director, Clariden
Bank, Zurich, Switzerland, until June 1995; Director, Leu Holding AG,
Zug, Switzerland, from 1990 until 1995.
Pierre Landolt Director, Novartis Inc.; Director, Sandoz Ltd., Switzerland, more than
Fazenda Tamandua five years until December 1996; Executive Director, Moco Agropecuaria
Santa Terezinha-Paraiba LTDA, Santa Terezinha-Paraiba, Brazil; Director, Misu Irrigacio
PB 58772 Industria e Comercio LTDA; Director; Fair Corretora de Cambio e Valores
Brazil LTD, Sao Paulo, Brazil; Chairman, Emasan SA Basle, Switzerland;
Director, Banque Scandinave en Suisse, Geneva, Switzerland, since 1994.
Heini Lippuner Director, Novartis Inc.; retired President and Chief Operating Officer,
Wartenbergstrasse 33 Ciba-Geigy Limited, Klybeckstrasse 141, CH-4002, Basle, Switzerland,
CH-4104 Oberwil Member of the Executive Committee, Ciba-Geigy Limited more than five
Switzerland years through April, 1996; Director, Credit Suisse Group; Director,
Credit Suisse First Boston; Director, Winterthur Insurance Company;
Director, Buhler Ltd.
Prof. Dr. William J. Rutter*** Director, Novartis Inc.; Chairman of the Board of Directors, Chiron
c/o Chiron Corporation Corporation, since 1981; Director, Ciba-Geigy Limited, from April 1995
4560 Horton Street through December 1996; Director, Carnegie Institute of Washington, since
Emeryville, CA 94608-2916 1995; Member, Board of Overseers, Harvard University, since 1992.
USA
Dr. Jean Wander Director, Novartis Inc.; Director, Sandoz Ltd., Basle, Switzerland, more
Bollwerk 21 than five years through December 1996; Tax and Legal Advisor; Director,
CH-3000 Berne Berner Tagblatt Medien AG, Berne, Switzerland.
Switzerland
</TABLE>
I-4
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
Dr. Raymund Breu Chief Financial Officer, Member of the Executive Committee, Novartis
Novartis International Inc. Inc.; Chief Financial Officer and Member of the Executive Committee,
Lichtstrasse 35 Sandoz Ltd., from 1993 through December 1996; Group Treasurer, Sandoz
CH-4002 Basle Ltd., Lichtstrasse 35, CH-4002 Basle, Switzerland, from 1990 through
Switzerland 1993.
Dr. Hans Kindler Head of Swiss Services, Member of the Executive Committee, Novartis
Inc.; Member of the Executive Committee, responsible for Personnel,
Production and Technology, and Safety and Environmental Protection,
Ciba-Geigy Limited, Klybeckstrasse 141, CH-4002, Basle, Switzerland,
from 1990 through December 1996; Director, Lanz AG, Oensingen,
Switzerland.
Pierre Douaze**** Head of Healthcare Division, Member of the Executive Committee, Novartis
Novartis Pharma Inc. Inc.; Member of the Executive Committee, responsible for the Pharma,
Lichtstrasse 35 Self-Medication and Diagnostics Divisions, and worldwide head of Pharma
CH-4002 Basle Division, Ciba-Geigy Limited, Klybeckstrasse 141, CH-4002, Basle,
Switzerland Switzerland from 1991 through December 1996.
Dr. Wolfgang Samo Head of Agribusiness Division, Member of the Executive Committee,
Novartis International Inc. Novartis Inc.; Member of the Executive Committee, responsible for Plant
Protection, Animal Health and Seeds Divisions and worldwide Head of the
Plant Protection Division of Ciba-Geigy Limited, Klybeckstrasse 141,
CH-4002, Basle, Switzerland from July 1991 through December 1996.
David Pyott***** Head of Nutrition Division, Member of the Executive Committee, Novartis
Novartis International Inc. Inc.; Head of Nutrition Division, Sandoz Ltd., Lichtstrasse 35, CH-4002,
Basle, Switzerland, from May 1995 through December 1996; held various
positions within the Sandoz Group during previous five years.
Dr. Hermann Vodicka** Head of Specialty Chemicals, Member of the Executive Committee, Novartis
Ciba Specialty Chemicals AG Inc.; Member of the Executive Committee, responsible for the Polymers,
Klybeckstrasse 141 Composites, Mettler-Toledo, and Ciba Vision Divisions, and worldwide
CH-4002 Basle Head of the Polymers Division of Ciba- Geigy Limited, Klybeckstrasse
Switzerland 141, CH-4002, Basle, Switzerland, from 1993 through March 1996;
continuing Member of the Executive Committee, March through December
1996; President of Mettler-Toledo, Greifensee, Switzerland, from
November 1988 through November 1993; Director, HEXCEL Corp., 281 Tresser
Blvd., Stamford, Connecticut, USA.
</TABLE>
- ------------------------
* German Citizen
** Austrian Citizen
*** U.S.A. Citizen
**** French Citizen
*****United Kingdom Citizen
I-5
<PAGE>
2. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of Purchaser. Unless otherwise indicated, the
current business address of each person is 608 Fifth Avenue, New York, New York
10020. Unless otherwise indicated, each such person is a citizen of the United
States of America, and each occupation set forth opposite an individual's name
refers to employment with Purchaser.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP MATERIAL POSITIONS HELD DURING THE PAST
AND CURRENT BUSINESS ADDRESS FIVE YEARS AND BUSINESS ADDRESSES THEREOF
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
Edgar John Fullager* Director, President since 1996; Vice Chairman and Chief Executive
Novartis Pharmaceuticals Officer of Sandoz Corporation, New York, New York since January 1996;
Corporation Chairman, Novartis Pharmaceuticals Corporation since January 1, 1997;
59 Route 10 Chairman, Sandoz Pharmaceuticals Corporation, East Hanover, New Jersey
East Hanover, New Jersey 07936 January 1996 through December 1996; Member of the Executive Committee of
Sandoz Pharma Ltd., Basle, Switzerland from 1994 through 1995; Chief
Executive Officer of Sandoz Pharmaceuticals in the United Kingdom and
Ireland, Vice President of the Association of British Pharmaceuticals
Industries, from 1980 through 1993.
Robert L. Thompson, Jr. Director, Vice President, and Secretary since 1991; Executive Vice
Novartis Corporation President, General Counsel and Secretary, Novartis Corporation, New
York, New York since January 1, 1997; Vice President, General Counsel
and Secretary, Sandoz Corporation, New York, New York 1989 through
December 1996.
</TABLE>
- ------------------------
* British Citizen
I-6
<PAGE>
SCHEDULE II
LEHMAN BROTHERS
January 10, 1997
Board of Directors
SyStemix, Inc.
3155 Porter Drive
Palo Alto, CA 94304
Members of the Board of Directors:
We understand that Novartis, Inc. ("Novartis"), Novartis Biotech Holdings
Corporation, an indirect wholly-owned subsidiary of Novartis ("Purchaser"), and
SyStemix ("SyStemix" or the "Company") intend to enter into an Agreement and
Plan of Merger (the "Agreement") pursuant to which Purchaser will commence a
tender offer to purchase all of the outstanding shares of the Company's common
stock at $19.50 per share (the "Offer"). Pursuant to the terms and subject to
the conditions of the Agreement, after consummation of the Offer, Purchaser will
merge with and into the Company (the "Merger"). (The Merger, together with the
Offer, are hereinafter referred to as the "Proposed Transaction".) In the
Merger, all shares of the Company's common stock (other than (i) shares held in
the Company's treasury, (ii) shares held by Novartis or any of its subsidiaries,
and (iii) shares as to which dissenters' rights have been perfected) will be
exchanged for cash equal to the amount per share paid in the Offer. The other
terms and conditions of the Proposed Transaction are set forth in more detail in
the Agreement.
We have been requested by Harold Edgar, Joseph Ruvane and Edgar Schollmaier,
in their capacity as members of the Board of Directors of the Company (the
"Independent Directors"), to render our opinion with respect to the fairness,
from a financial point of view, to the stockholders of the Company, other than
Novartis, of the consideration to be offered to such stockholders in the
Proposed Transaction. We have not been requested to opine as to, and our opinion
does not in any manner address, the Company's underlying business decision to
proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) the annual report of the
Company for the fiscal year ended December 31, 1995 filed on form 10-K, the
quarterly financial report of the Company for the fiscal quarter ended September
30, 1996 filed on Form 10-Q and such other publicly available information
concerning the Company that we believe to be relevant to our analysis, (3) other
financial and operating information with respect to the business, operations and
prospects of the Company furnished to us by the Company (including financial
projections for years 1996 to 2005 under various operating assumptions), (4) a
trading history of the Company's common stock from August 7, 1991 to the present
and a comparison of that trading history with those of other companies that we
deemed relevant, (5) a comparison of the historical financial results and
present financial condition of the Company with those of other companies that we
deemed relevant, (6) an analysis of the cash required to fund the Company's near
term capital and operating requirements, the cash currently available to the
Company and the alternatives available to the Company to obtain additional
financing, and (7) a comparison of the financial terms of the Proposed
Transaction with the financial terms of certain other recent transactions that
we deemed relevant. In addition, we have held discussions with the management of
the Company concerning its business, operations, assets, financial condition and
prospects and have undertaken such other studies, analyses and investigations as
we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and further
have relied upon the assurances of management of the Company that they are not
aware of any facts or circumstances that would make such information inaccurate
or misleading. With respect to the financial projections of the Company, upon
the advice of the Company, we have
II-1
<PAGE>
assumed that such projections have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company.
However, for purposes of our analysis, we also have considered certain more
conservative assumptions and estimates which resulted in significant adjustments
to the projections of the Company. We have discussed these adjusted projections
with the Company's management and they have agreed that, because the Company's
projections have been prepared based on assumptions which include the success of
each of its products in human clinical trials and in the marketplace, it is
appropriate for us to adjust such projections to reflect the uncertainties
inherent in the business and prospects of the Company and in the Company's
ability to secure adequate financing in the future to fund its capital and
operating requirements. Without agreeing with each particular adjustment we have
made, the Company's management believes that the overall extent of our
adjustments to the Company's projections is reasonable and that our use of such
adjusted projections in our analysis is appropriate. In arriving at our opinion,
we have conducted only a limited physical inspection of the properties and
facilities of the Company and have not made or obtained any evaluations or
appraisals of the assets or liabilities of the Company. In addition, you have
not authorized us to solicit, and we have not solicited, any indications of
interest from any third party with respect to the purchase of all or a part of
the Company's business. Our opinion necessarily is based upon market, economic
and other conditions as they exist on, and can be evaluated as of, the date of
this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
offered to the stockholders of the Company other than Novartis in the Proposed
Transaction is fair to such stockholders.
We have acted as financial advisor to the Independent Directors in
connection with the Proposed Transaction and will receive a fee from the Company
for our services, which is contingent in part upon the consummation of the
Proposed Transaction. In addition, the Company has agreed to indemnify us for
certain liabilities that may arise out of the rendering of this opinion. In the
ordinary course of our business, we may trade in the equity securities of the
Company for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Independent Directors and is
rendered to the Independent Directors in connection with their consideration of
the Proposed Transaction. This opinion also is for the use and benefit of Irving
L. Weissman, M.D. and John J. Schwartz, Ph.D., in their capacity as members of
the Board of Directors of the Company, and is rendered to them in connection
with their consideration of the Proposed Transaction. This opinion is not
intended to be and does not constitute a recommendation to any stockholder of
the Company as to whether to accept the consideration to be offered to such
stockholder in connection with the Proposed Transaction.
<TABLE>
<S> <C> <C>
Very truly yours,
LEHMAN BROTHERS
</TABLE>
II-2
<PAGE>
SCHEDULE III
SUMMARY OF STOCKHOLDER APPRAISAL RIGHTS AND
TEXT OF SECTION 262 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
SUMMARY OF STOCKHOLDER APPRAISAL RIGHTS. No appraisal rights are available
in connection with the Offer. However, if the Merger is consummated,
stockholders will have certain rights under Delaware Law to dissent and demand
appraisal of, and to receive payment in cash of the fair value of, their Shares.
Such rights to dissent, if the statutory procedures are complied with, could
lead to a judicial determination of the fair value of the Shares, as of the day
prior to the date on which the stockholders' vote was taken approving the Merger
or similar business combination (excluding any element of value arising from the
accomplishment or expectation of the Merger), required to be paid in cash to
such dissenting holders for their Shares. In addition, such dissenting
stockholders would be entitled to receive payment of a fair rate of interest
from the date of consummation of the Merger on the amount determined to be the
fair value of their Shares. In determining the fair value of the Shares, the
court is required to take into account all relevant factors. Accordingly, such
determination could be based upon considerations other than, or in addition to,
the market value of the Shares, including, among other things, asset values and
earning capacity. In WEINBERGER V. UOP, INC., the Delaware Supreme Court stated,
among other things, that "proof of value by any techniques or methods which are
generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in an appraisal proceeding. Therefore,
the value so determined in any appraisal proceeding could be the same, more or
less than the purchase price per Share in the Offer or the Merger Consideration.
In addition, several decisions by Delaware courts have held that, in certain
circumstances, a controlling stockholder of a company involved in a merger has a
fiduciary duty to other stockholders which requires that the merger be fair to
such other stockholders. In determining whether a merger is fair to minority
stockholders, Delaware courts have considered, among other things, the type and
amount of consideration to be received by the stockholders and whether there was
fair dealing among the parties. The Delaware Supreme Court stated in WEINBERGER
and RABKIN V. PHILIP A. HUNT CHEMICAL CORP. that the remedy ordinarily available
to minority stockholders in a cash-out merger is the right to appraisal
described above. However, a damages remedy or injunctive relief may be available
if a merger is found to be the product of procedural unfairness, including
fraud, misrepresentation or other misconduct.
GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of his shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word "stockholder"
means a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and include
what is ordinarily meant by those words and also membership or membership
interest of a member of a nonstock corporation; and the words "depository
receipt" mean a receipt or other
III-1
<PAGE>
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were 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; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the holders of the surviving corporation as provided in
subsection (f) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts 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 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent
III-2
<PAGE>
corporations, and shall include in such notice a copy of this section. Each
stockholder electing to demand the appraisal of his shares shall deliver to
the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of his shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such
action must do so by a separate written demand as herein provided. Within 10
days after the effective date of such merger or consolidation, the surviving
or resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in favor
of or consented to the merger or consolidation of the date that the merger
or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section228
or Section253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of
a constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights
may, within twenty days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on
or within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall
be not more than 10 days prior to the date the notice is given; provided
that, if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the
III-3
<PAGE>
corporation surviving the merger or resulting from the consolidation a statement
setting forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding,
III-4
<PAGE>
including, without limitation, reasonable attorney's fees and the fees and
expenses of experts, to be charged pro rata against the value of all the shares
entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 349, L.
'96, eff. 7-l-96.)
III-5
<PAGE>
SCHEDULE IV
AUDITED FINANCIAL STATEMENTS (AND RELATED NOTES)
FOR THE COMPANY FOR THE YEARS ENDED
DECEMBER 31, 1994 AND DECEMBER 31, 1995
REPORT OF ERNST & YOUNG L.L.P. INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SyStemix, Inc.
We have audited the accompanying consolidated balance sheets of SyStemix,
Inc. as of December 31, 1995 and 1994, and the related consolidated statements
of operations, stockholders' equity, 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 consolidated financial position of SyStemix, Inc.
as of December 31, 1995 and 1994 and the consolidated 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.
Ernst & Young LLP
Palo Alto, California
February 22, 1996
IV-1
<PAGE>
SYSTEMIX, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1995 1994
----------- -----------
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................................................. $ 1,679 $ 1,474
Short-term investments................................................................ 65,836 6,916
Accounts receivable................................................................... 256 243
Prepaid expenses and other current assets............................................. 1,336 1,145
----------- -----------
TOTAL CURRENT ASSETS................................................................ 69,107 9,778
PROPERTY AND EQUIPMENT, AT COST
Furniture and equipment under capital leases.......................................... 10,772 10,772
Furniture and equipment............................................................... 17,482 12,054
Leasehold improvements................................................................ 42,389 38,895
Construction in process............................................................... 905 1,367
----------- -----------
71,548 63,088
Less accumulated depreciation and amortization........................................ (20,995) (11,090)
----------- -----------
NET PROPERTY AND EQUIPMENT.......................................................... 50,553 51,998
Long-term investments................................................................... -- 18,155
Investment in gene therapy joint venture................................................ -- 1,753
Deposits and other assets............................................................... 542 613
----------- -----------
$ 120,202 $ 82,297
----------- -----------
----------- -----------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued liabilities.............................................. $ 3,873 $ 3,332
Accrued compensation.................................................................. 2,808 2,332
Current portion of capital lease obligation........................................... 1,831 1,681
Deferred revenue from related party................................................... 3,097 890
Current portion of accrued rent....................................................... 69 --
----------- -----------
TOTAL CURRENT LIABILITIES........................................................... 11,678 8,235
Noncurrent portion of capital lease obligation.......................................... 5,518 7,348
Accrued rent, less current portion...................................................... 4,536 3,013
Commitments
STOCKHOLDER'S EQUITY
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued............ -- --
Common stock, $0.01 par value; 30,000,000 shares authorized; 14,463,094 and 9,788,283
shares issued and outstanding at December 31, 1995 and 1994, respectively........... 157 110
Additional paid in capital............................................................ 246,536 164,430
Deferred compensation................................................................. (404) (408)
Unrealized gain (loss) on short-term investments...................................... 390 (309)
Accumulated deficit................................................................... (148,209) (100,122)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY.......................................................... 98,470 63,701
----------- -----------
$ 120,202 $ 82,297
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
IV-2
<PAGE>
SYSTEMIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1995 1994 1993
---------- ---------- ----------
REVENUES
Collaborative research from related party................................... $ 2,168 $ 3,211 $ 5,883
Collaborative research...................................................... 152 -- --
Research grants............................................................. 992 234 328
Contract testing............................................................ 165 669 213
Other....................................................................... 139 -- --
---------- ---------- ----------
Total revenues............................................................ 3,616 4,114 6,424
EXPENSES
Research and Development:
Collaborative research.................................................... 3,422 4,142 6,106
Research grants........................................................... 992 234 328
Contract testing.......................................................... 150 422 209
Gene therapy joint venture................................................ 2,940 3,997 2,207
Company-sponsored......................................................... 39,229 31,740 14,119
---------- ---------- ----------
Total research and development.......................................... 46,733 40,535 22,969
General and administrative.................................................. 8,110 8,819 8,173
---------- ---------- ----------
TOTAL OPERATING EXPENSES.................................................. 54,843 49,354 31,142
---------- ---------- ----------
LOSS FROM OPERATIONS.......................................................... (51,227) (45,240) (24,718)
Other income (expense)........................................................ 3,140 852 6,265
---------- ---------- ----------
NET LOSS...................................................................... ($ 48,087) ($ 44,388) ($ 18,453)
---------- ---------- ----------
---------- ---------- ----------
NET LOSS PER SHARE............................................................ ($ 3.43) ($ 4.54) ($ 1.89)
---------- ---------- ----------
---------- ---------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING........................................... 14,028 9,773 9,738
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
IV-3
<PAGE>
SYSTEMIX, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) TOTAL
COMMON STOCK ADDITIONAL DEFERRED ON ACCUM- STOCK-
------------------------- PAID-IN COMPEN- SHORT-TERM ULATED HOLDERS'
SHARES AMOUNT CAPITAL SATION INVESTMENTS DEFICIT EQUITY
------------ ----------- ---------- --------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992.......... 9,710,275 $ 109 $ 163,793 $ (397) $ -- $ (37,281) $ 126,224
Issuance of common stock for cash
pursuant to option exercises........ 41,525 1 19 20
Deferred compensation related to
issuance of certain stock options... 475 (475) --
Amortization of deferred
compensation........................ 380 380
Net loss.............................. (18,453) (18,453)
------------ ----- ---------- --------- ----- ----------- ----------
BALANCE AT DECEMBER 31, 1993.......... 9,751,800 110 164,287 (492) -- (55,734) 108,171
Issuance of common stock for cash
pursuant to option exercises........ 36,483 -- 13 13
Deferred compensation related to
issuance of certain stock options... 130 (130) --
Amortization of deferred
compensation........................ 214 214
Unrealized gain (loss) on short-term
investments......................... (309) (309)
Net loss.............................. (44,388) (44,388)
------------ ----- ---------- --------- ----- ----------- ----------
BALANCE AT DECEMBER 31, 1994.......... 9,788,283 110 164,430 (408) (309) (100,122) 63,701
Issuance of common stock for cash
pursuant to option exercises........ 58,539 -- 31 31
Issuance of common stock to Sandoz,
net of offering costs of $496....... 4,616,272 47 79,457 79,504
Deferred compensation related to
issuance of certain stock options... 328 (328) --
Amortization of deferred
compensation........................ 332 332
Change in unrealized gain (loss) on
short-term investments.............. 699 699
Contribution of Progenesys joint
venture equity by Sandoz............ 2,290 2,290
Net loss.............................. (48,087) (48,087)
------------ ----- ---------- --------- ----- ----------- ----------
BALANCE AT DECEMBER 31, 1995.......... 14,463,094 $ 157 $ 246,536 $ (404) $ 390 $ (148,209) $ 98,470
------------ ----- ---------- --------- ----- ----------- ----------
------------ ----- ---------- --------- ----- ----------- ----------
</TABLE>
See accompanying notes.
IV-4
<PAGE>
SYSTEMIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1995 1994 1993
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................................... ($ 48,087) ($ 44,388) ($ 18,453)
Adjustments to reconcile net cash used by operating activities: Depreciation
and amortization.......................................................... 9,472 5,541 3,203
Changes in certain assets/liabilities:
Accounts receivable..................................................... (13) 738 (802)
Prepaid expenses and other current assets............................... (72) (309) (683)
Deposits and other assets............................................... 71 (120) (361)
Accounts payable and accrued liabilities................................ (767) (3,599) 4,742
Accrued compensation.................................................... 476 1,203 888
Investment in gene therapy joint venture................................ 365 (1,753) --
Accrued rent............................................................ 1,592 1,374 1,605
Deferred revenue from related party..................................... 2,207 890 (452)
---------- ---------- ----------
Total adjustments..................................................... 13,331 3,965 8,140
---------- ---------- ----------
NET CASH USED BY OPERATING ACTIVITIES......................................... (34,756) (40,423) (10,313)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................................... (4,259) (22,152) (28,878)
Purchases of available-for-sale investments............................... (104,043) (14,007) --
Proceeds from sales of available-for-sale investments..................... 22,299 55,328 --
Proceeds from maturities of available-for-sale investments................ 41,678 14,706 --
Purchases of investments.................................................. -- -- (165,172)
Proceeds from sales of investments........................................ -- -- 197,220
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES........................... (44,325) 33,875 3,170
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments under capital lease obligations.................................. (1,680) (1,404) (521)
Proceeds under capital lease obligations.................................. -- 4,033 5,893
Net proceeds from issuance of common stock................................ 79,535 13 20
Net proceeds from dissolution of the joint venture........................ 1,431 -- --
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES..................................... 79,286 2,642 5,392
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......................... 205 (3,906) (1,751)
Cash and cash equivalents at beginning of year................................ 1,474 5,380 7,131
---------- ---------- ----------
Cash and cash equivalents at end of year...................................... $ 1,679 $ 1,474 $ 5,380
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL SCHEDULE NON-CASH INVESTING AND FINANCING ACTIVITIES:
Net assets transferred from dissolution of joint venture.................... $ 2,248 $ -- $ --
---------- ---------- ----------
---------- ---------- ----------
Deferred compensation related to the issuance of stock options.............. $ 328 $ 130 $ 475
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid during the year............................................... $ 716 $ 687 $ 170
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
IV-5
<PAGE>
SYSTEMIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
SyStemix, Inc. (the "Company"), incorporated in the State of Delaware on May
13, 1988, is a biotechnology company focused on creating new cellular and
cell-based gene therapies for major disorders of the blood and immune system
based on the use of the human hematopoietic stem cell.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
DEPRECIATION AND AMORTIZATION
The Company depreciates property and equipment using the straight-line
method over the estimated useful lives of the assets, ranging from three to five
years. Furniture and equipment leased under capital leases are amortized using
the straight-line method over the lease term. Leasehold improvements are
amortized using the straight-line method over the shorter of their useful lives
or the facility lease term (generally 10 years). Depreciation and amortization
expense for the year ended December 31, 1995 was $9.1 million ($5.3 million in
1994 and $2.8 million in 1993).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from stock options are
excluded from the computation as their effect is antidilutive.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash held in commercial banks, time
deposits and other highly liquid investments with an original maturity of 90
days or less. Cash equivalents are readily convertible into cash and have
insignificant interest rate risk.
INVESTMENTS
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held to maturity when the Company has a
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost, adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization is included in
interest income. Marketable debt securities not classified as held-to-maturity
are classified as available-for-sale. Available-for-sale securities are carried
at
IV-6
<PAGE>
SYSTEMIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
fair value based on quoted market prices, with the unrealized gains and losses
reported in a separate component of stockholders' equity. The amortized cost of
debt securities classified as available-for-sale is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in interest income. Realized gains or losses and declines in value judged to be
other-than-temporary are included in other income. For the year ended December
31, 1995, the gross realized gains and losses on available-for-sale and
held-to-maturity securities were immaterial. The cost of securities sold is
based on the specific identification method. With the exception of securities
issued by the U.S. government, by policy the Company limits the amount of credit
exposure to any one issuer. The Company has not experienced any significant
losses related to these investments.
REVENUE RECOGNITION
Collaborative research revenue earned is based on research expenses
incurred. Amounts received in advance of services to be performed are recorded
as deferred revenue until the related expenses are incurred. Milestone payments
are recognized as revenue in the period earned.
The Company has received government grants which support the Company's
research effort in specific research projects. These grants generally provide
for reimbursement of approved costs incurred as defined in the various
agreements.
Contract testing revenue is recognized in the period earned on a cost plus
basis as defined in the relevant agreements.
STOCK COMPENSATION
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123, "Accounting for Stock-Based Compensation ("SFAS 123"). SFAS
123 is effective for fiscal years beginning after December 15, 1995. Under SFAS
123 stock-based compensation expense to employees is measured using either the
intrinsic value method as prescribed by Accounting Principle Board Opinion No.
25 or the fair-value method described in SFAS 123. Companies choosing the
intrinsic-value method will be required to disclose the pro-forma impact of the
fair-value method on net income and earnings per share. The Company plans to
implement the standard in 1996 using the instrinsic-value method for stock
awards to employees. There will be no effect of adopting the standard on the
Company's financial position or results of operations.
IMPAIRMENT/DISPOSITION OF 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"
(SFAS 121"), 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. SFAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company will adopt
SFAS 121 in the first quarter of 1996. Based on current circumstances the
Company believes there will be no effect of adopting the standard on the
Company's financial position or results of operations.
IV-7
<PAGE>
SYSTEMIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
2. SANDOZ LTD. INVESTMENT
On February 19, 1992, Sandoz Biotech Holdings Corporation ("Sandoz
Biotech"), an indirect wholly owned subsidiary of Sandoz Ltd., concluded a
tender offer for 4,011,684 shares of the Company's Common Stock, or 49.13% of
the Company's then outstanding shares (on a fully diluted basis) for $70 per
share. In addition, on February 19, 1992 the Company issued 1,982,143 additional
shares of the Company's Common Stock for $56 per share or an aggregate of
approximately $111 million, thereby raising Sandoz Biotech's aggregated
ownership to 60%.
On January 30, 1995 the Company and Sandoz Biotech entered into a stock and
warrant purchase agreement whereby the Company issued to Sandoz Biotech, on
February 2, 1995, an additional 4,616,272 shares of common stock and warrants to
purchase an additional 1,367,600 shares of common stock in exchange for proceeds
of $80.0 million. The warrants have an exercise price of $27.50 per share and
are exercisable during a three year period ending February 2, 1998. Certain
portions of the 1992 acquisition agreement were amended to allow this
transaction. The amended acquisition agreement provides that until December 16,
1998, Sandoz Biotech is prohibited from increasing its share holding above 71.6%
on a fully-diluted basis (73.9% if the warrants are exercised in full), and from
December 17, 1998 to February 18, 2002 above 75%. Sandoz Biotech is, however,
permitted to make a tender offer for 100% of the Company's outstanding shares of
common stock at any time, but only if the offer is approved by a majority of the
Company's independent directors. As of December 31, 1995, Sandoz Biotech held
10,610,099 shares of the Company's common stock.
3. JOINT VENTURE AGREEMENT WITH SANDOZ PHARMACEUTICAL CORP.
In April 1993, the Company and Sandoz Pharmaceutical Corp., a wholly owned
affiliate of Sandoz Pharma, Ltd. (collectively "Sandoz"), formed an equally
owned joint venture ("Progenesys") to research and develop hematopoietic
cell-based, somatic gene therapies against HIV infection. The Company and Sandoz
licensed their initial technologies within the field to Progenesys. In addition,
the Company and Sandoz were each obligated to provide $5.0 million of funding
annually to Progenesys through March 1996. The Company accounted for its
investment in Progenesys under the equity method. On August 31, 1995, the
Company and Sandoz dissolved Progenesys and entered into an agreement for
research and development of hematopoietic cell-based somatic gene therapy or
prophylaxis of HIV infection (the "HIV Gene Therapy Collaboration"). The terms
and conditions of the HIV Gene Therapy Collaboration agreement are substantially
equivalent to those of the partnership agreement of April 1993 which created
Progenesys. Under the terms of both agreements, the Company and Sandoz are
obligated to fund the project equally. Commencing April 1996, the Company, at
its option may elect to have Sandoz fund a portion or all of the Company's
obligation, to be repaid out of future profits, if any, of the project. The
Company intends to elect this option as of April 1996. As a result the Sandoz
funding will be treated as collaborative research revenues.
After the dissolution of the partnership, the net assets of Progenesys were
transferred to the Company resulting in a $2.29 million increase in paid in
capital associated with the contribution of Sandoz's interest in the joint
venture, and employees of the joint venture became employees of the Company. The
Company's share of Progenesys' operating loss amounted to $2.94 million (prior
to the dissolution of Progenesys) and $4.0 million for the years ended December
31, 1995 and 1994, respectively. Summarized
IV-8
<PAGE>
SYSTEMIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
3. JOINT VENTURE AGREEMENT WITH SANDOZ PHARMACEUTICAL CORP. (CONTINUED)
information for Progenesys at August 31, 1995 (dissolution date) and December
31, 1994, and for the periods then ended is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Total Assets............................................................. $ 8,525
---------
---------
Total Liabilities........................................................ $ 932
---------
---------
Expenses:
Research and development............................................... $ 5,532 $ 7,497
General and administrative............................................. 332 497
--------- ---------
Net loss................................................................. ($ 5,864) ($ 7,994)
--------- ---------
--------- ---------
</TABLE>
4. COLLABORATIVE RESEARCH AGREEMENTS WITH SANDOZ
In July 1992, the Company entered into an agreement with Sandoz to work
jointly to identify and isolate a gene that encodes a growth factor that is
responsible for human stem cell self-renewal. Under the terms of the agreement,
the Company granted Sandoz worldwide rights to use the stem cell growth factor
("SCGF") for IN VIVO uses. The Company retained worldwide rights to use the
growth factor EX VIVO and the option to co-promote any resulting product in the
United States for IN VIVO uses. In exchange, Sandoz funded the Company's
research and development efforts on the SCGF project and made payments to the
Company upon the achievement of certain milestones. Pursuant to the terms of the
agreement permitting termination after 18 months, the SCGF collaboration ended
on June 30, 1994. The Company has reacquired rights previously granted for IN
VIVO uses and has continued to fund the SCGF project internally. Revenue earned
under the agreement during 1994 was $1.84 million ($5.66 million in 1993).
In November 1993, the Company entered into a two-year agreement with Sandoz
to work jointly to develop and discover therapeutic agents for HIV infection
(the "Anti-Virals Collaboration"). Sandoz funded 50% of the research project.
The Company and Sandoz jointly decided to terminate the agreement as of March
31, 1995. Revenue earned in conjunction with this collaboration was $252,000 and
$1.37 million for the years ended December 31, 1995 and 1994, respectively.
5. INVESTMENTS
The following is a summary of available-for-sale securities at December 31,
1995 and 1994:
IV-9
<PAGE>
SYSTEMIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
5. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
AVAILABLE-FOR SALE SECURITIES
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------------- -------------------- -------------------- --------------------
<CAPTION>
(IN THOUSANDS) 1995 1994 1995 1994 1995 1994 1995 1994
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset-backed securities..................... $ 565 $ 4,951 $ -- $ -- $ (5) $ (179) $ 559 $ 4,772
U.S. Corporate securities................... 8,624 2,585 33 -- -- (104) 8,657 2,481
U.S. Treasury securities and obligations of
other U.S. government agencies............ 34,286 -- 203 -- -- -- 34,489 --
U.S. Corporate commercial paper............. 12,325 -- 158 -- -- -- 12,483 --
Mortgage-backed securities.................. -- 1,311 -- -- -- (26) -- 1,285
--------- --------- --------- --------- --------- --------- --------- ---------
$ 55,799 $ 8,847 394 $ -- $ (5) $ (309) $ 56,188 $ 8,538
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
The following is a summary of held-to-maturity securities at December 31,
1995 and 1994:
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------------- -------------------- ---------------------- ---------
<CAPTION>
(IN THOUSANDS) 1995 1994 1995 1994 1995 1994 1995
--------- --------- --------- --------- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
other U.S. government agencies............. $ 9,648 $ 16,533 $ -- $ -- $ (8) $ (499) $ 9,640
--
--
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C>
(IN THOUSANDS) 1994
---------
<S> <C>
U.S. Treasury securities and obligations of
other U.S. government agencies............. $ 16,034
---------
---------
</TABLE>
The amortized cost and estimated fair value of debt securities at December
31, 1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because the issuers of the securities may
have the right to prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
SECURITIES
------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
----------- -----------
(IN THOUSANDS) 1995 1995
----------- -----------
<S> <C> <C>
Due in one year or less................................................ $ 55,235 $ 55,629
Due after one year through three years................................. 564 559
Due after three years.................................................. -- --
----------- -----------
$ 55,799 $ 56,188
----------- -----------
----------- -----------
</TABLE>
Held to maturity securities at December 31, 1995, due in one year or less,
were $9.65 million at amortized cost and $9.64 million at estimated fair value.
6. LEASE AND RENTAL COMMITMENTS
During 1993 the Company converted its $1.5 million capital lease line with
an original principal value of $883,000 into a new $11 million capital lease
line. The Company refinanced $4.0 million and $5.9 million
IV-10
<PAGE>
SYSTEMIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
6. LEASE AND RENTAL COMMITMENTS (CONTINUED)
of fixed assets under this new capital lease line during 1994 and 1993,
respectively. Under the terms of the capital lease line, the Company is required
to maintain compensating balances in its short-term and long-term investments
equal to 110% of the total principal amounts outstanding under the lease line,
which amounted to $8.2 million at December 31, 1995 and $10.1 million at
December 31, 1994.
Accumulated amortization related to assets under all capital leases at
December 31, 1995 was $6.4 million ($4.3 million in 1994).
The Company leases certain of its facilities under noncancelable operating
leases for an initial term plus renewal options. Total rent expense was
approximately $3.3 million in 1995 ($3.2 million in 1994 and $3.0 million in
1993). The Company recognizes rent expense on a straight-line basis over the
original lease term.
Future minimum lease payments under operating leases (excluding aggregate
sublease rental income of $4.5 million) and capital leases, together with the
present value of the minimum lease payments as of December 31, 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL
OPERATING LEASE
LEASES OBLIGATIONS
----------- -----------
<S> <C> <C>
Year ending December 31:
1996................................................................................ $ 5,013 $ 2,397
1997................................................................................ 4,751 2,397
1998................................................................................ 5,316 2,847
1999................................................................................ 5,671 913
2000 and thereafter................................................................. 24,183 --
----------- -----------
Total lease payments...................................................................... $ 44,934 8,554
-----------
-----------
Less amount representing interest......................................................... (1,205)
-----------
Present value of future lease payments.................................................... 7,349
Less current portion...................................................................... (1,831)
-----------
Noncurrent portion of capital lease obligations........................................... $ 5,518
-----------
-----------
</TABLE>
7. STOCK OPTION PLANS
In March 1989, the Board of Directors of the Company approved the 1988 Stock
Option Plan (the "1988 Plan") whereby incentive and non-statutory options to
acquire common stock of the Company are granted to employees and officers of,
and consultants to, the Company. In June 1991, the Board of Directors of the
Company approved the 1991 Stock Option and Incentive Plan (the "1991 Plan" or,
together with the 1988 Plan, the "Plans") pursuant to which the committee
administering the Plans may grant incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock awards and performance
share awards (collectively with grants under the 1988 Plan, "Awards") to
participants. Awards under the 1991 Plan may be made to eligible employees of
the Company, including officers, and nonqualified stock options may be granted
to eligible consultants to the Company and, on a non-discretionary basis, to
certain non-employee directors of the Company. In June 1995, the Board of
IV-11
<PAGE>
SYSTEMIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
7. STOCK OPTION PLANS (CONTINUED)
Directors of the Company and Shareholders authorized an increase of shares of
Common Stock for issuance under the Plans from 2,350,000 to 4,000,000 shares.
Under the Plans, the exercise price of incentive stock options granted may not
be less than 100% (110% in the case of any options granted to a person who owns
more than 10% of the total combined voting power of all classes of stock of the
Company) of the fair market value of the common stock on the date of grant of
the option. Awards generally become exercisable over a four-year period and
generally expire ten years from date of grant.
In June 1994, the Board of Directors of the Company approved a resolution to
offer eligible employees (excluding executive officers) holding stock options
granted under the 1991 Plan the opportunity to exchange their original stock
options for new options granted at the then current fair market value. As a
result, options on 359,779 shares were canceled and regranted. Other than the
change in exercise price and addition of a restriction on exercise through
December 15, 1994, the new options were granted on the same terms and conditions
as the surrendered options.
The Company has recorded deferred compensation expense for the difference
between the grant price and the fair market value of the Company's common stock
for certain Awards granted in 1995, 1994 and 1993. Amortization of deferred
compensation for the year ended December 31, 1995 was $332,000 ($214,000 is 1994
and $380,000 in 1993).
Awards to purchase 766,332 shares of common stock were exercisable at an
aggregate price of approximately $14.3 million as of December 31, 1995 (398,992
shares at $5.3 million in 1994).
Activity under the Plans was as follows:
<TABLE>
<CAPTION>
OUTSTANDING AWARDS
SHARES ---------------------------------------
AVAILABLE AGGREGATE
FOR GRANT SHARES PRICE (IN THOUSANDS)
---------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1992.............................. 261,234 644,428 $ .01-58.00 $ 10,738
Authorization of additional shares for issuance............ 1,000,000 -- -- --
Awards granted............................................. (443,760) 443,760 .01-25.00 7,648
Awards exercised........................................... -- (41,525) .01- .79 (20)
Awards canceled............................................ 39,395 (39,395) .01-54.50 (525)
---------- ---------- ----------- -------
BALANCES AT DECEMBER 31, 1993.............................. 856,869 1,007,268 .01-58.00 17,841
Awards granted............................................. (990,469) 990,469 .01-41.25 16,704
Awards exercised........................................... -- (36,483) .01-17.25 (13)
Awards canceled............................................ 475,638 (475,638) .01-58.00 (8,859)
---------- ---------- ----------- -------
BALANCES AT DECEMBER 31, 1994.............................. 342,038 1,485,616 .01-41.25 25,673
Authorization of additional shares for issuance............ 1,650,000 -- -- --
Awards granted............................................. (652,825) 652,825 .01-19.25 8,797
Awards exercised........................................... -- (58,539) .01-12.76 (32)
Awards canceled............................................ 385,721 (385,721) .01-23.00 (6,051)
---------- ---------- ----------- -------
BALANCES AT DECEMBER 31, 1995.............................. 1,724,934 1,694,181 $ .01-23.00 $ 28,387
---------- ---------- ----------- -------
---------- ---------- ----------- -------
</TABLE>
IV-12
<PAGE>
SYSTEMIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
8. OTHER INCOME (EXPENSE)
Other income (expense) consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Interest income...................................................................... $ 4,302 $ 2,455 $ 5,512
Realized gain (loss) on sale of marketable securities................................ (87) (835) 929
Loss on disposal of property and equipment........................................... (270) -- --
Interest expense..................................................................... (716) (687) (170)
Other................................................................................ (89) (81) (6)
--------- --------- ---------
$ 3,140 $ 852 $ 6,265
--------- --------- ---------
--------- --------- ---------
</TABLE>
9. AGREEMENTS WITH STANFORD UNIVERSITY
In September 1992, the Company amended the development and license agreement
with Stanford University which allows the Company to use Stanford's technology
and licensed patents relating to the SCID-hu mouse for the purpose of
developing, manufacturing and selling any products derived therefrom. The
license is exclusive for a term commencing January 1, 1992 and will end March 1,
2000. In exchange for the use of the technology, the Company has made $75,000
payments to Stanford in 1995, 1994 and 1993 which were charged to research and
development expense and will continue to make annual payments. In addition, the
Company will pay royalties upon the successful commercialization of any products
under terms specified in the agreement.
In March 1994, the Company together with Sandoz agreed to provide funding
for a portion of the research carried out at Stanford University School of
Medicine. The Company provided $796,000 of funding in 1995 and $960,000 in 1994
and will fund the research program through December 1996; the amount and nature
of the 1996 funding is under negotiation. The research is directed by Dr. Irving
Weissman as Principal Investigator. Dr. Weissman is a director, consultant, and
chairman of the scientific advisory board of the Company. The agreement provides
that the Company and Sandoz have the right to negotiate with Stanford for a
license on commercially reasonable terms for intellectual property, if any, that
results from the funding. The research funded under this agreement is not
currently funded in any way by any other party.
10. FEDERAL INCOME TAXES
As of December 31, 1995, the Company has net operating loss carryforwards of
approximately $120.0 million for federal income tax purposes. These
carryforwards, if not utilized to offset taxable income in future periods, will
expire in the years 2003 through 2010.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities for federal and state income taxes
as of December 31, 1995 and 1994 are as follows:
IV-13
<PAGE>
SYSTEMIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
10. FEDERAL INCOME TAXES (CONTINUED)
Deferred tax assets (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Net operating loss carryforwards........................................ $ 41,100 $ 29,800
Research credits (expire in 2003 through 2010).......................... 4,400 3,300
Capitalized research and development.................................... 6,100 3,400
Other................................................................... 5,800 2,500
--------- ---------
Total deferred tax assets............................................... 57,400 39,000
Valuation allowance for deferred tax assets............................. (57,400) (39,000)
--------- ---------
Net deferred tax assets................................................. $ 0 $ 0
--------- ---------
--------- ---------
</TABLE>
Utilization of the net operating losses and credits may be subject to an
annual limitation due to the change in ownership limitations provided by the
Internal Revenue Code 1986.
The valuation allowance for deferred tax assets increased by approximately
$17.0 million and $7.0 million for the year ended December 31, 1994 and 1993,
respectively.
IV-14
<PAGE>
SCHEDULE V
UNAUDITED FINANCIAL STATEMENTS (AND RELATED NOTES)
FOR THE COMPANY FOR THE PERIOD ENDED
SEPTEMBER 30, 1996
SYSTEMIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents......................................................... $ 1,995 $ 1,679
Short-term investments............................................................ 48,373 65,836
Accounts receivable............................................................... 259 256
Prepaid expenses and other current assets......................................... 1,164 1,336
------------- ------------
TOTAL CURRENT ASSETS............................................................ 51,791 69,107
Net property and equipment.......................................................... 44,862 50,553
Deposits and other assets........................................................... 617 542
------------- ------------
$ 97,270 $ 120,202
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities.......................................... $ 6,744 $ 6,681
Current portion of capital lease obligation....................................... 1,951 1,831
Deferred revenue from related party............................................... 8,400 3,097
Current portion of accrued rent................................................... 54 69
------------- ------------
TOTAL CURRENT LIABILITIES....................................................... 17,149 11,678
Noncurrent portion of capital lease obligation...................................... 4,037 5,518
Accrued rent, less current portion.................................................. 4,730 4,536
STOCKHOLDERS' EQUITY
Common stock...................................................................... 165 157
Additional paid in capital........................................................ 246,827 246,536
Deferred compensation............................................................. (293) (404)
Unrealized gain on short-term investments......................................... 688 390
Accumulated deficit............................................................... (176,033) (148,209)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY...................................................... 71,354 98,470
------------- ------------
$ 97,270 $ 120,202
------------- ------------
------------- ------------
</TABLE>
See accompanying notes.
V-1
<PAGE>
SYSTEMIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
--------- ---------- ---------- ----------
REVENUES
Collaborative research from related party...................... $ 2,975 $ 474 $ 6,835 $ 726
Collaborative research......................................... 32 -- 227 --
Research grants................................................ 15 117 79 798
Contract testing............................................... -- -- -- 161
Other.......................................................... 31 44 110 44
--------- ---------- ---------- ----------
TOTAL REVENUES............................................... 3,053 635 7,251 1,729
EXPENSES
Research and development:
Collaborative research......................................... 3,007 739 7,697 1,245
Research grants................................................ 15 117 79 798
Gene therapy joint venture..................................... -- 862 -- 2,940
Company-sponsored.............................................. 7,462 9,280 23,315 28,994
--------- ---------- ---------- ----------
Total research and development............................... 10,484 10,998 31,091 33,977
General and administrative....................................... 2,082 1,868 5,891 5,775
--------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES..................................... 12,566 12,866 36,982 39,752
--------- ---------- ---------- ----------
LOSS FROM OPERATIONS............................................... (9,513) (12,231) (29,731) (38,023)
Other income (net)................................................. 666 990 1,907 2,783
--------- ---------- ---------- ----------
NET LOSS........................................................... (8,847) $ (11,241) (27,824) (35,240)
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
NET LOSS PER SHARE................................................. $ (.61) $ (.78) $ (1.92) $ (2.54)
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
SHARES USED IN COMPUTING NET LOSS PER SHARE........................ 14,493 14,434 14,479 13,880
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
V-2
<PAGE>
SYSTEMIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................................................ $ (27,824) $ (35,240)
ADJUSTMENTS TO RECONCILE NET CASH USED BY OPERATING ACTIVITIES:
Depreciation and amortization......................................................... 7,427 6,717
Changes in certain assets/liabilities:
Accounts receivable................................................................. (3) (1,089)
Prepaid expenses and other current assets........................................... 172 (18)
Investment in gene therapy joint venture............................................ -- 365
Deposits and other assets........................................................... (75) 109
Accounts payable and other liabilities.............................................. 242 (1,813)
Deferred revenue.................................................................... 5,303 (247)
---------- ----------
Total adjustments................................................................. 13,066 4,024
---------- ----------
NET CASH USED BY OPERATING ACTIVITIES................................................... (14,758) (31,216)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................................................................... (1,625) (3,795)
Net change in investments............................................................... 17,761 (17,466)
---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES....................................... 16,136 (21,261)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations................................................... (1,361) (1,248)
Net proceeds from issuance of common stock.............................................. 299 79,585
Net proceeds from dissolution of the joint venture...................................... -- 1,431
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES....................................... (1,062) 79,768
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................................. 316 27,291
Cash and cash equivalents at beginning of period.......................................... 1,679 1,474
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................................ $ 1,995 $ 28,765
---------- ----------
---------- ----------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Deferred compensation related to the issuance of stock options.......................... -- $ 42
---------- ----------
---------- ----------
Net assets transferred from dissolution of the joint venture............................ -- $ 2,248
---------- ----------
---------- ----------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid during the period......................................................... $ 440 $ 551
---------- ----------
---------- ----------
</TABLE>
See accompanying notes
V-3
<PAGE>
SYSTEMIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
SyStemix, Inc. (the "Company"), incorporated in the State of Delaware on May
13, 1988, is a biotechnology company focused on creating new cellular and
cell-based gene therapies for major disorders of the blood and immune system,
based on the use of the human hematopoietic stem cell.
INTERIM FINANCIAL INFORMATION
The balance sheet as of September 30, 1996, and the statements of operations
and cash flows for the three and nine month periods ended September 30, 1996 and
1995 are unaudited but include all adjustments (consisting of normal recurring
adjustments) which the Company considers necessary for a fair presentation of
the financial position at such dates and the operating results and cash flows
for those periods. Although the Company believes that the disclosures in these
financial statements are adequate to make the information presented not
misleading, certain information and footnote information normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission (the "SEC"). The December 31, 1995
condensed consolidated balance sheet was derived from audited financial
statements included in the Company's Form 10-K. The accompanying financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1995 as filed with the SEC. Results for any interim period are not
necessarily indicative of results for any other interim period or for the entire
year.
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from stock options and
warrants are excluded from the computation as their effect is antidilutive.
2. RESEARCH AND DEVELOPMENT COLLABORATION WITH SANDOZ PHARMACEUTICALS
CORPORATION
In April 1993, the Company and Sandoz Pharmaceuticals Corporation, a wholly
owned affiliate of Sandoz Pharma, Ltd. (collectively "Sandoz"), formed an
equally owned joint venture ("Progenesys") to research and develop hematopoietic
cell-based, somatic gene therapies against HIV infection. The Company and Sandoz
licensed their initial technologies within the field to Progenesys. In addition,
the Company and Sandoz were each obligated to provide $5.0 million of funding
annually to Progenesys through March 1996. The Company accounted for its
investment in Progenesys under the equity method. On August 31, 1995, the
Company and Sandoz dissolved Progenesys and entered into a collaborative
agreement for research and development of hematopoietic cell-based somatic gene
therapy designed to prevent replication of HIV in symptomatic or asymptomatic
patients (the "HIV Gene Therapy Collaboration"). The terms and conditions of the
HIV Gene Therapy Collaboration agreement are substantially equivalent to those
of the partnership agreement of April 1993 which created Progenesys. Under the
terms of both agreements, the Company and Sandoz are obligated to fund the
project equally and share equally in the profits and losses of the project.
Commencing April 1996, the Company, pursuant to the terms of the HIV Gene
Therapy Collaboration Agreement, elected to have Sandoz fund all of the
Company's obligation, to be repaid out of future profits, if any, of the
project. The Sandoz funding is recognized as
V-4
<PAGE>
SYSTEMIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. RESEARCH AND DEVELOPMENT COLLABORATION WITH SANDOZ PHARMACEUTICALS
CORPORATION (CONTINUED)
collaborative research revenues as expenses are incurred. Revenue earned under
the HIV Gene Therapy Collaboration was $6.84 million for the nine months ended
September 30, 1996. Sandoz Biotech Holdings Corporation, an indirect
wholly-owned subsidiary of Sandoz Ltd., is a majority shareholder of the
Company.
3. LEGAL PROCEEDINGS
The Company has been served notice or been informed of six stockholder
lawsuits with respect to the May 23, 1996 Sandoz proposal to acquire all of the
shares of the Company that Sandoz does not already own, at a proposed price of
$17.00 per share. The lawsuits have been filed in the Court of Chancery of the
State of Delaware in New Castle County, each suit asking for class action status
and naming the Company, Sandoz and its affiliated entities, and the individual
members of the Company's Board of Directors as defendants. The suits have been
consolidated into one action and generally seek to enjoin consummation of the
Sandoz proposal on the grounds that the consideration to be paid to the public
shareholders under the proposal is unfair and inadequate. Pursuant to a
court-approved stipulation, dated July 15, 1996, no response to the suits will
be made by the defendants until 20 days after they receive notice that a
response is required. The litigation could result in substantial expense to the
Company and significant diversion of efforts of the Company's management team.
V-5
<PAGE>
Facsimiles of the Letter of Transmittal will be accepted. The Letter of
Transmittal and certificates evidencing Shares and any other required documents
should be sent or delivered by each stockholder or his broker, dealer,
commercial bank, trust company or other nominee to the Depositary at one of its
addresses set forth below.
THE DEPOSITARY FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND/BY OVERNIGHT
ChaseMellon Shareholder (201) 329-8936 DELIVERY: ChaseMellon
Services, L.L.C. Shareholder
Reorganization Department Services, L.L.C.
PO Box 798 Reorganization Department
Midtown Station 120 Broadway
New York, NY 10018 Confirm by Telephone: 13th Floor
(201) 296-4209 New York, NY 10271
</TABLE>
Questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of this Offer to Purchase, the Letter of
Transmittal and the Notice of Guaranteed Delivery may be obtained from the
Information Agent. A stockholder may also contact brokers, dealers, commercial
banks or trust companies for assistance concerning the Offer.
The Information Agent for the Offer is:
[LOGO]
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect:
(212) 440-9800
All Others Call Toll Free:
1-800-223-2064
THE DEALER MANAGER FOR THE OFFER IS:
MORGAN STANLEY & CO.
INCORPORATED
1585 Broadway
New York, New York 10036
(212) 761-7621
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
SYSTEMIX, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED JANUARY 17, 1997
OF
NOVARTIS BIOTECH HOLDING CORP.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
NOVARTIS INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 12:00 MIDNIGHT, NEW YORK CITY TIME,
ON FRIDAY, FEBRUARY 14, 1997, UNLESS THE OFFER IS EXTENDED.
THE DEPOSITARY FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND/BY OVERNIGHT DELIVERY:
ChaseMellon Shareholder Services, (FOR ELIGIBLE INSTITUTIONS ChaseMellon Shareholder Services,
L.L.C. ONLY) L.L.C.
Reorganization Department (201) 329-8936 Reorganization Department
P.O. Box 798 CONFIRM BY TELEPHONE: 120 Broadway
Midtown Station (201) 296-4209 13th Floor
New York, NY 10018 New York, NY 10271
</TABLE>
------------------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OR TELEX OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
<PAGE>
This Letter of Transmittal is to be completed by stockholders either if
certificates evidencing Shares (as defined below) are to be forwarded herewith
or if delivery of Shares is to be made by book-entry transfer to the
Depositary's account at The Depository Trust Company ("DTC"), the Midwest
Securities Trust Company ("MSTC") or the Philadelphia Depository Trust Company
("PDTC") (each a "Book-Entry Transfer Facility" and collectively, the
"Book-Entry Transfer Facilities") pursuant to the book-entry transfer procedure
described under "THE TENDER OFFER -- Section 3. Procedures for Accepting the
Offer and Tendering Shares" in the Offer to Purchase (as defined below).
DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE
DELIVERY TO THE DEPOSITARY.
Stockholders whose certificates evidencing Shares ("Share Certificates") are
not immediately available or who cannot deliver their Share Certificates and all
other documents required hereby to the Depositary prior to the Expiration Date
(as defined under "THE TENDER OFFER -- Section 1. Terms of the Offer; Expiration
Date" in the Offer to Purchase) or who cannot complete the procedure for
delivery by book-entry transfer on a timely basis and who wish to tender their
Shares must do so pursuant to the guaranteed delivery procedure described under
"THE TENDER OFFER -- Section 3. Procedures for Accepting the Offer and Tendering
Shares" in the Offer to Purchase. See Instruction 2.
/ / CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE
DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution
---------------------------------------------------------------
Check Box of Applicable Book-Entry Transfer Facility:
(CHECK ONE) / / DTC / / MSTC / / PDTC
Account Number
-----------------------------
Transaction Code Number
---------------------
/ / CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)
-------------------------------------------------------------
Window Ticket No. (if any)
------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
--------------------------------------------
Name of Institution which Guaranteed Delivery
------------------------------------------------
2
<PAGE>
<TABLE>
<S> <C> <C> <C>
DESCRIPTION OF SHARES TENDERED
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S)
APPEAR(S) ON SHARE CERTIFICATE(S)) SHARE CERTIFICATE(S) AND SHARE(S) TENDERED
(ATTACH ADDITIONAL LIST, IF NECESSARY)
TOTAL NUMBER OF
SHARES EVIDENCED
SHARE BY NUMBER OF
CERTIFICATE SHARE SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
TOTAL SHARES..................
* Need not be completed by stockholders delivering Shares by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by each Share
Certificate delivered to the Depositary are being tendered hereby. See Instruction 4.
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Novartis Biotech Holding Corp., a Delaware
corporation ("Purchaser") and an indirect wholly owned subsidiary of Novartis
Inc., a corporation organized under the laws of Switzerland, the above-described
shares of Common Stock, par value $.01 per share, of SyStemix, Inc., a Delaware
corporation (the "Company") (all shares of such Common Stock from time to time
outstanding being, collectively, the "Shares") pursuant to Purchaser's offer to
purchase all Shares, at $19.50 per Share, net to the seller in cash, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
January 17, 1997 (the "Offer to Purchase"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which, together with the Offer
to Purchase, constitute the "Offer"). The undersigned understands that Purchaser
reserves the right to transfer or assign, in whole or from time to time in part,
to one or more of its affiliates, the right to purchase all or any portion of
the Shares tendered pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith, in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, Purchaser all
right, title and interest in and to all the Shares that are being tendered
hereby and all dividends, distributions (including, without limitation,
distributions of additional Shares) and rights declared, paid or distributed in
respect of such Shares on or after January 10, 1997 (collectively,
"Distributions") and irrevocably appoints the Depositary the true and lawful
agent and attorney-in-fact of the undersigned with respect to such Shares and
all Distributions, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (i) deliver
Share Certificates evidencing such Shares and all Distributions, or transfer
ownership of such Shares and all Distributions on the account books maintained
by a Book-Entry Transfer Facility, together, in either case, with all
accompanying evidences of transfer and authenticity, to or upon the order of
Purchaser, (ii) present such Shares and all Distributions for transfer on the
books of the Company and (iii) receive all benefits and otherwise exercise all
rights of beneficial ownership of such Shares and all Distributions, all in
accordance with the terms of the Offer.
<PAGE>
The undersigned hereby irrevocably appoints Edgar John Fullager and Robert
L. Thompson, Jr. and each of them, as the attorneys and proxies of the
undersigned, each with full power of substitution, to vote in such manner as
each such attorney and proxy or his substitute shall, in his sole discretion,
deem proper and otherwise act (by written consent or otherwise) with respect to
all the Shares tendered hereby which have been accepted for payment by Purchaser
prior to the time of such vote or other action and all Shares and other
securities issued in Distributions in respect of such Shares, which the
undersigned is entitled to vote at any meeting of stockholders of the Company
(whether annual or special and whether or not an adjourned or postponed meeting)
or consent in lieu of any such meeting or otherwise. This proxy and power of
attorney is coupled with an interest in the Shares tendered hereby, is
irrevocable and is granted in consideration of, and is effective upon, the
acceptance for payment of such Shares by Purchaser in accordance with the terms
of the Offer. Such acceptance for payment shall revoke all other proxies and
powers of attorney granted by the undersigned at any time with respect to such
Shares (and all Shares and other securities issued in Distributions in respect
of such Shares), and no subsequent proxy or power of attorney shall be given or
written consent executed (and if given or executed, shall not be effective) by
the undersigned with respect thereto. The undersigned understands that, in order
for Shares to be deemed validly tendered, immediately upon Purchaser's
acceptance of such Shares for payment, Purchaser must be able to exercise full
voting and other rights with respect to such Shares, including, without
limitation, voting at any meeting of the Company's stockholders then scheduled.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Distributions, that when such Shares are accepted for payment by
Purchaser, Purchaser will acquire good, marketable and unencumbered title
thereto and to all Distributions, free and clear of all liens, restrictions,
charges and encumbrances, and that none of such Shares and Distributions will be
subject to any adverse claim. The undersigned, upon request, shall execute and
deliver all additional documents deemed by the Depositary or Purchaser to be
necessary or desirable to complete the sale, assignment and transfer of the
Shares tendered hereby and all Distributions. In addition, the undersigned shall
remit and transfer promptly to the Depositary for the account of Purchaser all
Distributions in respect of the Shares tendered hereby, accompanied by
appropriate documentation of transfer, and pending such remittance and transfer
or appropriate assurance thereof, Purchaser shall be entitled to all rights and
privileges as owner of each such Distribution and may withhold the entire
purchase price of the Shares tendered hereby, or deduct from such purchase price
the amount or value of such Distribution as determined by Purchaser in its sole
discretion.
No authority herein conferred or agreed to be conferred shall be affected
by, and all such authority shall survive, the death or incapacity of the
undersigned. All obligations of the undersigned hereunder shall be binding upon
the heirs, personal representatives, successors and assigns of the undersigned.
Except as stated in the Offer to Purchase, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in the Offer to Purchase under "THE TENDER
OFFER--Section 3. Procedures for Accepting the Offer and Tendering Shares" and
in the instructions hereto will constitute the undersigned's acceptance of the
terms and conditions of the Offer. Purchaser's acceptance of such Shares for
payment will constitute a binding agreement between the undersigned and
Purchaser upon the terms and subject to the conditions of the Offer.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions", please issue the check for the purchase price of all Shares
purchased, and return all Share Certificates evidencing Shares not purchased or
not tendered in the name(s) of the registered holder(s) appearing above under
"Description of Shares Tendered". Similarly, unless otherwise indicated in the
box entitled "Special Delivery Instructions", please mail the check for the
purchase price of all Shares purchased and all Share Certificates evidencing
Shares not tendered or not purchased (and accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing above
under "Description of Shares Tendered". In the event that the boxes entitled
"Special Payment Instructions" and "Special Delivery Instructions" are both
completed, please issue the check for the purchase price of all Shares purchased
and return all Share Certificates evidencing Shares not purchased or not
tendered in the name(s) of, and mail such check and Share Certificates to, the
person(s) so indicated. Unless otherwise indicated herein in the box entitled
"Special Payment Instructions", please credit any Shares tendered hereby and
delivered by book-entry transfer, but which are not purchased by crediting the
account at the Book-Entry Transfer Facility designated above. The undersigned
recognizes that Purchaser has no obligation, pursuant to the Special Payment
Instructions, to transfer any Shares from the name of the registered holder(s)
thereof if Purchaser does not purchase any of the Shares tendered hereby.
<PAGE>
<TABLE>
<S> <C>
SPECIAL PAYMENT SPECIAL DELIVERY INSTRUCTIONS
INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
7) To be completed ONLY if the check for the
To be completed ONLY if the check for the purchase price of Shares purchased or
purchase price of Shares or Share Share Certificates evidencing Shares not
Certificates evidencing Shares not tendered or not purchased are to be mailed
tendered or not purchased are to be issued to someone other than the undersigned, or
in the name of someone other than the the undersigned at an address other than
undersigned, or if Shares tendered hereby that shown under "Description of Shares
and delivered by book-entry transfer which Tendered".
are not purchased are to be returned by Mail / / check / / Share Certificate(s)
credit to an account at one of the Book- to:
Entry Transfer Facilities other than that Name
designated above. PLEASE PRINT
Issue / / check / / Share Certificate(s) Address
to:
Name ZIP CODE
PLEASE
PRINT (TAXPAYER IDENTIFICATION OR SOCIAL
Address SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9 ON REVERSE
(ZIP SIDE)
CODE)
TAXPAYER IDENTIFICATION OR SOCIAL
SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 ON REVERSE
SIDE)
/ / Credit Shares delivered by book-entry
transfer and not purchased to the
account set forth below:
Check appropriate box:
/ / DTC / /
MSTC / / PDTC
Account Number:
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
IMPORTANT
STOCKHOLDERS: SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON
REVERSE)
SIGNATURE(S) OF
HOLDER(S)
Dated: , 1997
(Must be signed by registered holder(s) exactly as name(s)
appear(s) on Share Certificates or on a security position
listing by a person(s) authorized to become registered
holder(s) by certificates and documents transmitted herewith.
If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, please
provide the following information and see Instruction 5.)
Name(s):
PLEASE
PRINT
Capacity (full title)
Address:
INCLUDE
ZIP CODE
Area Code and Telephone No:
Taxpayer Identification or Social Security No.:
(SEE SUBSTITUTE FORM W-9 ON REVERSE
SIDE)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTIONS 1 AND
5)
FOR USE BY FINANCIAL INSTITUTIONS ONLY.
FINANCIAL INSTITUTIONS: PLACE MEDALLION
GUARANTEE IN SPACE BELOW.
</TABLE>
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. All signatures on this Letter of Transmittal
must be guaranteed by a firm which is a member of the Medallion Signature
Guarantee Program, or by any other "eligible guarantor institution," as such
term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended (each of the foregoing being referred to as an "Eligible Institution"),
unless (i) this Letter of Transmittal is signed by the registered holder(s) of
the Shares (which term, for purposes of this document, shall include any
participant in a Book-Entry Transfer Facility whose name appears on a security
position listing as the owner of Shares) tendered hereby and such holder(s) has
(have) completed neither the box entitled "Special Payment Instructions" nor the
box entitled "Special Delivery Instructions" on the reverse hereof or (ii) such
Shares are tendered for the account of an Eligible Institution. See Instruction
5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES. This Letter
of Transmittal is to be used either if Share Certificates are to be forwarded
herewith or if Shares are to be delivered by book-entry transfer pursuant to the
procedure set forth under "THE TENDER OFFER -- Section 3. Procedures for
Accepting the Offer and Tendering Shares" in the Offer to Purchase. Share
Certificates evidencing all physically tendered Shares, or a confirmation of a
book-entry transfer into the Depositary's account at a Book-Entry Transfer
Facility of all Shares delivered by book-entry transfer as well as a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and any
other documents required by this Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the reverse hereof prior to the
Expiration Date (as defined under "THE TENDER OFFER -- Section 1. Terms of the
offer; Expiration Date" in the Offer to Purchase). If Share Certificates are
forwarded to the Depositary in multiple deliveries, a properly completed and
duly executed Letter of Transmittal must accompany each such delivery.
Stockholders whose Share Certificates are not immediately available, who cannot
deliver their Share Certificates and all other required documents to the
Depositary prior to the Expiration Date or who cannot complete the procedure for
delivery by book-entry transfer on a timely basis may tender their Shares
pursuant to the guaranteed delivery procedure described under "THE TENDER OFFER
- -- Section 3. Procedures for Accepting the Offer and Tendering Shares" in the
Offer to Purchase. Pursuant to such procedure: (i) such tender must be made by
or through an Eligible Institution; (ii) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form made available by
Purchaser, must be received by the Depositary prior to the Expiration Date; and
(iii) the Share Certificates evidencing all physically delivered Shares in
proper form for transfer by delivery, or a confirmation of a book-entry transfer
into the Depositary's account at a Book-Entry Transfer Facility of all Shares
delivered by book-entry transfer, in each case together with a Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed, with
any required signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message (as defined under "THE TENDER OFFER--Section 3. Procedures for
Accepting the Offer and Tendering Shares" in the Offer to Purchase)), and any
other documents required by this Letter of Transmittal, must be received by the
Depositary within three NASDAQ trading days after the date of execution of such
Notice of Guaranteed Delivery, all as described under "THE TENDER OFFER --
Section 3. Procedures for Accepting the Offer and Tendering Shares" in the Offer
to Purchase.
The method of delivery of this Letter of Transmittal, Share Certificates and
all other required documents, including delivery through any Book-Entry Transfer
Facility, is at the option and risk of the tendering stockholder, and the
delivery will be deemed made only when actually received by the Depositary. If
delivery is by mail, registered mail with return receipt requested, properly
insured, is recommended. In all cases, sufficient time should be allowed to
ensure timely delivery.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. By execution of this Letter of Transmittal
(or a facsimile hereof), all tendering stockholders waive any right to receive
any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Shares Tendered" is inadequate, the Share Certificate numbers, the number of
Shares evidenced by such Share Certificates and the number of Shares tendered
should be listed on a separate schedule and attached hereto.
<PAGE>
4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If fewer than all the Shares evidenced by any Share Certificate
delivered to the Depositary herewith are to be tendered hereby, fill in the
number of Shares which are to be tendered in the box entitled "Number of Shares
Tendered". In such cases, new Share Certificate(s) evidencing the remainder of
the Shares that were evidenced by the Share Certificates delivered to the
Depositary herewith will be sent to the person(s) signing this Letter of
Transmittal, unless otherwise provided in the box entitled "Special Delivery
Instructions" on the reverse hereof, as soon as practicable after the expiration
or termination of the Offer. All Shares evidenced by Share Certificates
delivered to the Depositary will be deemed to have been tendered unless
otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the Share Certificates evidencing such Shares without alteration,
enlargement or any other change whatsoever.
If any Share tendered hereby is owned of record by two or more persons, all
such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in the names of
different holders, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of such
Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of Share Certificates or separate stock
powers are required, unless payment is to be made to, or Share Certificates
evidencing Shares not tendered or not purchased are to be issued in the name of,
a person other than the registered holder(s), in which case, the Share
Certificate(s) evidencing the Shares tendered hereby must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear(s) on such Share Certificate(s).
Signatures on such Share Certificate(s) and stock powers must be guaranteed by
an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Share Certificate(s). Signatures on such
Share Certificate(s) and stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Share Certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to Purchaser of such person's authority so to act must be
submitted.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction
6, Purchaser will pay all stock transfer taxes with respect to the sale and
transfer of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price of any Shares purchased is to be made to, or Share
Certificate(s) evidencing Shares not tendered or not purchased are to be issued
in the name of, a person other than the registered holder(s), the amount of any
stock transfer taxes (whether imposed on the registered holder(s), such other
person or otherwise) payable on account of the transfer to such other person
will be deducted from the purchase price of such Shares purchased, unless
evidence satisfactory to Purchaser of the payment of such taxes, or exemption
therefrom, is submitted. Except as provided in this Instruction 6, it will not
be necessary for transfer tax stamps to be affixed to the Share Certificates
evidencing the Shares tendered hereby.
<PAGE>
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name of
a person other than the person(s) signing this Letter of Transmittal or if such
check or any such Share Certificate is to be sent to someone other than the
person(s) signing this Letter of Transmittal or to the person(s) signing this
Letter of Transmittal but at an address other than that shown in the box
entitled "Description of Shares Tendered" on the reverse hereof, the appropriate
boxes on the reverse of this Letter of Transmittal must be completed.
Stockholders delivering Shares tendered hereby by book-entry transfer may
request that Shares not purchased be credited to such account maintained at a
Book-Entry Transfer Facility as such stockholder may designate in the box
entitled "Special Payment Instructions" on the reverse hereof. If no such
instructions are given, all such Shares not purchased will be returned by
crediting the account at the Book-Entry Transfer Facility designated on the
reverse hereof as the account from which such Shares were delivered.
8. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Information Agent or the
Dealer Manager at their respective addresses or telephone numbers set forth
below. Additional copies of the Offer to Purchase, this Letter of Transmittal
and the Notice of Guaranteed Delivery may be obtained from the Information Agent
or from brokers, dealers, commercial banks or trust companies.
9. SUBSTITUTE FORM W-9. Each tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9 which is provided under "Important Tax Information" below,
and to certify, under penalties of perjury, that such number is correct and that
such stockholder is not subject to backup withholding of federal income tax. If
a tendering stockholder has been notified by the Internal Revenue Service that
such stockholder is subject to backup withholding, such stockholder must cross
out item (2) of the Certification box of the Substitute Form W-9, unless such
stockholder has since been notified by the Internal Revenue Service that such
stockholder is no longer subject to backup withholding. Failure to provide the
information on the Substitute Form W-9 may subject the tendering stockholder to
31% federal income tax withholding on the payment of the purchase price of all
Shares purchased from such stockholder. If the tendering stockholder has not
been issued a TIN and has applied for one or intends to apply for one in the
near future, such stockholder should write "Applied For" in the space provided
for the TIN in Part I of the Substitute Form W-9, and sign and date the
Substitute Form W-9. If "Applied For" is written in Part I and the Depositary is
not provided with a TIN within 60 days, the Depositary will withhold 31% on all
payments of the purchase price to such stockholder until a TIN is provided to
the Depositary.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED (TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES AND
SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED
DOCUMENTS) OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS
DEFINED IN THE OFFER TO PURCHASE).
IMPORTANT TAX INFORMATION
Under the federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required by law to provide the Depositary (as payer)
with such stockholder's correct TIN on Substitute Form W-9 below. If such
stockholder is an individual, the TIN is such stockholder's social security
number. If the Depositary is not provided with the correct TIN, the stockholder
may be subject to a $50 penalty imposed by the Internal Revenue Service and
payments that are made to such stockholder with respect to Shares purchased
pursuant to the Offer may be subject to backup withholding of 31%. In addition,
if a stockholder makes a false statement that results in no imposition of backup
withholding, and there was no reasonable basis for such a statement, a $500
penalty may also be imposed by the Internal Revenue Service.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such individual must submit a statement, signed under penalties of
perjury, attesting to such individual's exempt status. Forms of such statements
can be obtained from the Depositary. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions. A stockholder should consult his or her tax advisor as
to such stockholder's qualification for an exemption from backup withholding and
the procedure for obtaining such exemption.
<PAGE>
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of such stockholder's correct TIN by
completing the form below certifying that (a) the TIN provided on Substitute
Form W-9 is correct (or that such stockholder is awaiting a TIN) and (b) that
(i) such stockholder has not been notified by the Internal Revenue Service that
such stockholder is subject to backup withholding as a result of a failure to
report all interest or dividends or (ii) the Internal Revenue Service has
notified such stockholder that such stockholder is no longer subject to backup
withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the record holder of the Shares
tendered hereby. If the Shares are in more than one name or are not in the name
of the actual owner, consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional guidance on
which number to report. If the tendering stockholder has not been issued a TIN
and has applied for a number or intends to apply for a number in the near
future, the stockholder should write "Applied For" in the space provided for the
TIN in Part I, and sign and date the Substitute Form W-9. If "Applied For" is
written in Part I and the Depositary is not provided with a TIN within 60 days,
the Depositary will withhold 31% of all payments of the purchase price to such
stockholder until a TIN is provided to the Depositary.
PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
SUBSTITUTE PART I--Taxpayer Identification -----------------------------
FORM W-9 Number--For all accounts, enter Social Security Number
taxpayer identification number in OR
the box at right. (For most -----------------------------
individuals, this is your social Taxpayer Identification
security number. If you do not Number
have a number, see Obtaining a (If awaiting TIN write
Number in the enclosed "Applied For")
GUIDELINES.) Certify by signing
and dating below. Note: If the
account is in more than one name,
see the chart in the enclosed
GUIDELINES to determine which
number to give the payer.
PAYER'S REQUEST FOR PART II--For Payees Exempt From Backup Withholding, see the
TAXPAYER enclosed GUIDELINES and complete as instructed therein.
IDENTIFICATION NUMBER
(TIN)
CERTIFICATION--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am
waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been notified by the
Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of
failure to report all interest or dividends, or the IRS has notified me that I am no longer
subject to backup withholding.
CERTIFICATE INSTRUCTIONS--You must cross out item (2) above if you have been notified by the
IRS that you are subject to backup withholding because of underreporting interest or
dividends on your tax return. However, if after being notified by the IRS that you were
subject to backup withholding you received another notification from the IRS that you are no
longer subject to backup withholding, do not cross out item (2). (Also see instructions in
the enclosed GUIDELINES.)
SIGNATURE --------------------------------------------------------------- DATE
- ---------------------, 1997
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE>
Facsimiles of the Letter of Transmittal, properly completed and duly signed,
will be accepted. The Letter of Transmittal certificates evidencing Shares and
any other required documents should be sent or delivered by each stockholder or
such stockholder's broker, dealer, commercial bank, trust company or other
nominee to the Depositary at one of its addresses set forth below.
THE DEPOSITARY FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND/BY OVERNIGHT DELIVERY:
ChaseMellon Shareholder Services, (FOR ELIGIBLE INSTITUTIONS ChaseMellon Shareholder Services,
L.L.C. ONLY) L.L.C.
Reorganization Department (201) 329-8936 Reorganization Department
P.O. Box 798 CONFIRM BY TELEPHONE: 120 Broadway
Midtown Station (201) 296-4209 13th Floor
New York, NY 10018 New York, NY 10271
</TABLE>
Questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of this Offer to Purchase, the Letter of
Transmittal and the Notice of Guaranteed Delivery may be obtained from the
Information Agent. A stockholder may also contact brokers, dealers, commercial
banks or trust companies for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
[LOGO]
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect:
(212) 440-9800
All Others Call Toll Free:
1-800-223-2064
THE DEALER MANAGER FOR THE OFFER IS:
MORGAN STANLEY & CO.
INCORPORATED
1585 Broadway
New York, New York 10036
(212) 761-7621
January 17, 1997
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
SYSTEMIX, INC.
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
This Notice of Guaranteed Delivery, or one substantially in the form hereof,
must be used to accept the Offer (as defined below) (i) if certificates ("Share
Certificates") evidencing shares of common stock, par value $.01 per share (the
"Common Stock"), of SyStemix, Inc., a Delaware corporation (the "Shares"), are
not immediately available, (ii) if Share Certificates and all other required
documents cannot be delivered to ChaseMellon Shareholders Services, L.L.C., as
Depositary (the "Depositary"), prior to the Expiration Date (as defined in
Section 1 of the Offer to Purchase (as defined below)) or (iii) if the procedure
for delivery by book-entry transfer cannot be completed on a timely basis. This
Notice of Guaranteed Delivery may be delivered by hand or mail or transmitted by
telegram or facsimile transmission to the Depositary. See "THE TENDER OFFER --
Section 3. Procedures for Accepting the Offer and Tendering Shares" in the Offer
to Purchase.
THE DEPOSITARY FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND/BY OVERNIGHT DELIVERY:
ChaseMellon Shareholder Services, (FOR ELIGIBLE INSTITUTIONS ChaseMellon Shareholder Services,
L.L.C. ONLY) L.L.C.
Reorganization Department (201) 329-8936 Reorganization Department
P.O. Box 798 CONFIRM BY TELEPHONE: 120 Broadway
Midtown Station (201) 296-4209 13th Floor
New York, NY 10018 New York, NY 10271
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION
OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Novartis Biotech Holding Corp., a Delaware
corporation and an indirect wholly owned subsidiary of Novartis Inc., a
corporation organized under the laws of Switzerland, upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated January 17, 1997
(the "Offer to Purchase"), and the related Letter of Transmittal (which together
constitute the "Offer"), receipt of each of which is hereby acknowledged, the
number of Shares specified below pursuant to the guaranteed delivery procedure
described under "THE TENDER OFFER--Section 3. Procedures for Accepting the Offer
and Tendering Shares" in the Offer to Purchase.
<TABLE>
<S> <C>
Number of Shares: SIGNATURE(S) OF HOLDER(S)
Certificate Nos. (If Available):
Dated: , 1997
Name(s) of Holders:
PLEASE TYPE OR PRINT
Check box if Shares will be
delivered by book-entry transfer:
ADDRESS
/ / The Depository Trust Company ZIP CODE
/ / Midwest Securities Trust Company
/ / Philadelphia Depository Trust Company AREA CODE AND TELEPHONE NO.
Account No.
</TABLE>
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of the Medillion Signature
Guarantee Program, guarantees to deliver to the Depositary, at one of its
addresses set forth above, Share Certificates evidencing the Shares tendered
hereby, in proper form for transfer, or confirmation of book-entry transfer of
such Shares into the Depositary's account at The Depository Trust Company, the
Midwest Securities Trust Company or the Philadelphia Depository Trust Company,
in each case with delivery of a Letter of Transmittal (or facsimile thereof)
properly completed and duly executed, and any other required documents, all
within three National Association of Securities Dealers Automated
Quotation--National Market System trading days of the date hereof.
<TABLE>
<S> <C>
NAME OF FIRM AUTHORIZED SIGNATURE
ADDRESS TITLE
Name:
ZIP CODE PLEASE TYPE OR PRINT
AREA CODE AND TELEPHONE NO. Dated: , 1997
</TABLE>
DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE.
SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
<PAGE>
MORGAN STANLEY & CO.
INCORPORATED
1585 BROADWAY
NEW YORK, NEW YORK 10036
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
SYSTEMIX, INC.
AT
$19.50 NET PER SHARE
BY
NOVARTIS BIOTECH HOLDING CORP.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
NOVARTIS INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 12:00 MIDNIGHT, NEW YORK CITY TIME,
ON FRIDAY, FEBRUARY 14, 1997, UNLESS THE OFFER IS EXTENDED.
January 17, 1997
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by Novartis Biotech Holding Corp., a Delaware
corporation ("Purchaser") and an indirect wholly owned subsidiary of Novartis
Inc., a company organized under the laws of Switzerland ("Parent"), to act as
Dealer Manager in connection with Purchaser's offer to purchase all outstanding
shares of Common Stock, par value $.01 per share (the "Shares"), of SyStemix,
Inc., a Delaware corporation (the "Company"), at a price of $19.50 per Share,
net to the seller in cash, upon the terms and subject to the conditions set
forth in Purchaser's Offer to Purchase, dated January 17, 1997 (the "Offer to
Purchase"), and the related Letter of Transmittal (which together constitute the
"Offer") enclosed herewith. Please furnish copies of the enclosed materials to
those of your clients for whose accounts you hold Shares registered in your name
or in the name of your nominee.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER (I) NOT LESS
THAN A MAJORITY OF THE ISSUED AND OUTSTANDING SHARES OTHER THAN SHARES OWNED BY
PARENT OR PURCHASER (THE "FIRST MINIMUM CONDITION") AND (II) AT LEAST THE NUMBER
OF SHARES THAT WHEN ADDED TO THE SHARES OWNED BY PARENT AND PURCHASER SHALL
CONSTITUTE 90% OF THE SHARES THEN OUTSTANDING (THE "SECOND MINIMUM CONDITION").
THE FIRST MINIMUM CONDITION MAY NOT BE WAIVED WITHOUT THE CONSENT OF A MAJORITY
OF THE INDEPENDENT DIRECTORS (AS DEFINED IN THE OFFER TO PURCHASE). PURCHASER
HAS AGREED TO WAIVE THE SECOND MINIMUM CONDITION UNDER CERTAIN CIRCUMSTANCES
DESCRIBED IN THE OFFER TO PURCHASE.
Enclosed for your information and use are copies of the following documents:
1. Offer to Purchase, dated January 17, 1997;
2. Letter of Transmittal to be used by holders of Shares in accepting
the Offer and tendering Shares;
3. Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents are not immediately available or
cannot be delivered to ChaseMellon Shareholder Services, L.L.C. (the
"Depositary") by the Expiration Date (as defined in the Offer to Purchase)
or if the procedure for book-entry transfer cannot be completed by the
Expiration Date;
<PAGE>
4. A letter to stockholders of the Company from Dr. John J. Schwartz,
President and Chief Executive Officer of the Company, together with a
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the
Securities and Exchange Commission by the Company;
5. A letter which may be sent to your clients for whose accounts you
hold Shares registered in your name or in the name of your nominee, with
space provided for obtaining such clients' instructions with regard to the
Offer;
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
7. Return envelope addressed to the Depositary.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, FEBRUARY 14, 1997, UNLESS THE OFFER IS EXTENDED.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of certificates
evidencing such Shares (or a confirmation of a book-entry transfer of such
Shares into the Depositary's account at one of the Book-Entry Transfer
Facilities (as defined in the Offer to Purchase)), a Letter of Transmittal (or
facsimile thereof) properly completed and duly executed and any other required
documents.
If holders of Shares wish to tender, but cannot deliver their certificates
or other required documents, or cannot comply with the procedure for book-entry
transfer, prior to the expiration of the Offer, a tender of Shares may be
effected by following the guaranteed delivery procedure described under "THE
TENDER OFFER -- Section 3. Procedures for Accepting the Offer and Tendering
Shares" in the Offer to Purchase.
Purchaser will not pay any fees or commissions to any broker, dealer or
other person (other than the Dealer Manager, the Depositary and the Information
Agent as described in the Offer) in connection with the solicitation of tenders
of Shares pursuant to the Offer. However, Purchaser will reimburse you for
customary mailing and handling expenses incurred by you in forwarding any of the
enclosed materials to your clients. Purchaser will pay or cause to be paid any
stock transfer taxes payable with respect to the transfer of Shares to it,
except as otherwise provided in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to
Morgan Stanley & Co. Incorporated or Georgeson & Company Inc. (the "Information
Agent") at their respective addresses and telephone numbers set forth on the
back cover page of the Offer to Purchase.
Additional copies of the enclosed material may be obtained from the
Information Agent, at the address and telephone number set forth on the back
cover page of the Offer to Purchase.
VERY TRULY YOURS,
MORGAN STANLEY & CO.
INCORPORATED
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU,
OR ANY OTHER PERSON, THE AGENT OF PARENT, PURCHASER, THE COMPANY, THE DEALER
MANAGER, THE INFORMATION AGENT OR THE DEPOSITARY, OR OF ANY AFFILIATE OF ANY OF
THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR TO MAKE ANY
STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE
ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
SYSTEMIX, INC.
AT
$19.50 NET PER SHARE
BY
NOVARTIS BIOTECH HOLDING CORP.
AN INDIRECT WHOLLY OWNED SUBSIDIARY OF
NOVARTIS INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 12:00 MIDNIGHT, NEW YORK CITY TIME,
ON FRIDAY, FEBRUARY 14, 1997, UNLESS THE OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration are an Offer to Purchase, dated January 17,
1997 (the "Offer to Purchase"), and a related Letter of Transmittal in
connection with the offer by Novartis Biotech Holding Corp., a Delaware
corporation ("Purchaser") and an indirect wholly owned subsidiary of Novartis
Inc., a corporation organized under the laws of Switzerland ("Parent"), to
purchase all outstanding shares of Common Stock, par value $.01 per share (the
"Shares"), of SyStemix, Inc., a Delaware corporation (the "Company"), at a price
of $19.50 per Share, net to the seller in cash, upon the terms and subject to
the conditions set forth in the Offer to Purchase and in the related Letter of
Transmittal (which together constitute the "Offer").
We are (or our nominee is) the holder of record of Shares held by us for
your account. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US OR OUR NOMINEE AS
THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF
TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY
YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender on your
behalf any or all of the Shares held by us for your account, upon the terms and
subject to the conditions set forth in the Offer.
Your attention is invited to the following:
1. The tender price is $19.50 per Share, net to the seller in cash.
2. The Offer is being made for all outstanding Shares.
3. The Board of Directors of the Company and the Independent Directors
have determined that each of the Offer and the Merger (as defined in the
Offer to Purchase) is fair to, and in the best interests of, the
stockholders of the Company, and recommends that stockholders accept the
Offer and tender their Shares pursuant to the Offer.
4. The Offer and withdrawal rights will expire at 12:00 Midnight, New
York City time, on Friday, February 14, 1997, unless the Offer is extended.
<PAGE>
5. The Offer is conditioned upon, among other things, there being
validly tendered and not withdrawn prior to the expiration of the Offer (i)
not less than a majority of the issued and outstanding shares other than
shares owned by Parent or Purchaser (the "First Minimum Condition") and (ii)
at least the number of shares that when added to the shares owned by Parent
and Purchaser shall constitute 90% of the shares then outstanding (the
"Second Minimum Condition"). The First Minimum Condition may not be waived
without the consent of a majority of the Independent Directors. Purchaser
has agreed to waive the Second Minimum Condition under certain circumstances
described in the Offer to Purchase.
6. Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter
of Transmittal, stock transfer taxes with respect to the purchase of Shares
by Purchaser pursuant to the Offer.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing and returning to us the instruction form contained
in this letter. An envelope in which to return your instructions to us is
enclosed. If you authorize the tender of your Shares, all such Shares will be
tendered unless otherwise specified in your instructions. YOUR INSTRUCTIONS
SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR
BEHALF PRIOR TO THE EXPIRATION OF THE OFFER.
The Offer is made solely by the Offer to Purchase and the related Letter of
Transmittal and is being made to all holders of Shares. Purchaser is not aware
of any state where the making of the Offer is prohibited by administrative or
judicial action pursuant to any valid state statute. If Purchaser becomes aware
of any valid state statute prohibiting the making of the Offer or the acceptance
of Shares pursuant thereto, Purchaser will make a good faith effort to comply
with such state statute. If, after such good faith effort, Purchaser cannot
comply with such state statute, the Offer will not be made to (nor will tenders
be accepted from or on behalf of) the holders of Shares in such state. In any
jurisdiction where the securities, blue sky or other laws require the Offer to
be made by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of Purchaser by Morgan Stanley & Co. Incorporated or one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR
CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF
SYSTEMIX, INC. BY NOVARTIS BIOTECH HOLDING CORP.
The undersigned acknowledge(s) receipt of your letter and the enclosed Offer
to Purchase, dated January 17, 1997, and the related Letter of Transmittal
(which together constitute the "Offer") in connection with the offer by Novartis
Biotech Holding Corp., a Delaware corporation and an indirect wholly owned
subsidiary of Novartis Inc., a corporation organized under the laws of
Switzerland, to purchase all outstanding shares of Common Stock, par value $.01
per share (the "Shares"), of SyStemix, Inc., a Delaware corporation.
This will instruct you to tender the number of Shares indicated below (or,
if no number is indicated below, all Shares) that are held by you for the
account of the undersigned, upon the terms and subject to the conditions set
forth in the Offer.
<TABLE>
<S> <C>
DATED: , 1997 SIGN HERE
Number of Shares
to be Tendered: SIGNATURE(S)
Shares* PLEASE TYPE OR PRINT NAME(S)
PLEASE TYPE OR PRINT ADDRESS
AREA CODE AND TELEPHONE NUMBER
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
</TABLE>
- ---------
*Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
3
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
IRS INSTRUCTIONS
(SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE.)
PURPOSE OF FORM. -- A person who is required to file an information return
with the Internal Revenue Service (the IRS) must obtain your correct taxpayer
identification number (TIN) to report income paid to you, real estate
transactions, mortgage interest you paid, the acquisition or abandonment of
secured property, or contributions you made to an individual retirement account
(IRA). Use Form W-9 to furnish you correct TIN to the requester (the person
asking you to furnish your TIN), and, when applicable (1) to certify that the
TIN you are furnishing is correct (or that you are waiting for a number to be
issued), (2) to certify that you are not subject to backup withholding, and (3)
to claim exemption form backup withholding if you are an exempt payee.
Furnishing your correct TIN and making the appropriate certifications will
prevent certain payments from being subject to backup withholding.
NOTE: IF A REQUESTER GIVES YOU A FORM OTHER THAN A W-9 TO REQUEST YOUR TIN,
YOU MUST USE THE REQUESTER'S FORM.
HOW TO OBTAIN A TIN. -- If you do not have a TIN, apply for one immediately.
To apply, get FORM SS-5, Application for Social Security Card (SSN) (for
individuals), from your local office of the Social Security Administration, or
FORM SS-4, Application for Employer Identification Number (EIN) (for businesses
and all other entities), from your local IRS office.
To complete Form W-9, if you do not have a TIN and have applied for one or
intend to apply for one in the near future, write "Applied For" in the space for
the TIN in Part I of the substitute Form W-9, sign and date the form, and give
it to the requester. Generally, you will then have 60 days to obtain a TIN and
furnish it to the requester. If the requester does not receive your TIN within
60 days, backup withholding, if applicable, will begin and continue until you
furnish your TIN to the requester. For reportable interest or dividend payments,
the payer must exercise one of the following options concerning backup
withholding during this 60-day period. Under option (1), a payer must backup
withhold on any withdrawals you make from your account after 7 business days
after the requester receives this form back from you. Under option (2), the
payer must backup withhold on any reportable interest or dividend payments made
to your account, regardless of whether you make any withdrawals. The backup
withholding under option (2) must begin no later than 7 business days after the
requester receives this form back. Under option (2), the payer is required to
refund the amounts withheld if your certified TIN is received within the 60-day
period and you were not subject to backup withholding during the period.
NOTE: WRITING "APPLIED FOR" ON THE SUBSTITUTE FORM W-9 MEANS THAT YOU HAVE
ALREADY APPLIED FOR A TIN OR THAT YOU INTEND TO APPLY FOR ONE IN THE NEAR
FUTURE.
As soon as you receive your TIN, complete another Form W-9, include your
TIN, sign and date this form, and give it to the requester.
WHAT IS BACKUP WITHHOLDING? -- Persons making certain payment to you after
1992 are required to withhold and pay to the IRS 31% of such payments under
certain conditions. This is called "backup withholding." Payments that could be
subject to backup withholding include interest, dividends, broker and barter
exchange transactions, rents, royalties, nonemployee compensation, and certain
payments from fishing boat operators, but do not include real estate
transactions.
If you give the requester your correct TIN, make the appropriate
certifications, and report all your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding. Payments you
receive will be subject to backup withholding if:
(1) You do not furnish your TIN to the requester, or
(2) The IRS notifies the requester that you furnished an incorrect TIN, or
(3) You are notified by the IRS that you are subject to backup withholding
because you failed to report all your interest and dividends on your tax
return (for reportable interest and dividends only), or
(4) You fail to certify to the requester that you are not subject to backup
withholding under (3) above (for reportable interest and dividend
accounts opened after 1983 only), or
(5) You fail to certify your TIN. This applies only to reportable interest,
dividend, broker or barter exchange accounts opened after 1983, or
broker accounts considered inactive in 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies. Certain payees and payments
are exempt from backup withholding and information reporting. See PAYEES AND
PAYMENTS EXEMPT FROM BACKUP WITHHOLDING, below, and EXEMPT PAYEES AND PAYMENTS
under SPECIFIC INSTRUCTIONS, on page 2, if you are an exempt payee
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING -- The following is a
list of payees exempt from backup withholding and for which no information
reporting is required. For interest and dividends, all listed payees are exempt
except item (9). For broker transactions, payees listed in (1) through (13) and
a person registered under the Investment Advisers Act of 1940 who regularly acts
as a broker are exempt. Payments subject to reporting under sections 6041 and
6041A are generally exempt from backup withholding only if made to payees
described in items (1) through (7), except that a corporation that provides
medical and health care services or bills and collects payments for such
services is not exempt from backup withholding or information reporting. Only
payees described in items (2) through (6) are exempt from backup withholding for
barter exchange transactions, patronage dividends, and payments be certain
fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under Section 501(a), or an IRA, or a
custodial account under section 403(b)(7).
(3) The United States or any of its agencies or instrumentalities.
(4) A state, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
(5) A foreign government or any of the political subdivisions, agencies or
instrumentalities.
(6) An international organization or any of its agencies or
instrumentalities.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the U.S.
or a possession of the U.S.
(9) A futures commission merchant registered with the Commodity Futures
Trading Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the
Investment Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporation
Secretaries, Inc., Nominee List.
(15) A trust exempt from tax under section 664 or described in section 4947.
Payments of dividends and patronage dividends generally not subject to
backup withholding also include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in trade or business in the U.S. and
that have at least one nonresident partner.
- Payments of patronage dividends not paid in money.
- Payments made by certain foreign organizations.
Payments of interest generally not subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals
NOTE: YOU MAY BE SUBJECT TO BACKUP WITHHOLDING IF THIS INTEREST IS $600 OR
MORE AND IS PAID IN THE COURSE OF THE PAYER'S TRADE OR BUSINESS AND YOU HAVE NOT
PROVIDED YOUR CORRECT TIN TO THE PAYER.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Mortgage interest paid by you.
<PAGE>
Payments that are not subject to information reporting are also not subject
to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044,
6045, 6049, 6050A and 6050N, and their regulations.
PENALTIES
FAILURE TO FURNISH TIN. -- If you fail to furnish your correct TIN to a
requester, you are subject to a penalty of $50 for each such failure unless your
failure is due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
MISUSE OF TINS. -- If the requester discloses or uses TINs in violation of
Federal law, the requester may be subject to civil and criminal penalties.
SPECIFIC INSTRUCTIONS
NAME. -- If you are an individual, you must generally provide the name shown
on your social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your first name, the last name shown on your
social security card and your new last name.
If you are a sole proprietor, you must furnish your individual name and
either your SSN or EIN. You may also enter your business name. Enter your
name(s) as shown on your social security card and/ or as it was used to apply or
your EIN on Form SS-4.
SIGNING THE CERTIFICATION. --
(1) INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND
BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. -- You are requested to furnish
your correct TIN, but you are not required to sign the certification.
(2) INTEREST, DIVIDEND, BROKER AND BARTER EXCHANGE ACCOUNTS OPENED AFTER
1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. -- You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out item (2) in the certification before signing the form.
(3) REAL ESTATE TRANSACTIONS. -- You must sign the certification. You may
cross out item (2) of the certification.
(4) OTHER PAYMENTS. -- You are required to furnish your correct TIN, but you
are not required to sign the certification unless you have been notified of an
incorrect TIN. Other payments include payments mad in the course of the
requester's trade or business for rents, royalties, goods (other than bills for
merchandise), medical and health care services, payments to a nonemployee for
services (including attorney and accounting fees), and payments to certain
fishing boat crew members.
(5) MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY, OR IRA CONTRIBUTIONS. -- You are requested to furnish your correct
TIN, but you are not required to sign the certification.
(6) EXEMPT PAYEES AND PAYMENTS. -- If you are exempt from backup
withholding, you should complete this form to avoid possible erroneous backup
withholding. Enter your correct TIN in Part I, write "EXEMPT" in the block in
Part II, and sign and date the form. If you are a nonresident alien or foreign
entity not subject to backup withholding, give the requester a completed Form
W-8. Certificate of Foreign Status.
(7) "AWAITING TIN". -- Following the instructions under HOW TO OBTAIN A TIN,
on page 1, write "Applied For" in the space for the TIN in Part I of the
Substitute Form W-9 and sign and date the form.
SIGNATURE. -- For a joint account, only the person whose TIN is shown in
Part I should sign the form.
PRIVACY ACT NOTICE. -- Section 6109 requires you to furnish your correct TIN
to persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, or contributions you made to an
IRA. The IRS uses the numbers for identification purposes and to help verify the
accuracy of your tax return. You must provide your TIN whether or not you are
required to file a tax return. Payers must generally withhold 31% of taxable
interest, dividends, and certain other payments to a payee who does not furnish
a TIN to payer. Certain penalties may also apply.
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
<TABLE>
<C> <S> <C>
- -----------------------------------------------------------------
GIVE THE NAME
AND
SOCIAL SECURITY
NUMBER OF:
FOR THIS TYPE OF ACCOUNT:
- -----------------------------------------------------------------
- -----------------------------------------------------------------
GIVE THE NAME AND
EMPLOYER
IDENTIFICATION
NUMBER OF:
FOR THIS TYPE OF ACCOUNT:
- -----------------------------------------------------------------
1. Individual The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if
combined funds, the
first individual on the
account(2)
3. Custodian account of a minor The minor(2)
(Uniform
Gift to Minors Act)
4. A. The usual revocable The grantor-trustee(1)
savings trust (grantor is The actual owner(1)
also trustee)
B. So-called trust account
that is not a legal or valid
trust under state law
5. Sole proprietorship The owner(3)
6. Sole proprietorship The owner(4)
7. A valid trust, estate or Legal entity(4)
pension trust
8. Corporate The corporation
9. Association, club, The organization
religious, charitable,
educational, or other tax-
exempt
organization
10. Partnership The partnership
11. A broker or registered The broker or nominee
nominee
12. Account with the Department The public enemy
of Agriculture in the name
of a public entity (such as
a state or local government,
school district, or prison)
that receives agricultural
program payments
</TABLE>
<TABLE>
<C> <S> <C>
- -----------------------------------------------------------------
- -----------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the individual's name. You may also enter your business name. You may
use your SSN or EIN.
(4) List first and circle the name of the legal trust, estate or pension trust.
(Do not furnish the TIN of the personal representative or trustee unless the
legal entity itself is not designated in the account title.)
NOTE: IF NO NAME IS CIRCLED WHEN THERE IS MORE THAN ONE NAME, THE NUMBER WILL BE
CONSIDERED TO BE THAT OF THE FIRST NAME LISTED.
2
<PAGE>
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares (as defined below). The Offer (as defined below) is made solely
by the Offer to Purchase dated January 17, 1997 and the related Letter of
Transmittal, and is being made to all holders of Shares. Purchaser (as defined
below) is not aware of any state where the making of the Offer is prohibited by
administrative or judicial action pursuant to any valid state statute. If
Purchaser becomes aware of any valid state statute prohibiting the making of the
Offer or the acceptance of Shares pursuant thereto, Purchaser will make a good
faith effort to comply with such state statute. If, after such good faith
effort, Purchaser cannot comply with such state statute, the Offer will not be
made to (nor will tenders be accepted from or on behalf of) the holders of
Shares in such state. In any jurisdiction where the securities, blue sky or
other laws require the Offer to be made by a licensed broker or dealer, the
Offer shall be deemed to be made on behalf of Purchaser by Morgan Stanley & Co.
Incorporated or one or more registered brokers or dealers licensed under the
laws of such jurisdiction.
Notice of Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
SyStemix, Inc.
at
$19.50 Net Per Share
by
Novartis Biotech Holding Corp.
an indirect wholly owned subsidiary of
Novartis Inc.
Novartis Biotech Holding Corp., a Delaware corporation ("Purchaser") and an
indirect wholly owned subsidiary of Novartis Inc., a corporation organized under
the laws of Switzerland ("Parent"), is offering to purchase all outstanding
shares (the "Shares") of common stock, par value $.01 per share (the "Common
Stock"), of SyStemix, Inc., a Delaware corporation (the "Company"), at a price
of $19.50 per Share, net to the seller in cash, upon the terms and subject to
the conditions set forth in the Offer to Purchase, dated January 17, 1997 (the
"Offer to Purchase"), and in the related Letter of Transmittal (which together
constitute the "Offer"). Following the Offer, Purchaser intends to effect the
Merger described below.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON FRIDAY, FEBRUARY 14, 1997, UNLESS THE OFFER IS EXTENDED.
The Offer is conditioned upon, among other things, there being validly tendered
and not withdrawn prior to the expiration of the Offer (i) not less than a
majority of the issued and outstanding Shares other than Shares owned by Parent
or Purchaser (the "First Minimum Condition") and (ii) at least the number of
Shares that when added to the Shares owned by Parent and Purchaser shall
constitute 90% of the Shares then outstanding (the "Second Minimum Condition").
The First Minimum Condition may not be waived without the consent of a majority
of the Independent Directors (as defined
-1-
<PAGE>
in the Offer to Purchase). Purchaser has agreed to waive the Second Minimum
Condition under certain circumstances described below.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of
January 10, 1997 (the "Merger Agreement"), among Parent, Purchaser and the
Company. The Merger Agreement provides that, among other things, as soon as
practicable after the purchase of Shares pursuant to the Offer and the
satisfaction of the other conditions set forth in the Merger Agreement and in
accordance with the relevant provisions of the General Corporation Law of the
State of Delaware ("Delaware Law"), Purchaser will be merged with and into the
Company (the "Merger"). Following consummation of the Merger, the Company will
continue as the surviving corporation (the "Surviving Corporation") and will
become an indirect wholly owned subsidiary of Parent. At the effective time of
the Merger (the "Effective Time"), each Share issued and outstanding immediately
prior to the Effective Time (other than Shares held in the treasury of the
Company or owned by Purchaser, Parent or any direct or indirect wholly owned
subsidiary of Parent or the Company, and other than Shares held by stockholders
who shall have properly demanded and perfected appraisal rights under Section
262 of Delaware Law) will be cancelled and converted automatically into the
right to receive $19.50 in cash, or any higher price that may be paid per Share
pursuant to the Offer, without interest.
The Board of Directors of the Company, by unanimous vote of all directors
present and voting (with all directors who are designees of Parent abstaining),
based upon, among other things, the unanimous recommendation and approval of the
directors of the Company who are not officers or directors of Parent or
Purchaser nor officers or consultants of the Company, has determined that each
of the Offer and the Merger is fair to, and in the best interests of, the
stockholders of the Company (other than Parent and Purchaser), and recommends
that stockholders accept the Offer and tender their Shares pursuant to the
Offer.
For purposes of the Offer, Purchaser will be deemed to have accepted for payment
(and thereby purchased) Shares validly tendered and not properly withdrawn as,
if and when Purchaser gives oral or written notice to ChaseMellon Shareholder
Services, L.L.C. (the "Depositary") of Purchaser s acceptance for payment of
such Shares pursuant to the Offer. Upon the terms and subject to the conditions
of the Offer, payment for Shares accepted for payment pursuant to the Offer will
be made by deposit of the purchase price therefor with the Depositary, which
will act as agent for tendering stockholders for the purpose of receiving
payments from Purchaser and transmitting such payments to tendering stockholders
whose Shares have been accepted for payment. Under no circumstances will
interest on the purchase price for Shares be paid, regardless of any delay in
making such payment. In all cases, payment for Shares tendered and accepted for
payment pursuant to the Offer will be made only after timely receipt by the
Depositary of (i) the certificates evidencing such Shares (the "Share
Certificates") or timely confirmation of a book-entry transfer of such Shares
into the Depositary's account at one of the Book-Entry Transfer Facilities (as
defined in Section 2 under "THE TENDER OFFER" in the Offer to Purchase) pursuant
to
-2-
<PAGE>
the procedure set forth in Section 3 under "THE TENDER OFFER" in the Offer to
Purchase, (ii) the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, with any required signature guarantees or, in the
case of a book-entry transfer, an Agent's Message (as defined in Section 3 under
"THE TENDER OFFER" in the Offer to Purchase) and (iii) any other documents
required under the Letter of Transmittal.
Purchaser expressly reserves the right, in its sole discretion (but subject to
the terms and conditions of the Merger Agreement), at any time and from time to
time, to extend for any reason the period of time during which the Offer is
open, including the occurrence of any condition specified in Section 12 under
"THE TENDER OFFER" in the Offer to Purchase, by giving oral or written notice of
such extension to the Depositary. Any such extension will be followed as
promptly as practicable by public announcement thereof, such announcement to be
made no later than 9:00 a.m., New York City time, on the next business day after
the previously scheduled expiration date of the Offer. During any such
extension, all Shares previously tendered and not withdrawn will remain subject
to the Offer, subject to the rights of a tendering stockholder to withdraw such
stockholder's Shares. Pursuant to the Merger Agreement, in the event all
conditions set forth in the Merger Agreement shall have been satisfied other
than the Second Minimum Condition, Purchaser may extend the Offer for a period
or periods aggregating not more than 20 business days after the later of (i) the
initial expiration date of the Offer and
(ii) the date on which all other conditions set forth in the Merger Agreement
shall have been satisfied, after which time Purchaser shall waive the Second
Minimum Condition.
Tenders of Shares made pursuant to the Offer are irrevocable except that such
Shares may be withdrawn at any time prior to 12:00 Midnight, New York City time,
on Friday, February 14, 1997 (or the latest time and date at which the Offer, if
extended by Purchaser, shall expire) and, unless theretofore accepted for
payment by Purchaser pursuant to the Offer, may also be withdrawn at any time
after March 17, 1997. For the withdrawal to be effective, a written, telegraphic
or facsimile transmission notice of withdrawal must be timely received by the
Depositary at one of its addresses set forth on the back cover page of the Offer
to Purchase. Any such notice of withdrawal must specify the name of the person
who tendered the Shares to be withdrawn, the number of Shares to be withdrawn
and the name of the registered holder of such Shares, if different from that of
the person who tendered such Shares. If Share Certificates evidencing Shares to
be withdrawn have been delivered or otherwise identified to the Depositary,
then, prior to the physical release of such Share Certificates, the serial
numbers shown on such Share Certificates must be submitted to the Depositary and
the signature(s) on the notice of withdrawal must be guaranteed by an Eligible
Institution (as defined in Section 3 under "THE TENDER OFFER" in the Offer to
Purchase), unless such Shares have been tendered for the account of an Eligible
Institution. If Shares have been tendered pursuant to the procedure for
book-entry transfer as set forth in Section 3 under "THE TENDER OFFER"
-3-
<PAGE>
in the Offer to Purchase, any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Shares. All questions as to the form and validity (including the
time of receipt) of any notice of withdrawal will be determined by Purchaser, in
its sole discretion, whose determination will be final and binding.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended, is
contained in the Offer to Purchase and is incorporated herein by reference.
The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. The Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares whose names appear on the Company's
stockholder list and will be furnished to brokers, dealers, commercial banks,
trust companies and similar persons whose names, or the names of whose nominees,
appear on the stockholder list or, if applicable, who are listed as participants
in a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
The Offer to Purchase and the related Letter of Transmittal contain important
information which should be read before any decision is made with respect to the
Offer.
Questions and requests for assistance or for additional copies of the Offer to
Purchase and the related Letter of Transmittal and other tender offer materials
may be directed to the Information Agent or the Dealer Manager as set forth
below, and copies will be furnished promptly at Purchaser's expense. No fees or
commissions will be paid to brokers, dealers or other persons (other than the
Information Agent and the Dealer Manager) for soliciting tenders of Shares
pursuant to the Offer.
The Information Agent for the Offer is:
[Georgeson & Company Inc. Logo]
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
Call Toll Free: 1-800-223-2064
The Dealer Manager for the Offer is:
MORGAN STANLEY & CO.
Incorporated
1585 Broadway
New York, New York 10036
(212) 761-7621
January 17, 1997
-4-
<PAGE>
Novartis to Acquire Remaining Interest in SyStemix
BASEL, Switzerland, and PALO ALTO, Calif., Jan. 13 /PRNewswire/ -- Novartis and
Systemix Inc announced today that they had entered into a definitive agreement
for Novartis to acquire all the issued and outstanding shares of common stock it
does not already own in SyStemix for USD 19.50 per share in cash. The offer
price represents a 77% premium over the closing price of USD 11.00 per share on
May 23, 1996, the last full trading day prior to Novartis' original offer to
acquire SyStemix for USD 17.00 per share.
The transaction was approved by SyStemix' independent directors as well as by
the board of directors (with the directors designated by Novartis abstaining).
Dr. Daniel Vasella, President and Head of the Executive Committee of Novartis,
commented: "Novartis and SyStemix are engaged in promising discovery activities
in the development of cell and cell based gene therapies for cancer, AIDS,
autoimmune and genetic diseases. With SyStemix fully integrated into Novartis, I
am confident that we will accelerate the pace of our cutting-edge work with
hematopoietic stem-cell technology."
"This is a very positive event for SyStemix," said Dr. John J. Schwartz,
President and CEO of SyStemix. "The outstanding promise of SyStemix' technology
can be realized more broadly and rapidly as part of Novartis."
Novartis currently owns 10,610,099 shares of SyStemix common stock, which, on
October 31, 1996, represented 73.2% of the issued and outstanding shares. Under
the agreement, it will commence a tender offer to acquire the SyStemix shares on
or prior to January 17, 1997. Novartis may not purchase shares in the tender
offer without the consent of the independent directors unless a majority of the
shares Novartis does not already own is validly tendered and not withdrawn in
the tender offer. The tender offer will be subject to other customary
conditions.
All shares not purchased in the tender offer will be converted into the right to
receive USD 19.50 per share in a second-step merger to be consummated as soon as
practicable after the tender offer.
Lehman Brothers Inc. acted as financial advisor to SyStemix. Morgan Stanley &
Co. Incorporated acted as financial advisor to Novartis.
SyStemix, Inc., based in Palo Alto, California, is a biotechnology company
leading in the development of therapies for major disorders of the blood and
immune system based on the use of isolated, expanded and gene-modified human
hematopoietic stem cells.
Headquartered in Basel, Switzerland, Novartis is a world leader in Life Sciences
committed to the research and development of innovative products and services.
In 1995, its annual investment in healthcare research and development was more
than CHF 2 billion, the largest in the healthcare industry. SOURCE SyStemix,
Inc.
<PAGE>
CONFORMED COPY
================================================================================
AGREEMENT AND PLAN OF MERGER
Among
NOVARTIS INC.,
NOVARTIS BIOTECH HOLDING CORP.
and
SYSTEMIX, INC.
Dated as of January 10, 1997
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<PAGE>
Glossary of Defined Terms
(Not Part of this Agreement)
Defined Term Location of Definition
- ------------ ----------------------
affiliate............................................ ss. 8.03(a)
Agreement............................................ Preamble
beneficial owner..................................... ss. 8.03(b)
Blue Sky Laws........................................ ss. 3.05(b)
Board................................................ Recitals
business day......................................... ss. 8.03(c)
Certificate of Merger................................ ss. 2.02
Certificates......................................... ss. 2.09(b)
Code................................................. ss. 2.10
Company.............................................. Preamble
Company Common Stock................................. Recitals
Company Preferred Stock.............................. ss. 3.03
control.............................................. ss. 8.03(d)
Delaware Law......................................... Recitals
Dissenting Shares.................................... ss. 2.08(a)
Effective Time....................................... ss. 2.02
Exchange Act......................................... ss. 1.02(b)
First Minimum Condition.............................. ss. 1.01(a)
Indemnified Parties.................................. ss. 5.05(b)
Material Adverse Effect.............................. ss. 3.01
Merger............................................... Recitals
Merger Consideration................................. ss. 2.06(a)
Offer................................................ Recitals
Offer Documents...................................... ss. 1.01(b)
Offer to Purchase.................................... ss. 1.01(b)
Option............................................... ss. 2.07(a)
Parent............................................... Preamble
Paying Agent......................................... ss. 2.09(a)
Per Share Amount..................................... Recitals
person............................................... ss. 8.03(e)
Proxy Statement...................................... ss. 3.08
Purchaser............................................ Preamble
Schedule 14D-9....................................... ss. 1.02(b)
Schedule 14D-1....................................... ss. 1.01(b)
Schedule 13E-3....................................... ss. 1.01(b)
SEC.................................................. ss. 1.01(b)
Second Minimum Condition............................. ss. 1.01(a)
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2
Defined Term Location of Definition
- ------------ ----------------------
SEC Reports.......................................... ss. 3.07(a)
Securities Act....................................... ss. 3.07(a)
Shares............................................... Recitals
Stockholders' Meeting................................ ss. 5.02(a)
Subsidiary........................................... ss. 3.01
subsidiary........................................... ss. 8.03(f)
Surviving Corporation................................ ss. 2.01
Transactions......................................... ss. 1.01(b)
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TABLE OF CONTENTS
Page
ARTICLE I
THE OFFER
SECTION 1.01. The Offer............................................. 2
SECTION 1.02. Company Action........................................ 3
ARTICLE II
THE MERGER
SECTION 2.01. The Merger............................................ 5
SECTION 2.02. Effective Time; Closing............................... 5
SECTION 2.03. Effect of the Merger.................................. 5
SECTION 2.04. Certificate of Incorporation; By-laws................. 5
SECTION 2.05. Directors and Officers................................ 6
SECTION 2.06. Conversion of Securities.............................. 6
SECTION 2.07. Stock Options......................................... 6
SECTION 2.08. Dissenting Shares..................................... 7
SECTION 2.09. Surrender of Shares; Stock Transfer Books............. 7
SECTION 2.10. Withholding Rights.................................... 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization and Qualification; Subsidiaries.......... 9
SECTION 3.02. Certificate of Incorporation and By-laws.............. 9
SECTION 3.03. Capitalization........................................ 9
SECTION 3.04. Authority Relative to this Agreement.................. 10
SECTION 3.05. No Conflict; Required Filings and Consents............ 11
SECTION 3.06. Compliance............................................ 11
SECTION 3.07. SEC Filings; Financial Statements..................... 12
SECTION 3.08. Offer Documents; Schedule 14D-9; Schedule 13E-3; Proxy
Statement.......................................... 13
SECTION 3.09. Brokers............................................... 13
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Page
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
SECTION 4.01. Corporate Organization................................ 13
SECTION 4.02. Authority Relative to this Agreement.................. 14
SECTION 4.03. No Conflict; Required Filings and Consents............ 14
SECTION 4.04. Offer Documents; Proxy Statement...................... 15
SECTION 4.05. Brokers............................................... 15
ARTICLE V
COVENANTS
SECTION 5.01. Conduct of the Business Pending the Merger............ 15
SECTION 5.02. Stockholders' Meeting................................. 16
SECTION 5.03. Proxy Statement....................................... 16
SECTION 5.04. Access to Information; Confidentiality................ 16
SECTION 5.05. Directors' and Officers' Indemnification and Insurance 17
SECTION 5.06. Notification of Certain Matters....................... 19
SECTION 5.07. Further Action; Reasonable Best Efforts............... 19
SECTION 5.08. Public Announcements.................................. 19
SECTION 5.09. Termination of Agreements............................. 19
SECTION 5.10. Financing............................................. 20
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to the Merger.............................. 20
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination........................................... 21
SECTION 7.02. Effect of Termination................................. 22
SECTION 7.03. Amendment............................................. 22
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Page
SECTION 7.04. Waiver................................................ 22
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Non-Survival of Representations, Warranties and
Agreements......................................... 23
SECTION 8.02. Notices............................................... 23
SECTION 8.03. Certain Definitions................................... 24
SECTION 8.04. Severability.......................................... 25
SECTION 8.05. Entire Agreement; Assignment.......................... 25
SECTION 8.06. Parties in Interest................................... 25
SECTION 8.07. Specific Performance.................................. 26
SECTION 8.08. Fees and Expenses..................................... 26
SECTION 8.09. Governing Law......................................... 26
SECTION 8.10. Headings.............................................. 26
SECTION 8.11. Counterparts.......................................... 26
Annex A: Conditions to the Offer
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AGREEMENT AND PLAN OF MERGER, dated as of January 10, 1997 (this
"Agreement"), among NOVARTIS INC., a company organized under the laws of
Switzerland and the successor by merger to Sandoz Ltd. ("Parent"), NOVARTIS
BIOTECH HOLDING CORP. (formerly known as Sandoz Biotech Holdings Corporation), a
Delaware corporation and an indirect wholly owned subsidiary of Parent
("Purchaser"), and SYSTEMIX, INC., a Delaware corporation (the "Company").
WHEREAS, Purchaser owns an aggregate of 10,610,099 shares of Common
Stock, par value $.01 per share, of the Company ("Company Common Stock") (shares
of Company Common Stock being hereinafter collectively referred to as "Shares");
WHEREAS, Parent and Purchaser have proposed that Purchaser acquire
all of the remaining issued and outstanding Shares;
WHEREAS, in furtherance of such acquisition, it is proposed that
Purchaser shall make a cash tender offer in compliance with Section 14(d)(1) of
the Exchange Act (as defined below) and in compliance with the rules and
regulations promulgated thereunder (the "Offer") to acquire all the issued and
outstanding Shares for $19.50 per Share (such amount, or any greater amount per
Share paid pursuant to the Offer, being hereinafter referred to as the "Per
Share Amount") net to the seller in cash, upon the terms and subject to the
conditions of this Agreement and the Offer;
WHEREAS, in accordance with the terms of Section 2.05 of the
Acquisition Agreement among Parent, Purchaser and the Company dated as of
December 16, 1991 (the "Acquisition Agreement"), and based in part on the
opinion of Lehman Brothers Inc. that the consideration to be received by the
holders of Shares (other than Parent and Purchaser) pursuant to each of the
Offer and the Merger (as defined below) is fair to such holders from a financial
point of view, a majority of the Independent Directors (as defined in the
Acquisition Agreement) has approved the Offer and the Merger (the "Independent
Director Approval");
WHEREAS, the Boards of Directors of Purchaser and the Company have
each determined that it is in the best interests of their respective
stockholders for Purchaser to acquire all of the remaining issued and
outstanding Shares;
WHEREAS, the Board of Directors of the Company (the "Board") has, by
unanimous vote of all directors present and voting (with all directors who are
designees of Parent abstaining), approved the making of the Offer and resolved
and agreed to recommend that the holders of the Shares tender their Shares
pursuant to the Offer;
WHEREAS, also in furtherance of such acquisition, the Board of
Directors of Purchaser and the Company have each approved the merger (the
"Merger") of Purchaser
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with and into the Company in accordance with the General Corporation Law of the
State of Delaware ("Delaware Law") following the consummation of the Offer and
upon the terms and subject to the conditions set forth in this Agreement; and
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE OFFER
SECTION 1.01. The Offer. (a) Provided that this Agreement shall not
have been terminated in accordance with Section 7.01 and none of the events set
forth in Annex A hereto shall have occurred or be existing, Purchaser shall
commence the Offer as promptly as reasonably practicable after the date hereof,
but in no event later than five business days after the initial public
announcement of Purchaser's intention to commence the Offer. Purchaser shall
not, without the consent of a majority of the Independent Directors, accept for
payment any Shares tendered pursuant to the Offer unless at least a majority of
the then issued and outstanding Shares, other than Shares owned by Parent and
Purchaser, shall have been validly tendered and not withdrawn prior to the
expiration of the Offer (the "First Minimum Condition"). The obligation of
Purchaser to accept for payment and pay for Shares tendered pursuant to the
Offer (i) shall be subject to the condition (the "Second Minimum Condition")
that at least the number of Shares that when added to the Shares already owned
by Parent and Purchaser shall constitute not less than 90% (or such other amount
which would allow the Merger to be effected without a meeting of the Company's
stockholders in accordance with Section 253 of the Delaware Law) of the then
issued and outstanding Shares shall have been validly tendered and not withdrawn
prior to the expiration of the Offer and (ii) shall be subject to the
satisfaction of the other conditions set forth in Annex A hereto. Purchaser
expressly reserves the right to waive any such condition (except the First
Minimum Condition), to increase the price per Share payable in the Offer, and to
make any other changes in the terms and conditions of the Offer; provided,
however, that (i) no change may be made which decreases the price per Share
payable in the Offer or which reduces the maximum number of Shares to be
purchased in the Offer or which imposes conditions to the Offer in addition to
those set forth in Annex A hereto and (ii) in the event all conditions set forth
in Annex A shall have been satisfied other than the Second Minimum Condition,
Purchaser may extend the Offer for a period or periods aggregating not more than
20 business days after the later of (x) the initial expiration date of the Offer
and (y) the date on which all other conditions set forth in Annex A shall have
been satisfied, after which time Purchaser shall waive the Second Minimum
Condition. The Per Share Amount shall, subject
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to applicable withholding of taxes, be net to the seller in cash, upon the terms
and subject to the conditions of the Offer. Subject to the terms and conditions
of the Offer (including, without limitation, the First Minimum Condition and the
Second Minimum Condition), Purchaser shall pay, as promptly as practicable after
expiration of the Offer, for all Shares validly tendered and not withdrawn.
(b) As soon as reasonably practicable on the date of commencement of
the Offer, Purchaser shall file with the Securities and Exchange Commission (the
"SEC") (i) a Tender Offer Statement on Schedule 14D-1 (together with all
amendments and supplements thereto, the "Schedule 14D-1") with respect to the
Offer and (ii) a Rule 13e-3 Transaction Statement on Schedule 13E-3 (together
with all amendments and supplements thereto, the "Schedule 13E-3") with respect
to the Offer and the other transactions contemplated hereby (the
"Transactions"). The Schedule 14D-1 and the Schedule 13E-3 shall contain or
shall incorporate by reference an offer to purchase (the "Offer to Purchase")
and forms of the related letter of transmittal and any related summary
advertisement (the Schedule 14D-1, the Schedule 13E-3, the Offer to Purchase and
such other documents, together with all supplements and amendments thereto,
being referred to herein collectively as the "Offer Documents"). Parent,
Purchaser and the Company agree to correct promptly any information provided by
any of them for use in the Offer Documents which shall have become false or
misleading, and Parent and Purchaser further agree to take all steps necessary
to cause the Schedule 14D-1 and the Schedule 13E-3 as so corrected to be filed
with the SEC and the other Offer Documents as so corrected to be disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws. The Company and its counsel shall be given the
opportunity to review and comment on the Offer Documents and any amendments
thereto prior to the filing thereof with the SEC. Parent and Purchaser shall
provide the Company and its counsel with a copy of any written comments or
telephonic notification of any verbal comments Parent or Purchaser may receive
from the SEC or its staff with respect to the Offer Documents promptly after the
receipt thereof and shall provide the Company and its counsel with a copy of any
written responses and telephonic notification of any verbal responses of Parent,
Purchaser or their counsel.
SECTION 1.02. Company Action. (a) The Company hereby approves of and
consents to the Offer and represents that (i) a majority of the Independent
Directors approved the Offer and the Merger, (ii) the Board, at a meeting duly
called and held on January 10, 1997, has, by unanimous vote of all directors
present and voting (with all directors who are designees of Parent abstaining),
(A) determined that this Agreement and the Transactions, including each of the
Offer and the Merger, are fair to and in the best interests of the holders of
Shares (other than Parent and Purchaser), (B) approved and adopted this
Agreement and the Transactions and (C) recommended that the stockholders of the
Company accept the Offer and approve and adopt this Agreement and the
Transactions, and (iii) Lehman Brothers Inc. has delivered to the Independent
Directors and to the Board a written opinion that the consideration to be
received by the holders of Shares (other than
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4
Parent and Purchaser) pursuant to each of the Offer and the Merger is fair to
the holders of Shares from a financial point of view. The Company hereby
consents to the inclusion in the Offer Documents of the recommendation of the
Board described in the immediately preceding sentence.
(b) As soon as reasonably practicable on the date of commencement of
the Offer, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto, the "Schedule 14D-9") containing the recommendation of the Board
described in Section 1.02(a) and shall disseminate the Schedule 14D-9 to the
extent required by Rule 14d-9 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and any other applicable federal
securities laws. The Company, Parent and Purchaser agree to correct promptly any
information provided by any of them for use in the Schedule 14D-9 which shall
have become false or misleading, and the Company further agrees to take all
steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the
SEC and disseminated to holders of Shares, in each case as and to the extent
required by applicable federal securities laws. Purchaser and its counsel shall
be given the opportunity to review and comment on the Schedule 14D-9 and any
amendments thereto prior to the filing thereof with the SEC. The Company shall
provide Purchaser and its counsel with a copy of any written comments or
telephonic notification of any verbal comments the Company may receive from the
SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt
thereof and shall provide Purchaser and its counsel with a copy of any written
responses and telephonic notification of any verbal responses of the Company or
its counsel.
(c) The Company shall promptly furnish Purchaser with mailing labels
containing the names and addresses of all record holders of Shares and with
security position listings of Shares held in stock depositories, each as of a
recent date, together with all other available listings and computer files
containing names, addresses and security position listings of record holders and
beneficial owners of Shares. The Company shall furnish Purchaser with such
additional information, including, without limitation, updated listings and
computer files of stockholders, mailing labels and security position listings,
and such other assistance as Parent, Purchaser or their agents may reasonably
request. Subject to the requirements of applicable law, and except for such
steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Offer or the Merger, Parent and Purchaser
shall hold in confidence the information contained in such labels, listings and
files, shall use such information only in connection with the Offer and the
Merger, and, if this Agreement shall be terminated in accordance with Section
7.01, shall deliver to the Company all copies of such information then in their
possession.
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ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with Delaware Law, at
the Effective Time (as hereinafter defined) Purchaser shall be merged with and
into the Company. As a result of the Merger, the separate corporate existence of
Purchaser shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation").
SECTION 2.02. Effective Time; Closing. As promptly as practicable
after the satisfaction or, if permissible, waiver of the conditions set forth in
Article VI, the parties hereto shall cause the Merger to be consummated by
filing this Agreement or a certificate of merger or certificate of ownership and
merger (in either case, the "Certificate of Merger") with the Secretary of State
of the State of Delaware, in such form as is required by, and executed in
accordance with the relevant provisions of, Delaware Law (the date and time of
such filing being the "Effective Time"). Prior to such filing, a closing shall
be held at the offices of Shearman & Sterling, 599 Lexington Avenue, New York,
New York 10022, or such other place as the parties shall agree, for the purpose
of confirming the satisfaction or waiver, as the case may be, of the conditions
set forth in Article VI.
SECTION 2.03. Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of the Company and Purchaser shall vest in the Surviving Corporation,
and all debts, liabilities, obligations, restrictions, disabilities and duties
of the Company and Purchaser shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 2.04. Certificate of Incorporation; By-laws. (a) At the
Effective Time the Certificate of Incorporation of Purchaser previously
delivered to the Company shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and such
Certificate of Incorporation; provided, however, that, at the Effective Time,
Article I of the Certificate of Incorporation of the Surviving Corporation shall
be amended to read as follows: "The name of the corporation is SyStemix, Inc."
(b) At the Effective Time, the By-laws of Purchaser previously
delivered to the Company shall be the By-laws of the Surviving Corporation until
thereafter amended as provided by law, the Certificate of Incorporation of the
Surviving Corporation and such By-laws.
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SECTION 2.05. Directors and Officers. The directors of Purchaser
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 and qualified.
SECTION 2.06. Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Purchaser, the
Company or the holders of any of the following securities:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be cancelled pursuant to Section
2.06(b) and any Dissenting Shares (as hereinafter defined)) shall be
cancelled and shall be converted automatically into the right to receive
an amount equal to the Per Share Amount in cash (the "Merger
Consideration") payable, without interest, to the holder of such Share,
upon surrender, in the manner provided in Section 2.09, of the certificate
that formerly evidenced such Share;
(b) Each Share held in the treasury of the Company and each
Share owned by Purchaser, Parent or any direct or indirect wholly owned
subsidiary of Parent or of the Company immediately prior to the Effective
Time shall be cancelled without any conversion thereof and no payment or
distribution shall be made with respect thereto; and
(c) Each share of Common Stock, par value $.01 per share, of
Purchaser issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid
and nonassessable share of common stock, par value $.01 per share, of the
Surviving Corporation.
SECTION 2.07. Stock Options and Warrants. (a) Immediately prior to
the Effective Time, each outstanding option and warrant to purchase Shares (in
each case, an "Option"), whether or not then exercisable, may be surrendered by
the holder of such Option for cancellation by the Company, and each holder of a
cancelled Option shall be entitled to receive an amount in cash from Purchaser,
in consideration for the cancellation of each such Option, at the same time as
the Merger Consideration is received by the holders of Shares, equal to the
product of (i) the number of Shares to be issued upon the exercise of such
Option and (ii) the excess, if any, of the Per Share Amount over the exercise
price per Share previously subject to such Option; provided, however, that any
Options owned by Purchaser, Parent or any direct or indirect wholly owned
subsidiary of Parent or of the Company immediately prior to the Effective Time
shall be cancelled without any conversion thereof and no payment or distribution
shall be made with respect thereto.
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(b) The Company shall use all reasonable efforts to obtain such
consents as may be necessary or required so that, immediately prior to the
Effective Time, each Option may be and shall be cancelled by the Company.
SECTION 2.08. Dissenting Shares. (a) Notwithstanding any provision
of this Agreement to the contrary, Shares that are outstanding immediately prior
to the Effective Time and which are held by stockholders who shall have not
voted in favor of the Merger or consented thereto in writing and who shall have
demanded properly in writing appraisal for such Shares in accordance with
Section 262 of Delaware Law (collectively, the "Dissenting Shares") shall not be
converted into or represent the right to receive the Merger Consideration. Such
stockholders shall be entitled to receive payment of the appraised value of such
Shares held by them in accordance with the provisions of such Section 262,
except that all Dissenting Shares held by stockholders who shall have failed to
perfect or who effectively shall have withdrawn or lost their rights to
appraisal of such Shares under such Section 262 shall thereupon be deemed to
have been converted into and to have become exchangeable for, as of the
Effective Time, the right to receive the Merger Consideration, without any
interest thereon, upon surrender, in the manner provided in Section 2.09, of the
certificate or certificates that formerly evidenced such Shares.
(b) The Company shall give Parent (i) prompt notice of any demands
for appraisal received by the Company, withdrawals of such demands, and any
other instruments served pursuant to Delaware Law and received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal under Delaware Law. The Company shall not, except with
the prior written consent of Parent, make any payment with respect to any
demands for appraisal or offer to settle or settle any such demands.
SECTION 2.09. Surrender of Shares; Stock Transfer Books. (a) Prior
to the Effective Time, Purchaser shall designate a bank or trust company to act
as agent (the "Paying Agent") for the holders of Shares in connection with the
Merger to receive the funds to which holders of Shares shall become entitled
pursuant to Section 2.06(a). Such funds shall be invested by the Paying Agent as
directed by the Surviving Corporation.
(b) Promptly after the Effective Time, the Surviving Corporation
shall cause to be mailed to each person who was, at the Effective Time, a holder
of record of Shares entitled to receive the Merger Consideration pursuant to
Section 2.06(a) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
evidencing such Shares (the "Certificates") shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and instructions for use in
effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as
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8
may be required pursuant to such instructions, the holder of such Certificate
shall be entitled to receive in exchange therefor the Merger Consideration for
each Share formerly evidenced by such Certificate, and such Certificate shall
then be cancelled. No interest shall accrue or be paid on the Merger
Consideration payable upon the surrender of any Certificate for the benefit of
the holder of such Certificate. If payment of the Merger Consideration is to be
made to a person other than the person in whose name the surrendered Certificate
is registered on the stock transfer books of the Company, it shall be a
condition of payment that the Certificate so surrendered shall be endorsed
properly or otherwise be in proper form for transfer and that the person
requesting such payment shall have paid all transfer and other taxes required by
reason of the payment of the Merger Consideration to a person other than the
registered holder of the Certificate surrendered or shall have established to
the satisfaction of the Surviving Corporation that such taxes either have been
paid or are not applicable.
(c) At any time following the sixth month after the Effective Time,
the Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any funds which had been made available to the Paying Agent and
not disbursed to holders of Shares (including, without limitation, all interest
and other income received by the Paying Agent in respect of all funds made
available to it), and thereafter such holders shall be entitled to look to the
Surviving Corporation (subject to abandoned property, escheat and other similar
laws) only as general creditors thereof with respect to any Merger Consideration
that may be payable upon due surrender of the Certificates held by them.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Share for any Merger Consideration
delivered in respect of such Share to a public official pursuant to any
abandoned property, escheat or other similar law.
(d) At the close of business on the day of the Effective Time, the
stock transfer books of the Company shall be closed and thereafter there shall
be no further registration of transfers of Shares on the records of the Company.
From and after the Effective Time, the holders of Shares outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
Shares except as otherwise provided herein or by applicable law.
SECTION 2.10. Withholding Rights. Purchaser or the Paying Agent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of Shares and/or an Option such
amounts that Purchaser or the Paying Agent is required to deduct and withhold
with respect to the making of such payment under the United States Internal
Revenue Code of 1986, as amended (the "Code"), the rules and regulations
promulgated thereunder or any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by Purchaser or the Paying Agent, such
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the
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Shares and/or Option in respect of which such deduction and withholding was made
by Purchaser or the Paying Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser
that:
SECTION 3.01. Organization and Qualification; Subsidiaries. Each of
the Company and each subsidiary of the Company (a "Subsidiary") is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has the requisite power and authority and
all 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 or in good standing or to have such power,
authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect (as defined below). The Company and
each Subsidiary 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 business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Material Adverse Effect. When used in connection with the
Company or any Subsidiary, the term "Material Adverse Effect" means any change
or effect that, when taken together with all other adverse changes and effects
that are within the scope of the representations and warranties made by the
Company in this Agreement and which are not individually or in the aggregate
deemed to have a Material Adverse Effect, is or is reasonably likely to be
materially adverse to the business, operations, properties, condition (financial
or otherwise), assets or liabilities (including, without limitation, contingent
liabilities) or prospects of the Company and the Subsidiaries taken as a whole.
SECTION 3.02. Certificate of Incorporation and By-laws. The Company
has heretofore furnished to Parent a complete and correct copy of the
Certificate of Incorporation and the By-laws or equivalent organizational
documents, each as amended to date, of the Company and each Subsidiary. Such
Certificates of Incorporation, By-laws or equivalent organizational documents
are in full force and effect, and neither the Company nor any Subsidiary is in
violation of any provision of its Certificate of Incorporation, By-laws or
equivalent organizational documents.
SECTION 3.03. Capitalization. The authorized capital stock of the
Company consists of 30,000,000 Shares and 1,000,000 shares of preferred stock,
par value $.01 per share ("Company Preferred Stock"). As of the date hereof, (i)
14,500,094 Shares
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10
are issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) no Shares are held in the treasury of the Company, (iii)
3,383,239 Shares are authorized for future issuance (with respect to which
options to acquire 2,016,378 Shares are issued and outstanding) pursuant to
employee stock options or stock incentive rights granted pursuant to the
Company's 1988 Stock Option Plan and 1991 Stock Option and Incentive Plan, and
(iv) 1,367,600 Shares are reserved for future issuance in connection with the
exercise of the Warrants (as such term is defined in the Stock and Warrant
Purchase Agreement, dated as of January 30, 1995, among Parent, Purchaser and
Company (the "Warrant Purchase Agreement")). As of the date hereof, no shares of
Company Preferred Stock are issued and outstanding. Except as contemplated by
this Agreement, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or any Subsidiary or obligating the Company or any
Subsidiary to issue or sell any shares of capital stock of, or other equity
interests in, the Company or any Subsidiary. All Shares subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. Except for obligations to
executives under currently existing employment agreements to make loans relating
to personal residences, there are no outstanding contractual obligations of the
Company or any Subsidiary to repurchase, redeem or otherwise acquire any Shares
or any capital stock of any Subsidiary or to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
person. Each outstanding share of capital stock of each Subsidiary is duly
authorized, validly issued, fully paid and nonassessable and each such share
owned by the Company or another Subsidiary is free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the Company's or such other Subsidiary's voting rights, charges
and other encumbrances of any nature whatsoever.
SECTION 3.04. Authority Relative to this Agreement. The Company has
all necessary power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the Transactions. The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the Transactions have been duly and validly authorized by all
necessary corporate action (including approval by a majority of the Independent
Directors as provided in the Acquisition Agreement) and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the Transactions (other than, with respect to the Merger, the
approval and adoption of this Agreement by the holders of a majority of the then
outstanding Shares if and to the extent required by applicable law, and the
filing and recordation of appropriate merger documents as required by Delaware
Law). This Agreement has been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by Parent
and Purchaser, constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its
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11
terms. The restrictions on business combinations contained in Section 203 of
Delaware Law have been satisfied with respect to the Transactions.
SECTION 3.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Certificate of Incorporation or By-laws or equivalent organizational
documents of the Company or any Subsidiary, (ii) conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to the Company or
any Subsidiary or by which any property or asset of the Company or any
Subsidiary is bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Company or any Subsidiary pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any property
or asset of either of them is bound or affected, except for any such conflicts,
violations, breaches, defaults or other occurrences which would not,
individually or in the aggregate have a Material Adverse Effect, or prevent or
materially delay the performance by the Company of any of its obligations under
this Agreement or the consummation of any of the Transactions.
(b) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
for applicable requirements, if any, of the Exchange Act, state securities or
"blue sky" laws ("Blue Sky Laws") and state takeover laws and filing and
recordation of appropriate merger documents as required by Delaware Law and (ii)
where failure to obtain such consents, approvals, authorizations or permits, or
to make such filings or notifications, would not, individually or in the
aggregate, have a Material Adverse Effect, or prevent or materially delay the
performance by the Company of any of its obligations under this Agreement or the
consummation of any of the Transactions.
SECTION 3.06. Compliance. Neither the Company nor any Subsidiary is
in conflict with, or in default or violation of, (i) any law, rule, regulation,
order, judgment or decree applicable to the Company or any Subsidiary or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or any property or asset of the Company or any Subsidiary is bound or affected,
except for any such conflicts, defaults or violations that would
not,individually or in the aggregate, have a Material Adverse Effect, or prevent
or materially delay the
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12
performance by the Company of any of its obligations under this Agreement or the
consummation of any of the Transactions.
SECTION 3.07. SEC Filings; Financial Statements. (a) The Company has
filed all forms, reports and documents required to be filed by it with the SEC
since December 31, 1994, and has heretofore delivered to Parent, in the form
filed with the SEC, (i) its Annual Reports on Form 10-K for the fiscal years
ended December 31, 1994 and 1995, respectively, (ii) its Quarterly Reports on
Form 10-Q for the periods ended March 31, June 30 and September 30, 1996, (iii)
all proxy statements relating to the Company's meetings of stockholders (whether
annual or special) held since December 31, 1994, and (iv) all other forms,
reports and other registration statements (other than Quarterly Reports on Form
10-Q not referred to in clause (ii) above) filed by the Company with the SEC
since December 31, 1994 (the forms, reports and other documents referred to in
clauses (i), (ii), (iii) and (iv) above being referred to herein, collectively,
as the "SEC Reports"). The SEC Reports (i) were prepared in accordance with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the Exchange Act, as the case may be, and the rules and regulations
thereunder and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. No
Subsidiary is required to file any form, report or other document with the SEC.
(b) Each of the consolidated financial statements (including, in
each case, any notes thereto) contained in the SEC Reports was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as may be indicated in the notes
thereto) and each fairly presented the consolidated financial position, results
of operations and changes in financial position of the Company and the
consolidated Subsidiaries as at the respective dates thereof and for the
respective periods indicated therein.
(c) Except as and to the extent set forth on the consolidated
balance sheet of the Company and the consolidated Subsidiaries at December 31,
1995, including the notes thereto, included in the Company's Annual Report on
Form 10-K for the fiscal year then ended, or on the unaudited consolidated
balance sheet of the Company and the consolidated Subsidiaries at September 30,
1996, including the notes thereto, included in the Company's Quarterly Report on
Form 10-Q for the period then ended, the Company and the consolidated
Subsidiaries have no liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise) which would be required to be reflected on a
consolidated balance sheet, or in the notes thereto, prepared in accordance with
generally accepted accounting principles, except for liabilities and obligations
incurred in the ordinary course of business consistent with past practice since
September 30, 1996.
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13
SECTION 3.08. Offer Documents; Schedule 14D-9; Schedule 13E-3; Proxy
Statement. Neither the Schedule 14D-9 nor any information supplied by the
Company for inclusion in the Offer Documents or the Schedule 13E-3 shall, at the
respective times the Schedule 14D-9, the Offer Documents, the Schedule 13E-3 or
any amendments or supplements thereto are filed with the SEC or are first
published, sent or given to stockholders of the Company, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they are made, not
misleading. Neither the proxy statement to be sent to the stockholders of the
Company in connection with the Stockholders' Meeting (as hereinafter defined) or
the information statement to be sent to such stockholders, as appropriate (such
proxy statement or information statement, as amended or supplemented, being
referred to herein as the "Proxy Statement"), shall, at the date the Proxy
Statement (or any amendment or supplement thereto) is first mailed to
stockholders of the Company, at the time of the Stockholders' Meeting and at the
Effective Time, be false or misleading with respect to any material fact, or
omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of proxies for the
Stockholders' Meeting which shall have become false or misleading.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by Parent, Purchaser or any of their
representatives which is contained in any of the foregoing documents. The
Schedule 14D-9 and the Proxy Statement shall comply in all material respects as
to form with the requirements of the Exchange Act and the rules and regulations
thereunder.
SECTION 3.09. Brokers. No broker, finder or investment banker (other
than Lehman Brothers Inc.) is entitled to any brokerage, finder's or other fee
or commission in connection with the Transactions based upon arrangements made
by or on behalf of the Company. The Company has heretofore furnished to Parent a
complete and correct copy of all agreements between the Company and Lehman
Brothers Inc. pursuant to which such firm would be entitled to any payment
relating to the Transactions.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent and
warrant to the Company that:
SECTION 4.01. Corporate Organization. Each of Parent and Purchaser
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization.
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14
SECTION 4.02. Authority Relative to this Agreement. Each of Parent
and Purchaser has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Transactions. The execution and delivery of this Agreement by Parent and
Purchaser and the consummation by Parent and Purchaser of the Transactions have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Parent or Purchaser are necessary to
authorize this Agreement or to consummate the Transactions (other than, with
respect to the Merger, the filing and recordation of appropriate merger
documents as required by Delaware Law). This Agreement has been duly and validly
executed and delivered by Parent and Purchaser and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of each of Parent and Purchaser enforceable against each
of Parent and Purchaser in accordance with its terms.
SECTION 4.03. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Parent and Purchaser do not, and the
performance of this Agreement by Parent and Purchaser will not, (i) conflict
with or violate the Certificate of Incorporation or By-laws of either Parent or
Purchaser, (ii) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Parent or Purchaser or by which any property or
asset of either of them is bound or affected, or (iii) result in any breach of
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or other encumbrance on any property or asset of Parent or Purchaser pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent or Purchaser
is a party or by which Parent or Purchaser or any property or asset of either of
them is bound or affected, except for any such conflicts, violations, breaches,
defaults or other occurrences which would not prevent or materially delay the
performance by Parent or Purchaser of any of its obligations under this
Agreement or the consummation of any of the Transactions.
(b) The execution and delivery of this Agreement by Parent and
Purchaser do not, and the performance of this Agreement by Parent and Purchaser
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for applicable requirements, if any, of the Exchange Act,
Blue Sky Laws and state takeover laws, and filing and recordation of appropriate
merger documents as required by Delaware Law and (ii) where failure to obtain
such consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or materially delay the performance by Parent
or Purchaser of any of its obligations under this Agreement or the consummation
of any of the Transactions.
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15
SECTION 4.04. Offer Documents; Proxy Statement. The Offer Documents
will not, at the time the Offer Documents are filed with the SEC or are first
published, sent or given to stockholders of the Company, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they are made, not
misleading. The information supplied by Parent for inclusion in the Proxy
Statement will not, on the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to stockholders of the Company, at the time
of the Stockholders' Meeting and at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or omit to state any
material fact required to be stated therein or 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 proxies for the
Stockholders' Meeting which shall have become false or misleading.
Notwithstanding the foregoing, Parent and Purchaser make no representation or
warranty with respect to any information supplied by the Company or any of its
representatives which is contained in any of the foregoing documents or the
Offer Documents. The Offer Documents shall comply in all material respects as to
form with the requirements of the Exchange Act and the rules and regulations
thereunder.
SECTION 4.05. Brokers. No broker, finder or investment banker (other
than Morgan Stanley & Co. Incorporated) is entitled to any brokerage, finder's
or other fee or commission in connection with the Transactions based upon
arrangements made by or on behalf of Parent or Purchaser.
ARTICLE V
COVENANTS
SECTION 5.01. Conduct of the Business Pending the Merger. The
Company covenants and agrees that, between the date of this Agreement and the
Effective Time, unless Parent shall otherwise agree in writing, the businesses
of the Company and the Subsidiaries shall be conducted only in, and the Company
and the Subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice; and the Company shall
use its best efforts to preserve substantially intact the business organization
of the Company and the Subsidiaries, to keep available the services of the
current officers, employees and consultants of the Company and the Subsidiaries
and to preserve the current relationships of the Company and the Subsidiaries
with customers, suppliers and other persons with which the Company or any
Subsidiary has significant business relations.
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16
SECTION 5.02. Stockholders' Meeting. (a) If required by applicable
law in order to consummate the Merger, the Company, acting through the Board,
shall, in accordance with applicable law and the Company's Certificate of
Incorporation and By-laws, (i) duly call, give notice of, convene and hold an
annual or special meeting of its stockholders as soon as practicable following
consummation of the Offer for the purpose of considering and taking action on
this Agreement and the Transactions (the "Stockholders' Meeting") and (ii)
include in the Proxy Statement the recommendation of the Board (with all
directors who are designees of Parent abstaining) that the stockholders of the
Company approve and adopt this Agreement and the Transactions. At the
Stockholders' Meeting, Parent and Purchaser shall cause all Shares then owned by
them and their subsidiaries to be voted in favor of the approval and adoption of
this Agreement and the Transactions.
(b) Notwithstanding the foregoing, in the event that Purchaser shall
acquire such number of Shares that, when taken together with the Shares
previously owned by Purchaser, constitute at least 90 percent of the then
outstanding Shares, the parties hereto agree, subject to Article VI, to take all
necessary and appropriate action to cause the Merger to become effective, in
accordance with Section 253 of Delaware Law, as soon as reasonably practicable
after such acquisition, without a meeting of the stockholders of the Company.
SECTION 5.03. Proxy Statement. If required by applicable law, as
soon as practicable following consummation of the Offer, the Company shall file
the Proxy Statement with the SEC under the Exchange Act, and shall use its best
efforts to have the Proxy Statement cleared by the SEC. Parent, Purchaser and
the Company shall cooperate with each other in the preparation of the Proxy
Statement, and the Company shall notify Parent of the receipt of any comments of
the SEC with respect to the Proxy Statement and of any requests by the SEC for
any amendment or supplement thereto or for additional information and shall
provide to Parent promptly copies of all correspondence between the Company or
any representative of the Company and the SEC. The Company shall give Parent and
its counsel the opportunity to review the Proxy Statement prior to its being
filed with the SEC and shall give Parent and its counsel the opportunity to
review all amendments and supplements to the Proxy Statement and all responses
to requests for additional information and replies to comments prior to their
being filed with, or sent to, the SEC. Each of the Company, Parent and Purchaser
agrees to use its reasonable best efforts, after consultation with the other
parties hereto, to respond promptly to all such comments of and requests by the
SEC and to cause the Proxy Statement and all required amendments and supplements
thereto to be mailed to the holders of Shares entitled to vote at the
Stockholders' Meeting at the earliest practicable time.
SECTION 5.04. Access to Information; Confidentiality. (a) From the
date hereof to the Effective Time, the Company shall, and shall cause the
Subsidiaries and the officers, directors, employees, auditors and agents of the
Company and the Subsidiaries to, afford the officers, employees and agents of
Parent and Purchaser access at all reasonable
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17
times to the officers, employees, agents, properties, offices, plants and other
facilities, books and records of the Company and each Subsidiary, and shall
furnish Parent and Purchaser with financial, operating and other data and
information as Parent or Purchaser, through its officers, employees or agents,
may reasonably request, in any case consistent with that currently available to
such persons and necessary to conduct the Offer and consummate the other
Transactions.
(b) No investigation pursuant to this Section 5.04 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
(c) Information afforded or furnished to Parent or Purchaser by the
Company pursuant to this Section 5.04 shall be kept confidential and shall not
be disclosed to third parties except (i) with the consent of the Company, (ii)
as may be required by law, regulation or by legal process (including by
deposition, interrogatory, request for documents, subpoena, civil investigative
demand or similar process), or (iii) as may be necessary in connection with the
Transactions.
SECTION 5.05. Directors' and Officers' Indemnification and
Insurance. (a) The By-laws of the Surviving Corporation shall contain provisions
no less favorable with respect to indemnification than are set forth in Article
XV of the By-laws of the Company, which provisions shall not be amended,
repealed or otherwise modified for a period of six years from the Effective Time
in any manner that would affect adversely the rights thereunder of individuals
who at the Effective Time were directors, officers, employees, fiduciaries or
agents of the Company, unless such modification shall be required by law.
(b) The Company shall, to the fullest extent permitted under
applicable law and regardless of whether the Merger becomes effective, indemnify
and hold harmless, and, after the Effective Time, the Surviving Corporation
shall, to the fullest extent permitted under applicable law, indemnify and hold
harmless, each present and former director, officer, employee, fiduciary and
agent of the Company and each Subsidiary and each fiduciary and agent of each
such director and officer (collectively, the "Indemnified Parties") against all
costs and expenses (including attorneys' fees), judgments, fines, losses,
claims, damages, liabilities and settlement amounts paid in connection with any
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), whether civil, criminal, administrative or
investigative, arising out of or pertaining to any action or omission in their
capacity as an officer, director, employee, fiduciary or agent, whether
occurring before or after the Effective Time, until the expiration of the
statute of limitations relating thereto (and shall pay any expenses in advance
of the final disposition of such action or proceeding to each Indemnified Party
to the fullest extent permitted under Delaware Law, upon receipt from the
Indemnified Party to whom expenses are advanced of any undertaking to repay such
advances required under Delaware Law). In the event of any such claim,
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18
action, suit, proceeding or investigation, (i) the Company or the Surviving
Corporation, as the case may be, shall pay the reasonable fees and expenses of
counsel selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to the Company or the Surviving Corporation, promptly after
statements therefor are received and (ii) the Company and the Surviving
Corporation shall cooperate in the defense of any such matter; provided,
however, that neither the Company nor the Surviving Corporation shall be liable
for any settlement effected without its written consent (which consent shall not
be unreasonably withheld); and provided, further, that neither the Company nor
the Surviving Corporation shall be obligated pursuant to this Section 5.05(b) to
pay the fees and expenses of more than one counsel (plus appropriate local
counsel) for all Indemnified Parties in any single action except (x) that the
persons who served as directors of the Company who were not designees of Parent
shall be entitled to retain one additional counsel (plus appropriate local
counsel) to represent them at the expense of the Company or the Surviving
Corporation, and (y) to the extent that two or more of such Indemnified Parties
shall have conflicting interests in the outcome of such action, in which case
such additional counsel (including local counsel) as may be required to avoid
any such conflict or likely conflict may be retained by the Indemnified Parties
at the expense of the Company or the Surviving Corporation; and provided further
that, in the event that any claim for indemnification is asserted or made within
the period prior to the expiration of the applicable statute of limitations, all
rights to indemnification in respect of such claim shall continue until the
disposition of such claim. Parent hereby agrees to guarantee the obligations of
the Surviving Corporation and, following consummation of the Offer, the Company,
under this Section 5.05(b).
(c) The Surviving Corporation shall use its reasonable efforts to
maintain in effect for six years from the Effective Time, if available, the
current directors' and officers' liability insurance policies maintained by the
Company (provided that the Surviving Corporation may substitute therefor
policies of at least the same coverage containing terms and conditions which are
not materially less favorable) with respect to matters occurring prior to the
Effective Time; provided, however, that in no event shall the Surviving
Corporation be required to expend pursuant to this Section 5.05(c) more than an
amount per year equal to 175% of current annual premiums paid by the Company for
such insurance. In the event that, but for the proviso to the immediately
preceding sentence, the Surviving Corporation would be required to expend more
than 175% of current annual premiums, the Surviving Corporation shall obtain the
maximum amount of such insurance obtainable by payment of annual premiums equal
to 175% of current annual premiums.
(d) In the event the Company or the Surviving Corporation or any of
their respective successors or assigns (i) consolidates with or merges into any
other person and shall not be the continuing or surviving corporation or entity
of such consolidation or merger or (ii) transfers all or substantially all of
its properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of the
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19
Company or the Surviving Corporation, as the case may be, or at Parent's option,
Parent, shall assume the obligations set forth in this Section 5.05.
SECTION 5.06. 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 nonoccurrence, of any event the occurrence,
or nonoccurrence, of which would be likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate and (ii) any
failure of the Company, Parent or Purchaser, as the case may be, to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.06 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 5.07. Further Action; Reasonable Best Efforts. Upon the
terms and subject to the conditions hereof, each of the parties hereto shall (i)
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, including, without limitation, using its reasonable best
efforts to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company and the Subsidiaries as are necessary for the consummation of
the Transactions and to fulfill the conditions to the Offer and the Merger. 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 and the Surviving Corporation shall
use their reasonable best efforts to take all such action.
SECTION 5.08. Public Announcements. Parent and the Company shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to this Agreement or any Transaction 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 a
national securities exchange to which Parent or the Company is a party.
SECTION 5.09. Termination of Agreements. The parties hereto hereby
agree that each of the Acquisition Agreement and the Warrant Purchase Agreement
shall be terminated as of the Effective Time. For purposes of clarity, it is
understood by the parties hereto that all representations, warranties and
agreements between the parties which, by the terms of such agreements, survive
either or both the Closing Date (as that term is defined in each of the
Acquisition Agreement and the Warrant Purchase Agreement) or the termination of
such agreements shall all be terminated as of the Effective Time.
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SECTION 5.10. Financing. Parent shall ensure that Purchaser has
sufficient funds to acquire all the outstanding Shares in the Offer and the
Merger.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to 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 and the Transactions
shall have been approved and adopted by the affirmative vote of the
stockholders of the Company to the extent required by Delaware Law and the
Certificate of Incorporation of the Company;
(b) No Order. No foreign, United States or state governmental
authority or other agency or commission or foreign, United States or state
court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of: (i) making the acquisition
of Shares by Parent or Purchaser or any affiliate of either of them
illegal or otherwise restricting, preventing or prohibiting consummation
of the Transactions, (ii) seeking to prohibit or limit materially the
ownership or operation by the Company, Parent or any of their respective
subsidiaries of all or any material portion of the business or assets of
the Company, Parent or any of their respective subsidiaries as a result of
the Transactions, or (iii) compelling the Company, Parent, Purchaser or
any of their respective subsidiaries to dispose of or hold separate all or
any material portion of the business or assets of the Company, Parent,
Purchaser or any of their respective subsidiaries as a result of the
Transactions; and
(c) Offer. Purchaser or its permitted assignee shall have
purchased all Shares validly tendered and not withdrawn pursuant to the
Offer; provided, however, that this condition shall not be applicable to
the obligations of Parent or Purchaser if, in breach of this Agreement or
the terms of the Offer, Purchaser fails to purchase any Shares validly
tendered and not withdrawn pursuant to the Offer.
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21
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination. This Agreement may be terminated and the
Merger and the other Transactions may be abandoned at any time prior to the
Effective Time, notwithstanding any requisite approval and adoption of this
Agreement and the Transactions by the stockholders of the Company:
(a) By mutual written consent duly authorized by the Boards of
Directors of Parent, Purchaser and the Company, if such termination is
also approved by a majority of the Independent Directors; or
(b) By either Parent, Purchaser or the Company if (i) the
Effective Time shall not have occurred on or before June 30, 1997;
provided, however, that the right to terminate this Agreement under this
Section 7.01(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such
date or (ii) any court of competent jurisdiction or other governmental
authority shall have issued an order, decree, ruling or taken any other
action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and
nonappealable; or
(c) By Parent if due to an occurrence or circumstance that
would result in a failure to satisfy any condition set forth in Annex A
hereto, Purchaser shall have (i) failed to commence the Offer within 60
days following the date of this Agreement, (ii) terminated the Offer
without having accepted any Shares for payment thereunder or (iii) failed
to pay for Shares pursuant to the Offer within 90 days following the
commencement of the Offer, unless such failure to pay for Shares shall
have been caused by or resulted from the failure of Parent or Purchaser to
perform in any material respect any material covenant or agreement of
either of them contained in this Agreement or the material breach by
Parent or Purchaser of any material representation or warranty of either
of them contained in this Agreement; or
(d) By the Company, upon approval of the Board and a majority
of the Independent Directors, if due to an occurrence or circumstance that
would result in a failure to satisfy any of the conditions set forth in
Annex A hereto, Purchaser shall have (i) failed to commence the Offer
within 60 days following the date of this Agreement, (ii) terminated the
Offer without having accepted any Shares for payment thereunder or (iii)
failed to pay for Shares pursuant to the Offer within 90 days following
the commencement of the Offer, unless such failure to pay for Shares shall
have been caused by or resulted from the failure of the Company to perform
in any
<PAGE>
22
material respect any material covenant or agreement of it contained in
this Agreement or the material breach by the Company of any material
representation or warranty of it contained in this Agreement; or
(e) By the Company, upon approval of the Board and a majority
of the Independent Directors, if any representation or warranty of Parent
and Purchaser in this Agreement which is qualified as to materiality shall
not be true and correct or any such representation or warranty that is not
so qualified shall not be true and correct in any material respect, in
each case as if such representation or warranty was made as of such time
on or after the date of this Agreement; or Parent or Purchaser shall have
failed to perform in any material respect any obligation or to comply in
any material respect with any agreement or covenant of Parent or Purchaser
to be performed or complied with by it under this Agreement.
SECTION 7.02. Effect of Termination. In the event of the termination
of this Agreement pursuant to Section 7.01, this Agreement shall forthwith
become void, and there shall be no liability on the part of any party hereto,
except (i) as set forth in Section 8.01 and (ii) nothing herein shall relieve
any party from liability for any breach hereof.
SECTION 7.03. Amendment. This Agreement may be amended by the
parties hereto by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time; provided, however, that,
after the approval and adoption of this Agreement and the Transactions 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 shall be
converted upon consummation of the Merger, imposes conditions to the Merger
other than set forth in Section 6.01 or would otherwise amend or change the
terms and conditions of the Merger in a manner materially adverse to the holders
of the Shares (other than Parent and its affiliates); and provided further that
such amendment shall be approved by a majority of the Independent Directors.
This Agreement may not be amended except by an instrument in writing signed by
the parties hereto.
SECTION 7.04. Waiver. At any time prior to the Effective Time, any
party hereto may (i) extend the time for the performance of any obligation or
other act of any other party hereto, (ii) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any agreement or condition
contained herein. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby and, in
the case of any extension or waiver by which the Company is to be bound, only if
approved by a majority of the Independent Directors.
<PAGE>
23
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. 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 7.01, as the case may be, except that the agreements set
forth in Articles II and VIII and Section 5.05 shall survive the Effective Time
indefinitely.
SECTION 8.02. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
telecopy or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses (or at such
other address for a party as shall be specified in a notice given in accordance
with this Section 8.02):
if to Parent or Purchaser:
Novartis Corporation
608 Fifth Avenue
New York, New York 10020
Telecopier No: (212) 957-8367
Attention: General Counsel
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier No: (212) 848-7179
Attention: David W. Heleniak, Esq.
if to the Company:
SyStemix, Inc.
3155 Porter Drive
Palo Alto, California 94304
Telecopier No: (415) 856-4919
Attention: General Counsel
<PAGE>
24
with copies to:
Skadden Arps Slate Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopier No: (212) 735-2000
Attention: Morris J. Kramer, Esq.
and
Shereff Friedman Hoffman & Goodman LLP
919 Third Avenue
New York, New York 10022
Telecopier No: (212) 758-9500
Attention: Jeffry Hoffman, Esq.
SECTION 8.03. Certain Definitions. For purposes of this Agreement,
the term:
(a) "affiliate" of a specified person means a person who
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with, such specified person;
(b) "beneficial owner" with respect to any Shares means a
person who shall be deemed to be the beneficial owner of such Shares (i)
which such person or any of its affiliates or associates (as such term is
defined in Rule 12b-2 promulgated under the Exchange Act) beneficially
owns, directly or indirectly, (ii) which such person or any of its
affiliates or associates 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 associates 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 on which the principal
offices of the SEC in Washington, D.C. are open to accept filings, or, in
the case of determining a date when any payment is due, any day on which
banks are not required or authorized by law or executive order to close in
the City of New York;
<PAGE>
25
(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 and policies of a person, whether through the ownership of
voting securities, as trustee or executor, by contract or credit
arrangement or otherwise;
(e) "person" means an individual, corporation, partnership,
limited partnership, limited liability company, syndicate, person
(including, without limitation, a "person" as defined in Section 13(d)(3)
of the Exchange Act), trust, association or entity or government,
political subdivision, agency or instrumentality of a government; and
(f) "subsidiary" or "subsidiaries" of the Company, the
Surviving Corporation, Parent or any other person means an affiliate
controlled by such person, directly or indirectly, through one or more
intermediaries.
SECTION 8.04. 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 is not affected in any manner materially 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 a mutually acceptable manner in
order that the Transactions be consummated as originally contemplated to the
fullest extent possible.
SECTION 8.05. 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. This Agreement shall not be assigned by operation of law or otherwise,
except that Parent and Purchaser may assign all or any of their rights and
obligations hereunder to any affiliate of Parent provided that no such
assignment shall relieve the assigning party of its obligations hereunder if
such assignee does not perform such obligations.
SECTION 8.06. 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 right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 5.05 (which is intended to be for the
benefit of the persons covered thereby and may be enforced by such persons).
<PAGE>
26
SECTION 8.07. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 8.08. Fees and Expenses. (a) In the event that this
Agreement is terminated prior to consummation of the Merger, other than a
termination pursuant to Section 7.01(a) or (d) or a termination pursuant to
Section 7.01(b) or (c) which results from any representation or warranty of the
Company in this Agreement not being true and correct or the failure of the
Company to perform any obligation or to comply with any agreement or covenant of
the Company to be performed or complied with by it under this Agreement, then,
in any such event, Purchaser shall, and Parent shall cause Purchaser to, pay all
actual out-of-pocket fees and expenses incurred by the parties hereto, including
all fees and expenses payable to investment banking firms, counsel and
accountants, in connection with the structuring, negotiation, preparation,
execution and performance of this Agreement, as well as all printing and
advertising expenses.
(b) Except as set forth in this Section 8.08, all costs and expenses
incurred in connection with this Agreement and the Transactions shall be paid by
the party incurring such costs and expenses, whether or not any Transaction is
consummated.
SECTION 8.09. Governing Law. Except to the extent that Delaware Law
is mandatorily applicable to the Transactions, this Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York. All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any New York state or federal court sitting in the City
of New York and the parties hereto hereby consent to the jurisdiction of such
courts in any such action or proceeding.
SECTION 8.10. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 8.11. 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.
<PAGE>
27
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
NOVARTIS INC.
By /s/Raymund Breu /s/Christoph Maeder
------------------------------- ------------------------
Name: Raymund Breu Christoph Maeder
Title: Chief Financial Officer Corporate Counsel
NOVARTIS BIOTECH HOLDING
CORP.
By /s/Robert L. Thompson, Jr.
--------------------------------
Name: Robert L. Thompson, Jr.
Title: Vice President and Secretary
SYSTEMIX, INC.
By /s/John J. Schwartz
--------------------------------
Name: John J. Schwartz
Title: President and Chief Executive
Officer
<PAGE>
ANNEX A
Conditions to the Offer
Notwithstanding any other provision of the Offer, Purchaser shall
not be required to accept for payment or pay for any Shares tendered pursuant to
the Offer, and may terminate or amend the Offer and may postpone the acceptance
for payment of and payment for Shares tendered, if (i) the Second Minimum
Condition shall not have been satisfied or (ii) at any time on or after the date
of this Agreement, and prior to the acceptance for payment of Shares, any of the
following conditions shall exist:
(a) an order shall have been entered in any action or
proceeding before any federal or state court or governmental agency or
other regulatory body or a permanent injunction by any federal or state
court of competent jurisdiction in the United States shall have been
issued and remain in effect (i) making illegal the purchase of, or payment
for, any Shares by Parent, Purchaser or any affiliate of Parent or
Purchaser; (ii) otherwise preventing the consummation of any of the
Transactions; (iii) imposing limitations on the ability of Parent,
Purchaser or any affiliate of Parent or Purchaser to exercise effectively
full rights of ownership of any Shares, including, without limitation, the
right to vote any Shares acquired by Purchaser pursuant to the Offer on
all matters properly presented to the Company's stockholders, which would
effect a material diminution in the value of the Shares acquired by
Purchaser;
(b) there shall have been any federal or state statute, rule
or regulation enacted or promulgated on or after the date of the Offer
that could reasonably be expected to result, directly or indirectly, in
any of the consequences referred to in clauses (i) through (iii) of
paragraph (a) above;
(c) any representation or warranty of the Company in this
Agreement which is qualified as to materiality shall not be true and
correct or any such representation or warranty that is not so qualified
shall not be true and correct in any material respect, in each case as if
such representation or warranty was made as of such time on or after the
date of this Agreement;
(d) there shall have occurred and be remaining in effect (i)
any general suspension of, or limitation on prices for, trading in
securities of the Company on the NASDAQ National Market System, (ii) any
material change in United States or Switzerland currency exchange rates or
a suspension of, or limitation on, currency exchange markets in the United
States or Switzerland, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or
Switzerland, (iv) a commencement of a war or armed hostilities or other
national or international calamity directly or indirectly involving the
United
<PAGE>
A-2
States or Switzerland or (v) in the case of any of the foregoing existing
on the date hereof, a material acceleration or worsening thereof;
(e) this Agreement shall have been terminated in accordance
with its terms; or
(f) Purchaser and the Company (with the approval of a majority
of the Independent Directors) shall have agreed that Purchaser shall
terminate the Offer or postpone the acceptance for payment of or payment
for Shares thereunder;
which, in the reasonable judgment of Purchaser in any such case, and regardless
of the circumstances (including any action or inaction by Parent or any of its
affiliates) giving rise to any such condition, makes it inadvisable to proceed
with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Purchaser and
Parent and may be asserted by Purchaser or Parent regardless of the
circumstances giving rise to any such condition or may be waived by Purchaser or
Parent in whole or in part at any time and from time to time in their sole
discretion. The failure by Parent or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right; the waiver
of any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances; and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
