<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 2001
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
BIOTRANSPLANT INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2834 04-3119555
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
BUILDING 75, 3RD AVENUE, CHARLESTOWN NAVY YARD, CHARLESTOWN, MA 02129
(617) 241-5200
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ELLIOT LEBOWITZ, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BIOTRANSPLANT INCORPORATED
BUILDING 75, 3RD AVENUE
CHARLESTOWN NAVY YARD
CHARLESTOWN, MASSACHUSETTS 02129
(617) 241-5200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
STEVEN D. SINGER, ESQ. WILLIAM T. WHELAN, ESQ.
JAMES R. BURKE, ESQ. MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO,
HALE AND DORR LLP P.C.
60 State Street One Financial Center
Boston, Massachusetts 02109 Boston, Massachusetts 02111
Telephone: (617) 526-6000 Telephone: (617) 542-6000
Telecopy: (617) 526-5000 Telecopy: (617) 542-2241
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and certain
other conditions under the Merger Agreement are met or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ______
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share..... 5,610,000 shares $0.0003 $12,132 $4.00
</TABLE>
(1) Based upon the estimated maximum number of shares of common stock of the
Registrant issuable in the merger described herein to security holders of
Eligix, Inc.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended, and
computed on the basis of one-third of the aggregate par value of the Eligix
capital stock, on an as-converted basis, of $36,395 (computed as of
December 31, 2000, the latest practicable date prior to the date of filing
this Registration Statement).
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C>
[LOGO] [LOGO]
</TABLE>
SPECIAL MEETING OF STOCKHOLDERS
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
To the Stockholders of BioTransplant and Eligix:
The boards of directors of BioTransplant Incorporated and Eligix, Inc. have
unanimously approved a merger agreement that will result in Eligix becoming a
wholly-owned subsidiary of BioTransplant.
If the merger is completed:
- BioTransplant stockholders will continue to own their existing shares of
BioTransplant common stock; and
- Eligix security holders will be entitled to receive an aggregate of up to
5,610,000 shares of BioTransplant common stock, either in the merger or
upon exercise or conversion of Eligix options, warrants and notes assumed
by BioTransplant in the merger, and members of Eligix' management will
receive an aggregate of 990,000 shares of BioTransplant common stock
pursuant to the Eligix management equity incentive plan.
In the merger, assuming the holders of Eligix preferred stock elect to
receive their liquidation preferences, Eligix security holders will receive:
- 0.1152 of a share of BioTransplant common stock for each share of Eligix
Series A preferred stock that they own;
- 0.1296 of a share of BioTransplant common stock for each share of Eligix
Series B preferred stock that they own;
- 0.3889 of a share of BioTransplant common stock for each share of Eligix
Series C-1 preferred stock that they own;
- 0.1152 of a share of BioTransplant common stock for each share of Eligix
Series C-2 preferred stock that they own;
- 0.1296 of a share of BioTransplant common stock for each share of Eligix
Series C-3 preferred stock that they own; and
- 0.0961 of a share of BioTransplant common stock for each share of Eligix
common stock that they own.
To the extent that holders of Eligix preferred stock elect to convert their
shares into Eligix common stock rather than receive their liquidation
preferences, the number of shares of BioTransplant common stock exchangeable for
each share of Eligix common stock will be between 0.0961 of a BioTransplant
share assuming no conversion of Eligix preferred stock and 0.1541 of a
BioTransplant share assuming full conversion of Eligix preferred stock.
Immediately after the merger, Eligix security holders and management members
will own approximately 32.1% of the fully-diluted BioTransplant common stock,
assuming the exercise or conversion of all outstanding Eligix options, warrants
and notes assumed by BioTransplant in the merger. BioTransplant common stock is
quoted on the Nasdaq National Market under the symbol "BTRN."
The merger cannot be completed unless Eligix' stockholders approve the
merger agreement and the merger and BioTransplant stockholders approve the
issuance of BioTransplant common stock pursuant to the merger agreement. We have
scheduled special meetings for Eligix stockholders to vote
<PAGE>
on the merger agreement and BioTransplant stockholders to vote on the related
issuance of shares of BioTransplant common stock. Whether or not you plan to
attend a special meeting, please take the time to vote by completing and mailing
the enclosed proxy card to us. YOUR VOTE IS VERY IMPORTANT.
<TABLE>
<S> <C>
For BioTransplant stockholders: For Eligix stockholders:
, 2001 , 2001
10:00 a.m. local time 10:00 a.m. local time
Hale and Dorr LLP Mintz, Levin, Cohn, Ferris,
60 State Street Glovsky and Popeo, P.C.
Boston, Massachusetts 02109 One Financial Center
Boston, Massachusetts 02111
</TABLE>
This document provides you with detailed information about the proposed
merger. We encourage you to read this entire document carefully. IN PARTICULAR,
PLEASE SEE THE SECTION ENTITLED "RISK FACTORS" ON PAGE 16 OF THIS DOCUMENT FOR A
DISCUSSION OF RISKS ASSOCIATED WITH THE MERGER.
<TABLE>
<S> <C>
Elliot Lebowitz, Ph.D. Walter C. Ogier
PRESIDENT AND CHIEF EXECUTIVE OFFICER PRESIDENT AND CHIEF EXECUTIVE OFFICER
BioTransplant Incorporated Eligix, Inc.
</TABLE>
NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE BIOTRANSPLANT COMMON
STOCK TO BE ISSUED IN THE MERGER OR DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Joint Proxy Statement/Prospectus dated , 2001
First mailed to stockholders on or about , 2001
<PAGE>
BIOTRANSPLANT INCORPORATED
BUILDING 75, 3RD AVENUE
CHARLESTOWN NAVY YARD
CHARLESTOWN, MASSACHUSETTS 02129
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2001
------------------------
To the Stockholders of BioTransplant:
We will hold a special meeting of the stockholders of BioTransplant on
, 2001, at 10:00 a.m., local time, at Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts, for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of up to
5,610,000 shares of BioTransplant common stock to security holders of
Eligix, Inc., either in the merger or upon exercise or conversion of Eligix
options, warrants and notes assumed by BioTransplant in the merger, and 990,000
shares of BioTransplant common stock to members of Eligix management as
contemplated by the agreement and plan of merger, dated as of December 8, 2000,
among BioTransplant, BT/EL Acquisition Co., a wholly-owned subsidiary of
BioTransplant, and Eligix. Pursuant to the merger agreement, BT/EL Acquisition
Co. will be merged with and into Eligix, with Eligix being the surviving
corporation. Following the merger, Eligix will become a wholly-owned subsidiary
of BioTransplant; and
2. To transact such other business as may properly come before the
BioTransplant special meeting or any adjournment or postponement of the
BioTransplant special meeting, including without limitation, potential
adjournments or postponements of the BioTransplant special meeting for the
purpose of soliciting additional proxies in order to approve the proposed
issuance of BioTransplant common stock in connection with the merger.
Only holders of record of shares of BioTransplant common stock at the close
of business on , 2001, the record date for the BioTransplant special
meeting, are entitled to notice of, and to vote at, the BioTransplant special
meeting and any adjournments or postponements of it.
After careful consideration, your board of directors has unanimously
approved the merger and the merger agreement and recommends that you vote FOR
approval of the proposed issuance of up to 5,610,000 shares of BioTransplant
common stock to the security holders of Eligix and 990,000 shares of
BioTransplant common stock to members of the management of Eligix in connection
with the merger.
We have described the merger, merger agreement and the transactions
associated with it, including the stock issuance, in more detail in the
accompanying joint proxy statement/prospectus, which you should read in its
entirety before voting. A copy of the merger agreement is attached as Annex A to
the accompanying joint proxy statement/prospectus.
We cannot complete the merger unless the issuance of the shares in
connection with the merger agreement is approved by a majority of the votes
represented by the shares of BioTransplant common stock cast on such proposal,
whether in person or by proxy.
All holders of BioTransplant common stock are cordially invited to attend
the BioTransplant special meeting in person. HOWEVER, TO ENSURE YOUR
REPRESENTATION AT THE BIOTRANSPLANT SPECIAL MEETING,
<PAGE>
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO COMPLETE, SIGN
AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. You may revoke your proxy in the manner described in
the accompanying joint proxy statement/prospectus at any time before it is voted
at the BioTransplant special meeting. Executed proxies with no instructions
indicated thereon will be voted "FOR" approval of the issuance of up to
5,610,000 shares of BioTransplant common stock to the security holders of Eligix
and 990,000 shares of BioTransplant common stock to members of the management of
Eligix in connection with the merger.
<TABLE>
<S> <C>
By Order of the Board of Directors,
Charlestown, Massachusetts Steven D. Singer
, 2001 SECRETARY
</TABLE>
THE BOARD OF DIRECTORS OF BIOTRANSPLANT RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE PROPOSED ISSUANCE OF BIOTRANSPLANT COMMON STOCK IN CONNECTION WITH THE
MERGER.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE BIOTRANSPLANT
MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS
PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
<PAGE>
ELIGIX, INC.
200 BOSTON AVENUE
MEDFORD, MASSACHUSETTS 02155
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2001
------------------------
To the Stockholders of Eligix:
A special meeting of stockholders of Eligix will be held on ,
2001, at 10:00 a.m., local time, at the offices of Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C., One Financial Center, Boston, Massachusetts, for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt the agreement
and plan of merger, dated as of December 8, 2000, by and among BioTransplant
Incorporated, BT/EL Acquisition Co., a wholly-owned subsidiary of BioTransplant,
and Eligix, and the merger, as described in the attached joint proxy
statement/prospectus;
2. To amend Eligix' certificate of incorporation to change the manner in
which proceeds are to be distributed upon any liquidation, distribution or
winding up of Eligix, as described in the attached joint proxy
statement/prospectus; and
3. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Holders of record of Eligix common stock and of Eligix preferred stock at
the close of business on , 2001 will be entitled to vote at the
Eligix meeting or any adjournment or postponement thereof. A list of
stockholders entitled to vote will be kept at Eligix, Inc., 200 Boston Avenue,
Medford, Massachusetts 02155, for ten days before the meeting.
After careful consideration, your board of directors has unanimously
approved the merger agreement, the merger and the amendment to Eligix'
certificate of incorporation and recommends that you vote FOR each of these
proposals.
UNDER DELAWARE LAW, STOCKHOLDERS OF ELIGIX HAVE RIGHTS OF APPRAISAL IN
CONNECTION WITH THE MERGER AS DESCRIBED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS.
Information regarding the merger, the merger agreement, Eligix,
BioTransplant and related matters is contained in the accompanying joint proxy
statement/prospectus and the annexes thereto, which are incorporated by
reference herein and form a part of this notice.
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR STOCK AT THIS TIME.
Your vote is important. Whether or not you plan to attend the Eligix
meeting, please complete, sign, date and return your proxy in the enclosed
envelope promptly.
<TABLE>
<S> <C>
By Order of the Board of Directors,
Medford, Massachusetts Robert Momsen
, 2001 SECRETARY
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETINGS AND THE
MERGER.................................................... 1
SUMMARY..................................................... 5
Selected Historical Consolidated Financial Information of
BioTransplant........................................... 12
Selected Historical Financial Information of Eligix....... 13
Summary Unaudited Pro Forma Condensed Combined
Information............................................. 14
Comparative Per Share Data................................ 15
RISK FACTORS................................................ 16
Cautionary Statement Concerning Forward-Looking
Statements.............................................. 27
MARKET PRICE AND DIVIDEND INFORMATION....................... 28
Market Price Information.................................. 28
Dividend Information...................................... 29
THE BIOTRANSPLANT SPECIAL MEETING........................... 30
General................................................... 30
Date, Time and Place...................................... 30
Purpose of the Special Meeting............................ 30
BioTransplant Board of Directors' Recommendation.......... 30
Record Date............................................... 30
Vote Required; Vote at the Special Meeting................ 30
Proxies................................................... 31
Revocability of Proxies................................... 31
Solicitation of Proxies................................... 31
THE ELIGIX SPECIAL MEETING.................................. 32
General................................................... 32
Date, Time and Place...................................... 32
Purpose of the Special Meeting............................ 32
Eligix Board of Directors' Recommendation................. 32
Record Date............................................... 32
Vote Required; Vote at the Special Meeting................ 33
Voting Agreements......................................... 33
Proxies................................................... 33
Revocability of Proxies................................... 34
Solicitation of Proxies................................... 34
Appraisal Rights.......................................... 34
THE MERGER.................................................. 35
Background of the Merger.................................. 35
Recommendation of the Board of Directors of BioTransplant;
BioTransplant's Reasons for the Merger.................. 37
Recommendation of the Board of Directors of Eligix;
Eligix' Reasons for the Merger.......................... 39
Opinion of BioTransplant's Financial Advisor.............. 40
Interests of Executive Officers and Directors of Eligix in
the Merger.............................................. 45
Stock Options, Warrants and Convertible Notes............. 48
Accounting Treatment of the Merger........................ 49
Form of Merger............................................ 49
Merger Consideration...................................... 49
Effective Time of the Merger.............................. 50
Material United States Federal Income Tax
Considerations.......................................... 50
Nasdaq National Market Quotation.......................... 53
Right of Stockholders to Appraisals....................... 53
Appraisal Rights Procedures............................... 53
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Resale of BioTransplant Common Stock Issued in Connection
with the Merger......................................... 56
THE MERGER AGREEMENT........................................ 57
The Merger................................................ 57
Consideration............................................. 57
Conversion of Shares...................................... 57
Escrow.................................................... 58
Treatment of Eligix Stock Options......................... 59
Treatment of Eligix Warrants.............................. 59
Treatment of Eligix Convertible Notes..................... 59
Exchange of Stock Certificates............................ 59
Representations and Warranties............................ 60
Certain Covenants......................................... 61
Expenses.................................................. 64
Related Matters After the Merger.......................... 64
Indemnification of BioTransplant by Eligix Stockholders
and Eligix Management Members........................... 64
Conditions to Obligations to Effect Merger................ 65
Termination; Breakup Fees................................. 68
Amendment and Waiver...................................... 68
OTHER AGREEMENTS............................................ 69
Voting and Transfer Restriction Agreements................ 69
Lock-Up Agreements........................................ 70
Escrow Agreement.......................................... 70
Affiliate Agreements...................................... 71
Employment Offer Letters.................................. 71
Invention, Non-Disclosure and Non-Competition
Agreements.............................................. 72
INFORMATION CONCERNING BIOTRANSPLANT........................ 74
Business.................................................. 74
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 91
Management................................................ 95
Executive Compensation.................................... 99
Severance Agreements with Executive Officers.............. 101
Compensation of Directors................................. 102
Certain Transactions...................................... 102
INFORMATION CONCERNING ELIGIX............................... 103
Business.................................................. 103
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 104
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION............................................... 107
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND
MANAGEMENT OF BIOTRANSPLANT............................... 116
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND
MANAGEMENT OF ELIGIX...................................... 119
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND
MANAGEMENT OF BIOTRANSPLANT FOLLOWING THE MERGER.......... 122
DESCRIPTION OF BIOTRANSPLANT CAPITAL STOCK.................. 124
General................................................... 124
BioTransplant Common Stock................................ 124
BioTransplant Preferred Stock............................. 124
Delaware Law and Bylaw Provisions......................... 124
COMPARISON OF STOCKHOLDER RIGHTS............................ 125
General................................................... 125
Capitalization............................................ 125
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Voting Rights............................................. 125
Number and Classification of Directors.................... 126
Removal of Directors...................................... 126
Filling Vacancies on the Board of Directors............... 126
Charter Amendments........................................ 126
Amendments to Bylaws...................................... 127
Action by Written Consent................................. 127
Notice of Stockholder Actions............................. 127
Right to Call Special Meeting of Stockholders............. 128
Limitation of Personal Liability of Directors............. 129
Dividends................................................. 129
Conversion................................................ 130
Liquidation............................................... 131
Rights in an Acquisition Event............................ 131
Appraisal Rights.......................................... 132
APPROVAL OF AMENDMENT TO ELIGIX' AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION.............................. 133
STOCKHOLDER PROPOSALS....................................... 133
LEGAL MATTERS............................................... 134
EXPERTS..................................................... 134
WHERE YOU CAN FIND MORE INFORMATION......................... 135
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
<TABLE>
<S> <C>
ANNEXES
A. Agreement and Plan of Merger
B. Amendment to the Amended and Restated Certificate of
Incorporation of Eligix, Inc.
C. Opinion of Lazard Freres & Co. LLC
D. Section 262 of the Delaware General Corporation Law
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETINGS AND THE MERGER
Q. WHY ARE BIOTRANSPLANT AND ELIGIX PROPOSING TO MERGE?
A. BioTransplant and Eligix are proposing to merge for a number of reasons,
including the following:
- we believe that there is a significant strategic fit between Eligix'
products under development and BioTransplant's proposed AlloMune family
of products that will position BioTransplant as an industry leader in
immune modulation therapy via transplantation in cancer and other
diseases;
- Eligix has a broad portfolio of products under development that
diversifies BioTransplant's risk and adds additional sources of
potential revenue;
- the two companies have complementary technologies, expertise and
collaborative relationships that will significantly strengthen
BioTransplant's research and development capabilities; and
- the two companies have complementary management teams that will
strengthen the commercial infrastructure of the combined company.
Q. WHAT WILL ELIGIX SECURITY HOLDERS RECEIVE IN THE MERGER?
A. If the merger is completed, Eligix security holders will receive an aggregate
of up to 5,610,000 shares of BioTransplant common stock, either in the
merger or upon exercise or conversion of Eligix options, warrants and notes
assumed by BioTransplant in the merger. Each Eligix stockholder will receive
cash for any fractional share of BioTransplant common stock the stockholder
would otherwise receive in the merger.
All Eligix stockholders will have 10% of the BioTransplant stock they would
otherwise be entitled to receive deposited in an escrow account that may be
used to compensate BioTransplant if BioTransplant is entitled to
indemnification under the merger agreement.
In addition, all Eligix stockholders will have an additional 10% of their
BioTransplant stock deposited in an escrow account to secure achievement by
Eligix of CE mark approval by the European Union of its TCell-HDM product by
December 31, 2001. If the European Union does not allow Eligix to affix the
CE mark, which denotes conformity to European standards for safety, to its
TCell-HDM product by December 31, 2001, the Eligix stockholders will not
receive any of the shares allocated to secure achievement of the milestone.
Q. WHAT WILL ELIGIX MANAGEMENT RECEIVE IN THE MERGER?
A. If the merger is completed, members of Eligix' management team will receive
an aggregate of 990,000 shares of BioTransplant common stock pursuant to the
Eligix management equity incentive plan. The shares issuable to the members
of Eligix' management vest over a 365-day period following the closing of
the merger, with:
- 33 1/3% of the shares vesting 90 days after the closing of the merger;
- an additional 33 1/3% vesting 180 days after the closing of the merger;
- an additional 23 1/3% vesting 270 days after the closing of the merger;
and
- the final 10% vesting 365 days after the closing of the merger.
If, within the first 365 days after the merger, BioTransplant terminates an
Eligix management member other than for cause or a management member
terminates employment with BioTransplant with good reason, that management
member's shares will vest in full immediately
1
<PAGE>
upon termination. Otherwise, BioTransplant will have the right to repurchase
a terminated management member's unvested shares for $.01 per share.
The members of Eligix' management who receive shares of BioTransplant stock
will have 10% of the BioTransplant stock they would otherwise be entitled to
receive deposited in an escrow account that may be used to compensate
BioTransplant if BioTransplant is entitled to indemnification under the
merger agreement.
In addition, the members of Eligix' management will have an additional 10%
of their BioTransplant stock deposited in an escrow account to secure
achievement by Eligix of the CE mark milestone by December 31, 2001, as
described above.
Included in the options to be assumed by BioTransplant in the merger are
options to purchase Eligix common stock held by Eligix management members.
Eligix management members will hold BioTransplant options to purchase an
aggregate of 484,595 shares of BioTransplant common stock, assuming all
holders of Eligix preferred stock elect to receive their liquidation
preferences in the merger and no options to purchase Eligix common stock are
exercised prior to the merger.
Q. WHAT IS THE ESCROW FUND AND HOW DOES IT WORK?
A. If the merger is completed, BioTransplant will deposit into an escrow account
20% of the BioTransplant common stock to be issued to the Eligix
stockholders and management members in connection with the merger. One half
of the escrowed shares, referred to as the indemnification escrow shares,
will be available to compensate BioTransplant if it is entitled to
indemnification under the merger agreement. Any indemnification escrow
shares that, 15 months following the completion of the merger, have not been
used to indemnify BioTransplant and that are not the subject of an
unresolved claim for indemnification by BioTransplant, will be distributed
to Eligix stockholders and management. The other half of the escrowed shares
will be issued to Eligix stockholders and management only if Eligix receives
CE mark approval of the TCell-HDM product on or before December 31, 2001.
Q. WHAT IF THE MERGER IS NOT COMPLETED?
A. It is possible the merger will not be completed. This might happen if, for
example, Eligix stockholders do not adopt the merger agreement or the
BioTransplant stockholders do not approve the issuance of the common stock
in connection with the merger. Should that occur, neither BioTransplant nor
Eligix is under any obligation to make or consider any alternative proposal
regarding the purchase of stock held by Eligix stockholders.
Q. WHAT VOTE DOES MY BOARD OF DIRECTORS RECOMMEND?
A. After careful consideration, the Eligix board of directors has unanimously
approved the merger, the merger agreement and the amendment to the Eligix
certificate of incorporation and recommends that Eligix stockholders vote
FOR these proposals.
After careful consideration, the BioTransplant board of directors has
unanimously approved the merger and the merger agreement and recommends that
BioTransplant stockholders vote FOR approval of the proposed issuance of
BioTransplant common stock in connection with the merger.
Q. ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE MERGER
OR FOR THE ISSUANCE OF SHARES OF BIOTRANSPLANT COMMON STOCK?
A. Yes. You should carefully consider the factors discussed in the section
entitled "Risk Factors" on pages 16 to 26.
2
<PAGE>
Q. WHAT DO ELIGIX STOCKHOLDERS NEED TO DO NOW?
A. After carefully reading and considering the information contained in this
joint proxy statement/prospectus, please complete, sign and date your proxy
and return it in the enclosed return envelope as soon as possible, so that
your shares of Eligix stock may be represented and voted at the Eligix
special meeting of stockholders. If you sign and send in your proxy and do
not indicate how you want to vote, we will count your proxy as a vote for
the proposal to approve the merger agreement and the merger and the proposal
to amend the Eligix certificate of incorporation.
Q. WHAT DO BIOTRANSPLANT STOCKHOLDERS NEED TO DO NOW?
A. After carefully reading and considering the information contained in this
joint proxy statement/prospectus, please complete, sign and date your proxy
and return it in the enclosed return envelope as soon as possible, so that
your shares of BioTransplant stock may be represented and voted at the
BioTransplant special meeting of stockholders. If you sign and send in your
proxy and do not indicate how you want to vote, we will count your proxy as
a vote for the proposal to issue shares of BioTransplant common stock in
connection with the merger.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A. Your broker will vote your shares only if you provide instructions on how to
vote. You should follow the directions provided by your broker regarding how
to instruct your broker to vote your shares. If you do not instruct your
broker, your shares will not be voted.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY?
A. Yes. You can change your vote at any time before your proxy is voted at the
special meeting. If you hold your shares in your own name, you can do this
in one of three ways. First, you can send a written notice stating that you
would like to revoke your proxy. Second, you can complete and submit a new
proxy. If you choose either of these two methods, you must submit your
notice of revocation of your new proxy to the address set forth in the
answer to the last question below. Third, you can attend the special meeting
and vote in person. If you hold your shares in "street name," you should
follow the directions provided by your broker regarding how to change your
vote.
Q. SHOULD ELIGIX STOCKHOLDERS SEND IN THEIR STOCK CERTIFICATES NOW?
A. No. After the merger is completed, Eligix stockholders will receive
instructions for exchanging Eligix stock certificates. Please do not send in
your stock certificates with your proxy.
Q. WHEN AND WHERE ARE THE SPECIAL MEETINGS?
<TABLE>
<S> <C> <C>
A. For BioTransplant: For Eligix:
, 2001 , 2001
10:00 a.m. local time 10:00 a.m. local time
Hale and Dorr LLP Mintz, Levin, Cohn, Ferris,
60 State Street Glovsky and Popeo, P.C.
Boston, Massachusetts 02109 One Financial Center
Boston, Massachusetts 02111
</TABLE>
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We expect to complete the merger in 2001.
3
<PAGE>
Q. WHAT RIGHTS DO ELIGIX STOCKHOLDERS HAVE IF THEY OPPOSE THE MERGER?
A. You may seek appraisal of the fair value of your shares of Eligix stock by
complying with all of the Delaware law procedures explained on pages 53 to
56 and in Annex D.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. If you have any questions about the merger or if you need additional copies
of this proxy statements/prospectus or the enclosed proxy, you should
contact:
<TABLE>
<S> <C>
For BioTransplant Stockholders: For Eligix Stockholders:
BioTransplant Incorporated Eligix, Inc.
Building 75, 3rdAvenue 200 Boston Avenue
Charlestown Navy Yard Medford, MA 02155
Charlestown, MA 02129 Attention: James R. Fitzgerald, Jr.
Attention: Richard V. Capasso Telephone: (781) 870-4624
Telephone: (617) 241-5200
</TABLE>
4
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" on
page 135. We have included page references parenthetically to direct you to a
more complete description of the topics in this summary.
THE COMPANIES
(SEE PAGES 74 AND 103)
BIOTRANSPLANT INCORPORATED
BUILDING 75, 3RD AVENUE
CHARLESTOWN NAVY YARD
CHARLESTOWN, MASSACHUSETTS 02129
(617) 241-5200
BioTransplant is a biotechnology company that develops pharmaceutical
products and systems to enable the body's immune system to better tolerate the
transplantation of foreign cells, tissues and organs.
BioTransplant was organized as a Delaware corporation in 1990.
BioTransplant's world wide web site address is www.biotransplant.com. The
information in our web site is not incorporated by reference into this joint
proxy statement/ prospectus. Our web site address is included in this document
as an inactive textual reference only.
ELIGIX, INC.
200 BOSTON AVENUE
MEDFORD, MASSACHUSETTS 02155
(781) 393-8500
Eligix is a biomedical company engaged in the research and development of
cellular therapies to enhance human immune response to cancers, autoimmune
disorders and solid organ transplants and to reduce the risk of infection and
hypersensitivity reactions in blood transfusions.
Eligix was organized as a Delaware corporation in 1996. Eligix' world wide
web site address is www.eligix.com. The information in this web site is not
incorporated by reference into this joint proxy statement/prospectus. This web
site address is included in this document as an inactive textual reference only.
THE MERGER
(SEE PAGE 35)
Through the merger, Eligix will become a wholly-owned subsidiary of
BioTransplant. Eligix security holders will receive an aggregate of up to
5,610,000 shares of BioTransplant common stock in exchange for their Eligix
securities, either in the merger or upon exercise or conversion of Eligix
options, warrants or notes assumed by BioTransplant in the merger.
In addition, members of Eligix' management team will receive an aggregate of
990,000 shares of BioTransplant common stock in connection with the merger
pursuant to the Eligix management equity incentive plan.
The merger agreement is attached to this joint proxy statement/prospectus as
Annex A. We encourage you to read the merger agreement as it is the legal
document that governs the merger.
VOTES REQUIRED
(SEE PAGES 30 AND 33)
BIOTRANSPLANT
Pursuant to applicable rules of the Nasdaq National Market, approval of the
proposed issuance of BioTransplant common stock in connection with the merger
requires the vote of a majority of the votes represented by the shares of
BioTransplant common stock cast on the proposal, whether in person or by proxy,
because the number of shares of BioTransplant common stock to be issued in the
merger will exceed 20% of the outstanding shares of BioTransplant common stock
prior to the merger.
As of , 2001, the record date for the special meeting of
BioTransplant stockholders, BioTransplant's directors, executive officers and
affiliates owned approximately % of the outstanding shares of BioTransplant
common stock.
5
<PAGE>
ELIGIX
Approval of the merger agreement and the merger requires the vote of:
- a majority of the votes represented by the outstanding shares of Eligix
common stock and preferred stock, voting together as a single class; and
- two-thirds of the votes represented by the outstanding shares of the
Eligix preferred stock, voting together as a single class.
Approval of the amendment to the certificate of incorporation requires the
vote of:
- a majority of the votes represented by the outstanding shares of Eligix
common stock and preferred stock, voting together as a single class;
- two-thirds of the votes represented by the outstanding shares of the
Eligix preferred stock, voting together as a single class; and
- a majority of the votes represented by the outstanding shares of Eligix
Series A preferred stock and Series B preferred stock, voting together as
a single class.
The directors, officers and holders of five percent or more of the
outstanding voting power of Eligix common stock and preferred stock, who
collectively beneficially own approximately 66.6% of the outstanding voting
power of Eligix capital stock, 67.3% of the outstanding voting power of the
Eligix preferred stock and 67.3% of the outstanding voting power of the Eligix
Series A preferred stock and Series B preferred stock, have already agreed under
voting agreements to vote in favor of the merger agreement and the merger and
the amendment to the Eligix certificate of incorporation.
RECOMMENDATIONS TO STOCKHOLDERS
(SEE PAGES 37 AND 39)
TO BIOTRANSPLANT STOCKHOLDERS:
The BioTransplant board of directors voted unanimously to approve the merger
agreement and the merger and the proposed issuance of BioTransplant common stock
in connection with the merger. The BioTransplant board believes that the merger
is in your best interests and recommends that you vote FOR the proposed issuance
of BioTransplant common stock in connection with the merger.
TO ELIGIX STOCKHOLDERS:
The Eligix board of directors voted unanimously to approve the merger
agreement, the merger and the transactions contemplated thereby. The Eligix
board believes that the merger and the amendment to the certificate of
incorporation are advisable and in your best interests and recommends that you
vote FOR the proposal to approve the merger agreement and the merger and the
amendment to the certificate of incorporation.
WHAT HOLDERS OF ELIGIX SECURITIES WILL
RECEIVE IN THE MERGER
(SEE PAGE 57)
In the merger, assuming the holders of Eligix preferred stock elect to
receive their liquidation preferences, Eligix stockholders will receive:
- 0.1152 of a share of BioTransplant common stock for each share of Eligix
Series A preferred stock that they own;
- 0.1296 of a share of BioTransplant common stock for each share of Eligix
Series B preferred stock that they own;
- 0.3889 of a share of BioTransplant common stock for each share of Eligix
Series C-1 preferred stock that they own;
- 0.1152 of a share of BioTransplant common stock for each share of Eligix
Series C-2 preferred stock that they own;
- 0.1296 of a share of BioTransplant common stock for each share of Eligix
Series C-3 preferred stock that they own; and
- 0.0961 of a share of BioTransplant common stock for each share of Eligix
common stock that they own.
To the extent that holders of Eligix preferred stock elect to convert their
shares into Eligix common stock, rather than receive their liquidation
preferences, the number of shares of
6
<PAGE>
BioTransplant common stock exchangeable for each share of Eligix common stock
will be between 0.0961 of a BioTransplant share assuming no conversion of Eligix
preferred stock and 0.1541 of a BioTransplant share assuming full conversion of
Eligix preferred stock.
BioTransplant will not issue fractional shares of BioTransplant common stock
in connection with the merger. Instead, Eligix stockholders will receive cash
for any fractional share of BioTransplant common stock owed to them.
Options, warrants or notes that are exercisable or convertible into shares
of Eligix capital stock will be assumed by BioTransplant and will be exercisable
or convertible for BioTransplant common stock. As discussed above, the number of
shares issuable upon exercise or conversion of these options, warrants or notes,
and the exercise or conversion price per share, will be adjusted using the same
conversion ratio applied to determine the number of shares of BioTransplant
stock to be issued per share of Eligix capital stock in the merger.
Eligix has agreed to use its reasonable best efforts to cause the exercise
of all outstanding warrants and the conversion of all outstanding notes prior to
the closing of the merger.
OWNERSHIP OF BIOTRANSPLANT
FOLLOWING THE MERGER
(SEE PAGE 122)
Eligix security holders and management members will receive an aggregate of
up to 6,600,000 shares of BioTransplant common stock in the merger, or
approximately 32.1% of the fully-diluted shares of BioTransplant common stock
following the merger, assuming the exercise or conversion of all Eligix stock
options, warrants and convertible notes.
CONDITIONS TO COMPLETION OF THE MERGER
(SEE PAGE 65)
The completion of the merger depends upon meeting a number of conditions,
including the following:
- the approval of the stockholders of BioTransplant and Eligix;
- that the holders of no more than 10% of the outstanding voting stock of
Eligix exercise appraisal rights under the Delaware General Corporation
Law;
- the filing with the Nasdaq National Market with respect to the listing of
the shares of BioTransplant common stock issued in connection with the
merger;
- the receipt of legal opinions regarding corporate matters and the material
tax consequences of the merger;
- that the holders of at least 95% of the shares of capital stock of Eligix,
including outstanding options to purchase shares of Eligix capital stock,
will have signed lock-up agreements, subject to limited exceptions;
- the adoption by the Eligix stockholders of the proposed amendment to the
Eligix certificate of incorporation;
- the execution and delivery of the escrow agreement;
- the termination of existing Eligix stockholder agreements, investor rights
agreements, voting agreements and registration rights agreements;
- the extension by BioTransplant of offers of employment to the members of
Eligix management; and
- other customary contractual conditions specified in the merger agreement.
The conditions to the merger may be waived by the company entitled to assert
the condition.
ESCROW FOR INDEMNIFICATION OF BIOTRANSPLANT AND MILESTONE ESCROW SHARES
(SEE PAGES 64 AND 70)
Eligix stockholders and members of Eligix management receiving shares in
connection with the Eligix management equity incentive plan will not immediately
receive all of the BioTransplant shares issuable in the merger. Twenty percent
of their shares will automatically be placed in escrow. If the merger agreement
is approved and the merger occurs, all stockholders of Eligix who
7
<PAGE>
have not perfected appraisal rights under the Delaware General Corporation Law,
by receipt of BioTransplant common stock in the merger, will be deemed to have
agreed to the terms of the escrow agreement referred to in the merger agreement.
One half of the shares that are placed in escrow, referred to as the
indemnification escrow shares, will be used to indemnify BioTransplant against
damages due to:
- a misrepresentation, breach of warranty or failure to perform any covenant
or agreement of Eligix contained in the merger agreement;
- failure by an Eligix stockholder to have good, valid and marketable title
to his, her or its Eligix stock; and
- any written demand by an Eligix stockholder for a judicial determination
of the fair value of his, her or its dissenting shares in accordance with
Section 262 of the Delaware General Corporation Law, with certain
exceptions, with respect to dissenting shares in excess of 5% and less
than or equal to 10% of the outstanding shares of Eligix capital stock.
This obligation to indemnify BioTransplant is limited to the indemnification
escrow shares. The indemnification obligations will end 15 months after closing.
At that time, if BioTransplant does not have any unresolved claims for the
property remaining in this escrow, the indemnification escrow shares will be
released to the former Eligix stockholders and management members.
The other one half of the shares placed in escrow, referred to as the
milestone escrow shares, will only be distributed if Eligix achieves CE mark
approval for its TCell-HDM product by December 31, 2001.
Two representatives will be authorized to represent the Eligix stockholders
and management members in all matters relating to the escrow. Robert Momsen and
Pieter Schiller have been selected by the Eligix board to act as the
representatives of the Eligix stockholders. Approval by the Eligix stockholders
of the merger will constitute approval of the selection of these
representatives.
NO SOLICITATION BY ELIGIX
(SEE PAGE 63)
Eligix has agreed that it will not initiate or engage in any discussion
regarding a business combination of Eligix with any other party. Eligix has
further agreed to cause each of its officers, directors, employees,
representatives and agents not to do any of these things.
TERMINATION OF THE MERGER AGREEMENT
(SEE PAGE 68)
BioTransplant and Eligix can mutually agree to terminate the merger
agreement, and either BioTransplant or Eligix can terminate the merger agreement
if any of the following occurs:
- the other party commits a material breach of any representation, warranty
or covenant under the merger agreement;
- the approval of the stockholders of BioTransplant or Eligix is not
obtained; or
- the merger is not completed by April 30, 2001 by reason of the failure of
any condition precedent to that party's closing of the merger unless the
failure results primarily from a breach of any of that party's
representations, warranties or covenants contained in the merger
agreement.
BREAK-UP FEE
(SEE PAGE 68)
If either BioTransplant or Eligix terminates the merger agreement pursuant
to the reasons above, all obligations of the parties under the merger agreement
terminate and there will be no liability, except that if the merger agreement is
terminated by either party as a result of the other party's failure to perform
or comply in all material respects with the agreements and covenants under the
merger agreement, the non-terminating party will pay the terminating party
$2,000,000.
8
<PAGE>
OPINION OF FINANCIAL ADVISOR
(SEE PAGE 40)
In deciding to approve the merger, BioTransplant's board of directors
received an opinion, dated December 8, 2000, from its financial advisor, Lazard
Freres & Co. LLC, that the total consideration to be paid in the merger was fair
from a financial point of view to BioTransplant. The full text of the opinion is
attached as Annex C to this joint proxy statement/prospectus and should be read
carefully in its entirety. THE OPINION OF LAZARD IS DIRECTED TO THE BOARD OF
DIRECTORS OF BIOTRANSPLANT AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER WITH RESPECT TO MATTERS RELATING TO THE MERGER.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS OF ELIGIX IN THE MERGER
(SEE PAGE 45)
In considering the recommendation of the Eligix board, you should be aware
of the interests that certain executive officers and directors of Eligix have in
the merger. These include:
- the issuance of an aggregate of 990,000 shares of BioTransplant common
stock in satisfaction of the obligations to Eligix management pursuant to
the Eligix management equity incentive plan;
- acceleration of vesting of certain options to purchase stock;
- employment offers being extended to members of Eligix management;
- indemnification of Eligix directors and officers for actions taken prior
to the merger; and
- Eligix officers and directors becoming officers and/or directors of
BioTransplant.
In discussing the fairness of the merger to stockholders of Eligix, Eligix'
board of directors took into account these interests. These interests are
different from and in addition to their interests as stockholders and the
interests of Eligix stockholders generally.
As of , 2001, the record date for the special meeting of Eligix
stockholders, directors and executive officers of Eligix and their affiliates as
a group owned approximately % of the outstanding shares of Eligix capital
stock.
ELIGIX LOAN
(SEE PAGE 106)
Beginning in January 2001, Eligix expects to borrow up to $2.0 million from
BioTransplant to fund operations through the anticipated closing date of the
merger. The loan will be evidenced by a promissory note, which will bear
interest at the prime rate. The loan will be forgiven concurrently with the
closing of the merger, provided that if the merger does not close on or before
June 30, 2001, then the note will become immediately due and payable in full.
ACCOUNTING TREATMENT
(SEE PAGE 49)
We expect the merger to be accounted for using purchase accounting, with
BioTransplant being deemed to have acquired Eligix.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
(SEE PAGE 50)
We have structured the merger so that, in general, no gain or loss will be
recognized by Eligix stockholders for U.S. federal income tax purposes on the
exchange of shares of Eligix stock for shares of BioTransplant common stock.
Eligix stockholders, however, will recognize gain for U.S. federal income tax
purposes on any cash received in lieu of fractional shares. BioTransplant and
Eligix must receive legal opinions to this effect as a condition to the closing
of the merger.
Tax matters are very complicated, and the tax consequences of the merger to
Eligix stockholders will depend on the facts of each stockholder's own
situation. Each Eligix stockholder should consult his, her or its tax advisor
for a full understanding of the tax consequences of the merger to the
stockholder.
9
<PAGE>
REGULATORY APPROVALS
The merger is not subject to the filing and waiting period requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
VOTING AGREEMENTS
(SEE PAGE 69)
Eligix stockholders who hold approximately 66.6% of the shares of Eligix
capital stock, 67.3% of the shares of Eligix preferred stock and 67.3% of the
shares of Eligix Series A preferred stock and Series B preferred stock
outstanding on the Eligix record date have agreed to vote their Eligix shares in
favor of the merger agreement, the merger and the amendment to the Eligix
certificate of incorporation. The stockholders of Eligix who are parties to the
voting agreements are affiliates of Eligix.
ELIGIX STOCKHOLDERS' RIGHT OF APPRAISAL
(SEE PAGE 53)
Under Delaware law, Eligix stockholders who do not vote in favor of the
merger and who comply with notice requirements and other procedures will have
the right to receive the "fair value" of their shares in cash rather than the
shares of BioTransplant common stock specified in the merger agreement. "Fair
value" will be determined by a Delaware court and may be more than, the same as,
or less than the value of the consideration to be paid to other Eligix
stockholders. Merely voting against the merger will not protect your rights to
an appraisal. Failure to follow all the steps required by Delaware law will
result in the loss of your rights to appraisal. The Delaware law requirements
for exercising appraisal rights are described in further detail on pages 53 to
56. In addition to reading "Appraisal Rights Procedures," see Annex D, which
contains a copy of the Delaware statute governing appraisal rights.
HOW THE RIGHTS OF AN ELIGIX STOCKHOLDER WILL DIFFER AS A BIOTRANSPLANT
STOCKHOLDER
(SEE PAGE 125)
The rights of Eligix stockholders after the merger will be governed by
BioTransplant's certificate of incorporation and bylaws. Those rights differ
from rights of Eligix stockholders under Eligix' charter and bylaws.
RISKS OF THE MERGER
(SEE PAGE 16)
In considering whether to approve the merger agreement and/or issuance of
shares in connection with the merger, you should consider the risks of the
merger, including the risk of fluctuations in the market price of BioTransplant
common stock, risks associated with the merger and integrating the companies'
businesses and the fact that certain directors and officers of BioTransplant and
Eligix may have interests in the merger that are different from, or in addition
to, yours. We urge you to read carefully the factors described in "Risk Factors"
on pages 16 to 26 before voting.
BIOTRANSPLANT PRICE INFORMATION
(SEE PAGE 28)
Shares of BioTransplant common stock are listed on the Nasdaq National
Market. On December 8, 2000, the last full trading day prior to the public
announcement of the proposed merger, BioTransplant common stock closed at $8.375
per share. On , 2001, BioTransplant common stock closed at $ per
share.
We are unable to provide information with respect to the market prices of
the Eligix stock because there is no established trading market for shares of
Eligix stock.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
(SEE PAGE 27)
BioTransplant has made forward-looking statements in this document that are
subject to risks and uncertainties. Forward-looking statements include the
information concerning possible or assumed future results of operations of
BioTransplant, including the anticipated research, development and
commercialization synergies and accelerated time line for generating initial
revenues resulting from the merger. Also, when words such as "believes,"
"expects," "anticipates" or similar expressions are used, we are making
forward-looking
10
<PAGE>
statements. Stockholders should note that many factors could affect the future
financial results of BioTransplant and Eligix, and could cause these results to
differ materially from those expressed in our forward-looking statements. These
factors include the following:
- our need to obtain substantial additional funds in the near term for our
operating and capital requirements;
- the risk that the combined company is unable to achieve the anticipated
research, development and commercialization synergies and accelerated time
line for generating initial revenues;
- the risk that the combined company encounters greater than expected costs
and difficulties related to the integration of the businesses of
BioTransplant and Eligix;
- economic, political and competitive forces affecting our businesses; and
- the risk that our analyses of these risks and forces could be incorrect
and/or that the strategies developed to address them could be
unsuccessful.
TRADEMARKS
ImmunoCognance-TM-, AlloMune-TM- and BTI-322-TM- are BioTransplant's
trademarks. BCell-HDM-TM-, TCell-HDM-TM-, PanT-HDM-TM-, BrCa-HDM-TM-,
Neu/RBC-HDM-TM-, AcT-IV-TM-, Leuko-HDM-TM-, ReacT-HDM-TM-, AcTCell-HDM-TM- and
HDM-TM- are trademarks of Eligix. This joint proxy statement/prospectus also
contains trademarks and trade names of others.
11
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF BIOTRANSPLANT
The annual financial information set forth below has been derived from the
audited consolidated financial statements of BioTransplant. The data for the
nine-month periods ended September 30, 1999 and 2000 have been derived from the
unaudited consolidated financial statements of BioTransplant. The information
should be read in connection with, and is qualified in its entirety by reference
to, BioTransplant's financial statements and the notes included elsewhere in
this joint proxy statement/ prospectus. The interim data reflect all adjustments
that, in the opinion of management of BioTransplant, are necessary to present
fairly such information for the interim periods. The results of operations for
the nine-month periods are not necessarily indicative of the results expected
for a full year or any interim period.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License fees....................................... $ 4,000 $ 2,000 $ 5,000 $ 1,000 $ 3,500 $ 2,500 $ --
Research and development........................... 5,875 5,750 7,125 5,688 5,189 3,711 4,454
Interest income.................................... 168 1,296 1,731 1,318 782 560 1,048
------- ------- ------- ------- ------- ------- -------
Total revenues........................... 10,043 9,046 13,856 8,006 9,471 6,771 5,502
------- ------- ------- ------- ------- ------- -------
Expenses:
Research and development........................... 9,460 12,268 13,988 14,730 15,680 11,433 10,970
General and administrative......................... 1,939 2,680 2,963 2,477 2,446 1,797 1,893
Interest........................................... 731 135 58 10 18 2 47
------- ------- ------- ------- ------- ------- -------
Total expenses........................... 12,130 15,083 17,009 17,217 18,144 13,232 12,910
------- ------- ------- ------- ------- ------- -------
Net loss............................................. $(2,087) $(6,037) $(3,153) $(9,211) $(8,673) $(6,461) $(7,408)
======= ======= ======= ======= ======= ======= =======
Basic and diluted net loss per common share.......... $(16.78) $ (1.08) $ (.037) $ (1.07) $ (1.01) $ (0.75) $ (0.65)
Basic and diluted weighted average common shares
outstanding........................................ 124 5,582 8,569 8,579 8,598 8,583 11,470
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents............................ $ 2,849 $ 6,564 $ 9,784 $13,168 $17,649 $18,888 $14,517
Short-term investments............................... -- 13,001 19,863 6,843 3,718 -- 4,863
Working capital...................................... 86 17,788 24,111 15,499 14,629 9,569 16,999
Long-term investments................................ -- 10,311 1,015 -- -- -- --
Total assets......................................... 5,732 32,316 32,939 22,683 23,419 20,802 21,209
Long-term obligation under capital leases, net of
current portion.................................... 615 189 10 -- -- -- --
Redeemable convertible preferred stock............... 29,241 -- -- -- -- -- --
Stockholders' equity (deficit)....................... (28,840) 29,262 26,154 16,958 15,645 10,505 18,010
</TABLE>
12
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF ELIGIX
The annual financial information set forth below has been derived from the
audited financial statements of Eligix, except for net loss per basic and
diluted common share and basic and diluted weighted average common shares
outstanding. The data as of September 30, 1999 and 2000 and for the nine-month
periods ended September 30, 1999 and 2000 have been derived from the unaudited
financial statements of Eligix. The information should be read in connection
with, and is qualified in its entirety by reference to, Eligix' financial
statements and notes included elsewhere in this joint proxy
statement/prospectus. The interim data as of September 30, 1999 and 2000 and for
the nine months ended September 30, 1999 and 2000 are unaudited. However, in the
opinion of management of Eligix, the interim data include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results for the interim period. The results of operations
for the nine-month periods are not necessarily indicative of the results
expected for a full year or any interim period. Eligix was incorporated on
December 27, 1996. Accordingly, financial information prior to 1997 is
immaterial.
Diluted weighted average shares is the same as basic weighted average shares
since shares issuable pursuant to the exercise or conversion of stock options,
warrants and convertible preferred stock are not included in the calculation as
those shares are antidilutive.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Marketing, general and administrative
expenses.................................. $ 1,091 $ 1,649 $ 2,162 $ 1,952 $ 2,424
Research and development expenses........... 1,922 3,925 8,257 5,464 6,471
Loss from operations........................ (3,013) (5,574) (10,419) (7,416) (8,895)
Interest income............................. 138 220 306 239 120
Interest expense............................ (1) (44) (222) (101) (980)
Net loss.................................... (2,876) (5,398) (10,335) (7,278) (9,755)
Net loss per basic and diluted common
share..................................... -- (775.75) (149.21) (108.38) (70.10)
Basic and diluted weighted average common
shares outstanding........................ -- 7 69 67 139
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................... $ 2,004 $ 12,879 $ 3,269 $ 6,294 $ 2,877
Working capital............................. 1,549 11,446 1,530 4,719 (5,914)
Total assets................................ 2,257 14,674 6,761 9,562 6,011
Long term debt and convertible preferred
stock..................................... 4,624 21,072 23,455 23,419 22,867
Stockholders' deficit....................... (2,883) (8,272) (18,596) (15,549) (25,803)
</TABLE>
13
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED INFORMATION
The following table summarizes unaudited pro forma condensed combined
information of BioTransplant, presented elsewhere in this joint proxy
statement/prospectus, reflecting the completion of the merger with Eligix and
assuming the merger had been effective for the periods indicated. BioTransplant
will account for this transaction using the purchase method of accounting.
The summary unaudited pro forma condensed combined information is not
necessarily indicative of the results of operations or financial position that
would have been reported if the merger actually occurred on the dates indicated,
nor is the information necessarily indicative of the future operating results or
financial position of the combined company.
The summary unaudited pro forma condensed combined information is derived
from the unaudited pro forma condensed combined information and related notes
included elsewhere in this joint proxy statement/prospectus, which you should
read in their entirety.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 SEPTEMBER 30, 2000
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS DATA:
Total revenues.............................................. $ 9,471 $ 5,502
Total expenses.............................................. 40,074 25,030
Net loss.................................................... (30,297) (19,408)
Net loss per basic and diluted common share................. (2.38) (1.18)
PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA (AT
SEPTEMBER 30, 2000):
Cash and cash equivalents................................... $ 13,694
Working capital............................................. 13,832
Total assets................................................ 44,278
Stockholders' equity........................................ 37,045
</TABLE>
14
<PAGE>
COMPARATIVE PER SHARE DATA
The following table summarizes certain unaudited historical per share data
for BioTransplant and Eligix and the combined per share data on an unaudited pro
forma basis after giving effect to the merger using the purchase method of
accounting. You should read the information below along with the historical
financial data and the unaudited pro forma condensed combined financial data
included elsewhere in this joint proxy statement/prospectus. Neither
BioTransplant nor Eligix has ever declared any cash dividends.
We have used the following calculations in deriving the per share data:
- Book value is computed by dividing total stockholders' equity by the
number of common shares outstanding, which excludes convertible preferred
stock and convertible notes.
- BioTransplant pro forma combined book value per share is computed by
dividing pro forma stockholders' equity by the pro forma number of shares
of BioTransplant common stock which would have been outstanding had the
merger been consummated as of each balance sheet date.
- Eligix equivalent pro forma combined amounts are calculated by multiplying
the BioTransplant pro forma combined per share amounts and book value by
the applicable exchange ratios.
<TABLE>
<CAPTION>
AT AND FOR THE
NINE MONTHS
FOR THE YEAR ENDED
ENDED DECEMBER 31, 1999 SEPTEMBER 30, 2000
----------------------- ------------------
<S> <C> <C>
HISTORICAL--BIOTRANSPLANT:
Net loss per basic and diluted share................... $ (1.01) $ (0.65)
Book value per share................................... -- 1.54
HISTORICAL--ELIGIX:
Net loss per basic and diluted share................... $(149.78) $ (70.10)
Book value per share................................... -- (131.00)
PRO FORMA COMBINED--PER BIOTRANSPLANT SHARE:
Net loss per basic and diluted share................... $ (2.38) $ (1.18)
Book value per share................................... -- 2.18
EQUIVALENT PRO FORMA COMBINED--PER ELIGIX SHARE:
Net loss per basic and diluted share................... $ (0.22) $ (0.11)
Book value per share................................... 0.21
</TABLE>
15
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors relating to the
merger before you decide whether to vote to approve and adopt the merger
agreement and the proposed issuance of BioTransplant common stock in connection
with the merger. You should also consider the other information in this joint
proxy statement/prospectus and the additional information in BioTransplant's
other reports on file with the Securities and Exchange Commission. See "Where
You Can Find More Information" on page 135.
RISKS RELATING TO THE MERGER
ELIGIX STOCKHOLDERS AND MANAGEMENT MEMBERS MAY FORFEIT UP TO TWENTY PERCENT
OF THE BIOTRANSPLANT SHARES ISSUED IN CONNECTION WITH THE MERGER.
Eligix stockholders and management members risk forfeiture of 20% of the
BioTransplant shares issued in connection with the merger before those shares
are received by them. In connection with the merger, 20% of the BioTransplant
common stock issued in the merger will be placed into an escrow account. One
half of the shares held in escrow, the indemnification escrow shares, will be
available to BioTransplant to satisfy the indemnification obligations of the
Eligix stockholders and management members. Eligix stockholders and members of
management may not receive any of the indemnification escrow shares in the
escrow account since those shares may be required to indemnify BioTransplant
under the terms of the merger agreement.
The other one half of the shares of BioTransplant common stock held in
escrow, the milestone escrow shares, will only be distributed to Eligix
stockholders and management members if Eligix receives CE mark approval of the
TCell-HDM product on or before December 31, 2001. If Eligix does not receive
this approval by December 31, 2001, Eligix stockholders and management members
will not receive any of the milestone escrow shares.
BECAUSE THE NUMBER OF SHARES ELIGIX SECURITY HOLDERS AND MANAGEMENT MEMBERS
WILL RECEIVE IN THE MERGER IS FIXED, THE VALUE OF THE CONSIDERATION TO BE
RECEIVED BY ELIGIX SECURITY HOLDERS AND MANAGEMENT MEMBERS COULD DECREASE.
The number of shares Eligix security holders and management members will
receive in connection with the merger will be fixed even if the BioTransplant
stock price changes. All outstanding Eligix securities will be converted into an
aggregate of up to 5,610,000 shares of BioTransplant common stock issuable in
the merger or upon exercise or conversion of options, warrants and notes assumed
by BioTransplant in the merger. In addition, BioTransplant will issue 990,000
shares of its common stock to Eligix' management members, pursuant to the Eligix
management equity incentive plan. The number of shares issued will not be
adjusted in the event of changes in the price of BioTransplant common stock. In
addition, Eligix may not terminate the merger agreement solely because of a
change in the stock price of BioTransplant. Consequently, if the market price of
the BioTransplant common stock decreases, the value of the consideration that
Eligix security holders will receive in connection with the merger will
decrease.
WE MAY FACE CHALLENGES IN INTEGRATING ELIGIX INTO BIOTRANSPLANT AND, AS A
RESULT, MAY NOT REALIZE THE EXPECTED BENEFITS OF THE ANTICIPATED MERGER.
The merger involves the integration of two different companies that have
previously operated independently. Integrating Eligix' operations, technologies
and personnel with those of BioTransplant will be a complex process. We may not
be able to complete the integration rapidly. After the integration, the combined
company may not achieve the expected benefits of the merger. The diversion of
the attention of our management and any difficulties encountered in the process
of combining our companies could lead to unanticipated liabilities and costs and
cause the disruption of, or a loss of momentum in, the business activities of
the combined company. Further, the process of combining our
16
<PAGE>
companies could negatively affect employee morale and the ability of the
combined company to retain some of its key employees after the merger. As a
consequence, we may not successfully integrate Eligix or profitably manage the
combined company. In addition, following the transaction, the combined company
may not achieve revenues, net income or loss levels, efficiencies or synergies
that justify the merger, and the merger may not result in increased earnings for
the combined company in any future period.
SIGNIFICANT MERGER-RELATED CHARGES AGAINST EARNINGS WILL INCREASE OUR LOSSES
IN THE QUARTER IN WHICH WE CONSUMMATE THE MERGER AND DURING THE POST-MERGER
INTEGRATION PERIOD.
BioTransplant expects to incur charges of approximately $3.7 million in
connection with the merger. The charges include legal, accounting and financial
advisory fees and other integration costs. These costs may be higher than we
anticipate. In addition, BioTransplant may incur other additional unanticipated
merger costs. Some of these nonrecurring costs will be charged to operations in
the fiscal quarter in which the merger is consummated while others will be
expensed as incurred during the post-merger integration period.
ELIGIX SECURITY HOLDERS AND MANAGEMENT MEMBERS RISK A LOSS IN VALUE OF THE
BIOTRANSPLANT COMMON STOCK ISSUED IN CONNECTION WITH THE MERGER BEFORE THOSE
SHARES CAN BE SOLD.
The shares of BioTransplant common stock issuable in connection with the
merger, including the shares issuable to Eligix management members and shares
issuable upon exercise or conversion of options, warrants and notes assumed by
BioTransplant, are subject to a one-year lock-up period. None of these shares
may be sold for 90 days following the effective time of the merger and a portion
of the shares may not be sold for an additional 275 days. There is a risk that
the value of the BioTransplant shares issued in connection with the merger will
decline before those shares are released from the lock-up.
THE LOSS OF KEY ELIGIX OR BIOTRANSPLANT PERSONNEL COULD MAKE IT DIFFICULT TO
COMPLETE EXISTING PROJECTS AND UNDERTAKE NEW PROJECTS.
The success of the combined company depends on our ability to identify, hire
and retain our employees, and a significant component of the value of the merger
is in the know-how and experience of the Eligix and BioTransplant employees that
we expect to employ following the merger. If key Eligix or BioTransplant
employees were to leave after the merger, we may be unable to integrate Eligix'
delivery systems into our product offerings, complete existing Eligix projects
or undertake certain new projects.
Under the terms of Eligix' stock incentive plan, the vesting of stock
options to purchase an aggregate of approximately 1,130,000 shares of Eligix
stock held by Eligix employees automatically accelerates as a result of the
merger. In addition, options to purchase an aggregate of 2,749,100 shares of
Eligix common stock issued on May 25, 2000, which were exercisable in full on
the date of issuance but subject to a right of repurchase by Eligix, will no
longer be subject to the repurchase right in the event of a merger. These
options have substantial value to the Eligix employees. Because a substantial
number of options will vest in full and be immediately exercisable after the
merger, Eligix employees will not be incentivized through these stock options to
remain employed after the merger as a condition to the continued vesting of
their options. Consequently, we face the risk that Eligix employees will leave
following the merger. In addition, BioTransplant employees have significant
vested options and, thus, may not be incentivized through stock options to
remain employed following the merger.
17
<PAGE>
RISKS RELATING TO THE COMBINED COMPANY'S FINANCIAL RESULTS AND NEED FOR
FINANCING
WE WILL REQUIRE SUBSTANTIAL ADDITIONAL FINANCING IN THE NEAR TERM, WHICH MAY
BE DIFFICULT TO OBTAIN AND MAY DILUTE YOUR OWNERSHIP INTEREST IN US.
We anticipate that our existing funds will only be sufficient to fund our
operating and capital requirements through the middle of 2001. We will require
substantial funds to conduct research and development, including preclinical
testing and clinical trials of our AlloMune System and HDM products, and to
manufacture and market any products that are approved for commercial sale. If we
cannot raise more funds, we could be required to reduce our capital
expenditures, scale back our research and product developments, reduce our
workforce and/or license to others products or technologies we would otherwise
seek to commercialize ourselves.
We may seek additional funding through collaborative arrangements, borrowing
money and by the sale of additional equity securities. Any sales of additional
equity securities are likely to result in further dilution to our then existing
stockholders. Further, if we issue additional equity securities, the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. We may also borrow money from conventional
lenders, possibly at high interest rates, which will increase the risk of your
holdings. Despite our efforts, additional funding may not be available to us at
all or only on terms that are unacceptable to us. We also could be required to
seek funds through arrangements with collaborative partners or others that may
require us to relinquish rights to certain of our technologies, product
candidates or products which we would otherwise pursue on our own.
Even if we are able to raise additional funds in a timely manner, our future
capital requirements will vary depending on many factors, including the
following:
- continued progress in our research and development programs, as well as
the magnitude of these programs;
- the resources required to successfully complete our clinical trials;
- the time and costs involved in obtaining regulatory approvals;
- the cost of manufacturing and commercialization activities;
- the cost of any additional facilities requirements;
- the timing, receipt and amount of milestone and other payments from
collaborative partners;
- the timing, receipt and amount of sales and royalties from our potential
products in the market; and
- the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims and other patent-related costs, including
litigation costs and the costs of obtaining any required licenses to
technologies.
BIOTRANSPLANT AND ELIGIX HAVE INCURRED SUBSTANTIAL LOSSES, EXPECT TO
CONTINUE TO INCUR ADDITIONAL LOSSES AND WILL NOT BE SUCCESSFUL UNTIL THE
COMBINED COMPANY REVERSES THIS TREND.
BioTransplant and Eligix have incurred losses in each year since their
respective dates of organization. The combined company expects to incur
operating losses for the foreseeable future.
To date, BioTransplant has generated substantially all of its revenues from
payments from its collaborative partners such as Novartis and MedImmune. In 1999
and through the first nine months of 2000, all of the combined company's
revenues other than interest income were from BioTransplant's collaboration with
Novartis, which was terminated in October 2000 in connection with the formation
of our joint venture with Novartis. Neither BioTransplant nor Eligix has
received any revenues from the
18
<PAGE>
sale of products. BioTransplant anticipates that it may be a number of years, if
ever, before the combined company will receive significant revenues from product
sales or royalties.
The combined company expects to increase its spending significantly as the
combined company continues to expand its research and development programs,
clinical trials and commercialization activities. As a result, the combined
company will need to generate significant revenues before it will be able to
achieve profitability.
RISKS RELATED TO THE BUSINESS, INDUSTRY AND STRATEGY OF THE COMBINED COMPANY
NEITHER BIOTRANSPLANT NOR ELIGIX HAS SUCCESSFULLY DEVELOPED ANY PRODUCTS TO
DATE AND IF THE COMBINED COMPANY DOES NOT SUCCESSFULLY COMMERCIALIZE ANY
PRODUCTS WE WILL NOT BE PROFITABLE.
To date, we have engaged in research and development activities. We have not
yet:
- conducted significant human clinical trials with respect to any of our
potential products;
- completed the development of any of our potential products; or
- marketed any of our potential products.
To date, we have not successfully commercialized and sold the types of
products we are currently developing. The products that we are developing will
require additional research and development, extensive preclinical studies and
clinical trials and regulatory approval before they can be sold commercially. In
particular, we may need to successfully develop several new technologies in
order to complete development of our AlloMune System and certain of our HDM
products. If we do not successfully develop and commercialize any products, we
will never become profitable.
THE IMMUNOCOGNANCE TECHNOLOGY IS COMPLEX AND NOVEL, AND THERE ARE
UNCERTAINTIES AS TO THE EFFECTIVENESS OF OUR TECHNOLOGICAL APPROACHES AND, AS A
RESULT, WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE ANY
PRODUCTS.
The ImmunoCognance technology is complex and novel and our future success
depends on the successful development of this technology. MEDI-507 and the
prototype AlloMune System have been tested in relatively few patients and we may
not be able to demonstrate the clinical benefits of these products in a larger
patient population. Furthermore, the xenotransplantation technology that we have
exclusively licensed to our joint venture with Novartis Pharma AG is based upon
the transplantation of organs from swine into humans. To our knowledge,
transplantation of swine organs has never been tested in humans. As a
consequence, we are not sure whether any of our or our collaborators' potential
products will be effective in treating any of the disorders we have targeted. In
addition, these products may prove to have undesirable or unintended side
effects, toxicities or other characteristics that may prevent or limit their
commercial use. If our technological approach is not successful or accepted,
then neither we nor our collaborators will be able to develop or commercialize
these products.
WE ARE DEPENDENT ON MEDIMMUNE AND NOVARTIS AND OTHER COLLABORATIVE PARTNERS
TO DEVELOP, MANUFACTURE AND SELL OUR PRINCIPAL PRODUCTS AND THESE COLLABORATIONS
MAY NOT BE SUCCESSFUL.
We conduct most of our development activities, and plan to conduct most of
our commercialization activities, through collaborations. In addition, our joint
venture with Novartis is conducting all research on our xenotransplantation
technologies, and we rely entirely on Novartis for the joint venture's funding.
The success of our collaborations is heavily dependent on the efforts and
activities of our collaborative partners. Our agreements with our collaborative
partners allow them significant discretion in determining the efforts and
resources that they will apply to the collaboration. Our existing and any future
collaborations may not be scientifically or commercially successful.
19
<PAGE>
The risks that we face in connection with these collaborations include:
- Our existing collaborations are subject to termination without cause and
on short notice under certain circumstances. If our collaborative partners
terminate their collaborations with us, it may be difficult for us to
attract new collaborative partners and may adversely affect the perception
of us in the business and financial communities.
- If MedImmune, Novartis or any of our other collaborative partners were to
breach or terminate an agreement with us or with our joint venture, reduce
its funding or otherwise fail to conduct the collaboration successfully,
we could be required to devote additional internal resources to the
program that is the subject of the collaboration, scale back or terminate
the program or seek an alternative partner.
- Our collaborative partners may pursue higher priority programs or change
the focus of their research and/or development programs, which could
affect the collaborative partners' commitment to us or our joint venture.
Pharmaceutical companies have historically re-evaluated their research and
development priorities following mergers and consolidations, which have
been common in recent years in these industries.
- After a product has been approved for marketing, any reductions in
marketing or sales efforts or a discontinuation of marketing or sales of
such product by our collaborative partners would reduce our revenues,
which will be based on a percentage of net sales by the collaborative
partner. For example, we are entitled to receive royalties on MEDI-507, a
product proprietary to MedImmune. The amount of any royalties earned under
this arrangement is entirely dependent on the efforts of MedImmune to
develop and market MEDI-507.
WE FACE SUBSTANTIAL COMPETITION, WHICH MAY RESULT IN OTHERS DISCOVERING,
DEVELOPING OR COMMERCIALIZING PRODUCTS BEFORE OR MORE SUCCESSFULLY THAN WE OR
OUR COLLABORATORS DO.
The products we and our collaborators are developing compete with existing
and new products being created by pharmaceutical, biopharmaceutical and
biotechnology companies, as well as universities and other research
institutions. Many of our competitors are substantially larger than we are and
have substantially greater capital resources, research and development staffs
and facilities than we have. Furthermore, many of our competitors are more
experienced in product development and commercialization, obtaining regulatory
approvals and product manufacturing. As a result, they may develop competing
products more rapidly and at less cost than we can. In addition, our competitors
may discover, develop and commercialize products which render the products that
we and our collaborators are seeking to develop and commercialize
non-competitive or obsolete.
THE MARKET MAY NOT BE RECEPTIVE TO OUR PRODUCTS UPON THEIR INTRODUCTION,
WHICH WILL PREVENT US FROM BEING PROFITABLE.
The commercial success of our products when and if they are approved for
marketing will depend upon their acceptance by the medical community and
third-party payors as clinically useful, cost effective and safe. All of the
products that we are developing are based upon new technologies or therapeutic
approaches. As a result, it may be more difficult for us to convince the medical
community and third-party payors to accept and use our products.
Other factors that we believe will materially affect market acceptance of
our products include:
- the timing of our receipt of marketing approvals and the countries in
which approvals are obtained;
- the safety, efficacy and ease of administration of our products;
- the success of our physician education programs; and
- the availability of government and third-party payor reimbursement of our
products.
20
<PAGE>
THE PROGRESS OF THE XENOTRANSPLANTATION RESEARCH PROGRAM OF OUR JOINT
VENTURE COULD BE DELAYED BY DISRUPTIONS IN ITS SUPPLY OF MINIATURE SWINE.
Our joint venture's xenotransplantation research program is based upon the
transplantation of tissues and organs from swine into humans. Charles River
Laboratories is currently the only supplier of the miniature swine organs that
the joint venture uses in its research. Although the miniature swine from which
the joint venture with Novartis will receive organs are located at several
different facilities, a disease epidemic or other catastrophe could destroy all
or a portion of the miniature swine herd, which would interrupt or significantly
delay the joint venture's research. In addition, if Charles River Laboratories
terminates or breaches its agreement with the joint venture, it may not have the
resources or capabilities to maintain the miniature swine herds itself which
would cause the joint venture to delay or curtail its research efforts with
respect to the xenotransplantation program.
XENOTRANSPLANTATION INVOLVES RISKS WHICH HAVE RESULTED IN ADDITIONAL FDA
OVERSIGHT AND WHICH IN THE FUTURE MAY RESULT IN ADDITIONAL REGULATION.
Xenotransplantation poses a risk that viruses or other animal pathogens may
be unintentionally transmitted to a human patient. The Food and Drug
Administration will require testing to determine whether infectious agents,
including porcine endogenous retroviruses, also known as PERV, are present in
patients who have received cells, tissues or organs from miniature swine. While
PERV has not been shown to cause any disease in pigs, it is not known what
effect, if any, PERV may have on humans.
Other companies are currently conducting clinical trials involving the
transplantation of pig cells into humans. The FDA requires lifelong monitoring
of these transplant recipients. If PERV or any other virus or infectious agent
is detected in tests or samples from these transplant recipients, the FDA may
require the joint venture to halt its clinical trials and perform additional
tests to assess the risk of infection to potential patients. This could result
in additional costs to the joint venture and delays in the trials of any
xenotransplantation products under development.
The FDA has proposed, but not yet established, definitive regulatory
guidelines for xenotransplantation. We and the joint venture may not be able to
comply with any final guidelines the FDA may issue.
RISKS RELATING TO CLINICAL AND REGULATORY MATTERS
IF OUR CLINICAL TRIALS ARE NOT SUCCESSFUL OR ARE NOT COMPLETED ON A TIMELY
BASIS, WE WILL NOT BE ABLE TO DEVELOP AND COMMERCIALIZE ANY RELATED PRODUCTS
AND, THEREFORE, WE WILL NOT ACHIEVE PROFITABILITY.
To obtain regulatory approvals for the commercial sale of our future
products, we and our collaborative partners will need to complete extensive
clinical trials in humans to demonstrate the safety and efficacy of the
products. BioTransplant and Eligix have both had limited experience in
conducting clinical trials.
Prior to commencing new clinical trials, we must submit investigational new
drug and/or investigational device exemption applications to the FDA. Even if we
receive authorization from the FDA to commence clinical trials, we or our
collaborative partners may not be able to successfully complete these trials
within an acceptable timeframe, if at all. How quickly we and our collaborative
partners complete clinical trials is dependent in part upon the rate of
enrollment of patients. Patient enrollment is a function of many factors,
including the size of the patient population, the proximity of patients to
clinical sites, the eligibility criteria for the study and the existence of
competitive clinical trials. In particular, the patient population for some of
our potential products is small. If we experience delays in patient enrollment,
we may incur additional costs and delay our research and development programs.
Furthermore, we, our collaborative partners or the FDA may suspend our clinical
trials at any time on various grounds, including a finding that the patients in
the trials are being exposed to unacceptable health risks. Finally, our clinical
trials, if completed, may not show the potential product to be safe or
effective, thereby preventing regulatory approval.
21
<PAGE>
WE ARE DEPENDENT ON OUR COLLABORATIVE PARTNERS TO CONDUCT CLINICAL TRIALS ON
SOME OF OUR PRODUCTS AND, THEREFORE, WE ARE NOT IN CONTROL OF THE TIMING OF SUCH
TRIALS.
We are dependent upon MedImmune to conduct clinical trials with respect to
MEDI-507 and will be dependent upon Novartis to conduct clinical trials for the
development of xenotransplantation products, if any, that arise out of our joint
venture's research program. We may become dependent upon other third parties to
conduct future clinical trials of our AlloMune System, HDM and other products.
As a result, we will have less control over such clinical trials than if we were
conducting the trials directly. Consequently, these trials may not begin or be
completed on a schedule that is acceptable to us.
THE APPROVAL PROCESS IS COSTLY AND LENGTHY AND WE MAY NOT OBTAIN THE
REGULATORY APPROVALS REQUIRED TO SUCCESSFULLY MARKET AND SELL OUR PRODUCTS.
We must obtain regulatory approval for our ongoing development activities
and before marketing or selling any of our products. The process of obtaining
FDA and other required regulatory approvals is lengthy and expensive. The time
required for FDA and other clearances or approvals typically takes a number of
years, depending on the complexity and novelty of the product. Our analysis of
data obtained from preclinical and clinical activities is subject to
confirmation and interpretation by regulatory authorities, which could delay,
limit or prevent regulatory approval. Any delay in obtaining or failure to
obtain required clearance or approval of a product by the appropriate regulatory
authorities, would materially adversely affect our ability to generate revenues
from the affected product. BioTransplant and Eligix both have limited experience
in filing and prosecuting the applications required to gain regulatory approval.
There is limited regulatory precedent for the approval of products based
upon the technologies that we are employing to develop products. The AlloMune
System and the HDM products are based on new technologies and/or new therapeutic
approaches that have not been extensively tested in humans. Accordingly, the
regulatory requirements governing these types of products may be more rigorous
than for conventional products. In addition, the FDA has not yet established
final or comprehensive guidelines for xenotransplantation. As a result, we may
experience a longer regulatory process in connection with any products that we
or our collaborators seek to develop based on these new technologies and/or new
therapeutic approaches.
We also are subject to numerous foreign regulatory requirements governing
the design and conduct of the clinical trials and the manufacturing and
marketing of our future products. The approval procedure varies among countries.
The time required to obtain foreign approvals often differs from that required
to obtain FDA approvals. Moreover, approval by the FDA does not ensure approval
by regulatory authorities in other countries.
EVEN IF WE OR OUR COLLABORATORS OBTAIN MARKETING APPROVAL, OUR PRODUCTS WILL
BE SUBJECT TO ONGOING REGULATORY REVIEW WHICH WILL BE EXPENSIVE AND MAY
ADVERSELY AFFECT OUR AND OUR COLLABORATORS' ABILITY TO SUCCESSFULLY
COMMERCIALIZE OUR PRODUCTS.
The manufacturing facilities of the manufacturer of products for which we or
our collaborators obtain marketing approval will be subject to continual review
and periodic inspections by the FDA and foreign regulatory agencies. The
subsequent discovery of previously unknown problems with the product,
manufacturer or the manufacturing facility may result in restrictions on the
product or manufacturer, including withdrawal of the product from the market.
If we or our collaborators fail to comply with applicable regulatory
requirements, we or our collaborators may be subject to fines, suspension or
withdrawal of regulatory approvals, product recalls, product seizures, operating
restrictions and criminal prosecutions.
22
<PAGE>
RISKS RELATING TO INTELLECTUAL PROPERTY
WE MAY NOT BE ABLE TO OBTAIN PATENT PROTECTION FOR OUR DISCOVERIES AND WE
MAY INFRINGE PATENT RIGHTS OF THIRD PARTIES.
Our success depends in significant part on our ability to:
- obtain patents;
- protect trade secrets;
- operate without infringing upon the proprietary rights of others; and
- prevent others from infringing on our proprietary rights.
The validity and permissible scope of claims covered in patents relating to
our technology involve important unresolved legal principles. Furthermore, there
is substantial uncertainty as to whether human clinical data will be required
for issuance of patents for human therapeutics. If such data are required, our
ability to obtain patent protection could be delayed or otherwise adversely
affected.
Patents may not issue from any patent applications that we own or license.
If patents do issue, the claims allowed may not be sufficiently broad to protect
our technology. In addition, issued patents that we own or license may be
challenged, invalidated or circumvented. Our patents also may not afford us
protection against competitors with similar technology. Because patent
applications in the United States are maintained in secrecy until patents issue,
third parties may have filed or maintained patent applications for technology
used by us or covered by our pending patent applications without our being aware
of these applications.
We may not hold proprietary rights to certain patents related to our
proposed products or services. In some cases, these patents may be owned or
controlled by third parties. As a result, we or our collaborative partners may
be required to obtain licenses under third-party patents to market certain of
our proposed products or services. If licenses are not available on acceptable
terms, we or our collaborative partners will not be able to market these
products or services.
WE MAY NOT BE ABLE TO KEEP OUR TRADE SECRETS CONFIDENTIAL.
We also rely significantly upon unpatented proprietary technology,
information, processes and know-how. We seek to protect this information through
confidentiality agreements with our employees, consultants and other third-party
contractors as well as through other security measures. These confidentiality
agreements may be breached, and we may not have adequate remedies for any such
breach. In addition, our trade secrets may otherwise become known or be
independently developed by competitors.
WE MAY BECOME INVOLVED IN EXPENSIVE PATENT LITIGATION OR OTHER INTELLECTUAL
PROPERTY PROCEEDINGS WHICH COULD RESULT IN LIABILITY FOR DAMAGES OR STOP OUR
DEVELOPMENT AND COMMERCIALIZATION EFFORTS.
There has been substantial litigation and other proceedings regarding the
complex patent and other intellectual property rights in the pharmaceutical and
biotechnology industries. We may become a party to patent litigation or other
proceedings regarding intellectual property rights.
Other types of situations in which we may become involved in patent
litigation or other intellectual property proceedings include:
- We may initiate litigation or other proceedings against third parties to
enforce our patent rights.
- We may initiate litigation or other proceedings against third parties to
seek to invalidate the patents held by these third parties or to obtain a
judgment that our products or services do not infringe the patents of
these third parties.
23
<PAGE>
- If our competitors file patent applications that claim technology also
claimed by us, we may participate in interference or opposition
proceedings to determine the priority of invention.
- If third parties initiate litigation claiming that our processes or
products infringe their patents or other intellectual property rights, we
will need to defend against these claims.
The cost to us of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our competitors may be able
to sustain the cost of litigation or proceedings more effectively than we can
because of their substantially greater financial resources. If a patent
litigation or other intellectual property proceeding is resolved unfavorably to
us, we or our collaborative partners may be enjoined from manufacturing or
selling our products and services without a license from the other party and be
held liable for significant damages. We may not be able to obtain any required
license on commercially acceptable terms, if at all.
Uncertainties resulting from the initiation and continuation of patent
litigation or other proceedings could have a material adverse effect on our
ability to compete in the marketplace and, therefore, to become profitable.
Patent litigation and other proceedings may also divert significant management
time away from growing our business.
WE COULD LOSE IMPORTANT LICENSE RIGHTS IN CERTAIN CIRCUMSTANCES.
We are a party to technology in-licenses that are important to our business
and expect to enter into additional licenses in the future. These licenses
impose various commercialization, sublicensing, royalty, insurance and other
obligations on us. If we fail to comply with these requirements, the licensors
will have the right to terminate these licenses, which could affect our ability
to exploit important technologies that are required for successful development
of our products.
RISKS RELATING TO PRODUCT MANUFACTURING, MARKETING AND SALES
BIOTRANSPLANT AND ELIGIX HAVE LIMITED SALES AND MARKETING EXPERIENCE AND MAY
DEPEND SIGNIFICANTLY ON THIRD PARTIES WHO MAY NOT SUCCESSFULLY COMMERCIALIZE OUR
PRODUCTS.
We have limited sales, marketing and distribution experience. We plan to
rely significantly on sales, marketing and distribution arrangements with third
parties, including our collaborative partners. For example, we have granted
MedImmune exclusive marketing rights to MEDI-507 and have granted Novartis
exclusive worldwide rights to develop and market products based upon our
xenotransplantation technologies. We may have to enter into additional marketing
arrangements in the future and we may not be able to enter into such
arrangements on terms which are favorable to us, if at all. In addition, we may
have limited or no control over the sales, marketing and distribution activities
of these third parties. Our future revenues will be materially dependent upon
the success of the efforts of these third parties.
If in the future we determine to perform sales, marketing and distribution
functions ourselves, we could face a number of additional risks, including:
- we may not be able to attract and build a significant marketing staff or
sales force;
- the cost of establishing a marketing staff or sales force may not be
justifiable in light of the revenues generated by any particular product;
and
- our direct sales and marketing efforts may not be successful.
24
<PAGE>
THE COMBINED COMPANY HAS LIMITED MANUFACTURING CAPABILITIES AND WILL DEPEND
ON THIRD-PARTY MANUFACTURERS WHO MAY NOT SUCCESSFULLY MANUFACTURE OUR PRODUCTS.
The combined company has limited manufacturing experience. To continue to
develop products, apply for regulatory approvals and, ultimately, commercialize
any products, we will need to develop, contract for or otherwise arrange for the
necessary manufacturing capabilities.
Although Eligix has a commercial scale manufacturing facility, Eligix relies
on third-party manufacturers for the equipment and disposable components of its
system. Eligix may also be reliant upon third parties for supply of certain
antibodies.
BioTransplant currently relies upon third parties to produce material for
preclinical and clinical testing purposes and the combined company expects to
continue to do so in the future. In addition, if the combined company receives
the necessary regulatory approvals for its products, it also expects to rely
upon third parties, including its collaborative partners, to produce materials
required for the commercial production. There are a limited number of
manufacturers capable of manufacturing these products for the combined company
that are able to comply with the FDA's regulations for good manufacturing
practices. If the combined company is unable to manufacture its own products or
arrange for third-party manufacturing of its products, or unable to do so on
commercially reasonable terms, the combined company may not be able to complete
development of or market its products.
To the extent that the combined company enters into manufacturing
arrangements with third parties, it will be dependent upon these third parties
to perform their obligations in a timely manner. If such third-party
manufacturers fail to perform their obligations, the combined company may be
adversely affected in a number of ways, including:
- it may not be able to initiate or continue clinical trials of products
that are under development;
- it may be delayed in submitting applications for regulatory approvals for
its products; and
- ultimately, it may not be able to meet commercial demands for its
products.
RISKS RELATED TO ONGOING COMBINED OPERATIONS
IF WE OR OUR MARKETING PARTNERS FAIL TO OBTAIN AN ADEQUATE LEVEL OF
REIMBURSEMENT FOR OUR FUTURE PRODUCTS OR SERVICES BY THIRD-PARTY PAYORS, THERE
MAY BE NO COMMERCIALLY VIABLE MARKETS FOR OUR PRODUCTS.
The availability of reimbursement by governmental and other third-party
payors affects the market for health care products. These third-party payors
continually attempt to contain or reduce the costs of health care by challenging
the prices charged for health care products. We and our marketing partners may
not be able to sell our products profitably if reimbursement is unavailable or
limited in scope or amount. Currently, no reimbursement plan exists for the
costs associated with any of our product development candidates.
In both the United States and certain foreign jurisdictions, there have been
a number of legislative and regulatory proposals to change the healthcare
system. Further proposals are likely. The potential for adoption of these
proposals may affect our ability to raise capital, obtain additional
collaborative partners and market our products.
If we or our collaborative partners obtain marketing approval for our
products, we expect to experience pricing pressure due to the trend toward
managed health care, the increasing influence of health maintenance
organizations and additional legislative proposals.
25
<PAGE>
WE COULD BE EXPOSED TO SIGNIFICANT LIABILITY CLAIMS IF WE ARE UNABLE TO
OBTAIN INSURANCE AT ACCEPTABLE COSTS OR OTHERWISE ARE UNABLE TO PROTECT
OURSELVES AGAINST POTENTIAL PRODUCT LIABILITY CLAIMS.
We may be subject to the product liability claims that are inherent in the
testing, manufacturing, marketing and sale of human health care products. These
claims could expose us to significant liabilities that could prevent or
interfere with our ability to develop or commercialize our products. Product
liability claims could require us to spend significant time and money in
litigation or to pay significant damages. Product liability insurance is
generally expensive for biopharmaceutical companies such as ours. Although we
maintain limited product liability insurance coverage for the clinical trials of
our products, it is possible that we will not be able to obtain further product
liability insurance on acceptable terms, if at all, and that insurance which we
subsequently obtain will not provide adequate coverage against all potential
claims.
OUR GROWTH COULD BE LIMITED IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY
PERSONNEL AND CONSULTANTS.
Our success is substantially dependent on the ability, experience and
performance of our senior management and other key personnel and consultants. If
we lose one or more of the members of our senior management or other key
employees or consultants, our business and operating results could be seriously
harmed. None of the members of our senior management or other key employees are
bound by a long-term employment agreement with us. With respect to the
development of our transplantation programs, we depend in large part on the
efforts of Dr. David H. Sachs, chairman of our scientific advisory board. We
currently have a consulting contract with Dr. Sachs which may be terminated by
him at any time upon 30 days' written notice.
In addition, our future success will depend heavily on our ability to
continue to hire, train, retain and motivate additional skilled managerial and
scientific personnel and consultants. The pool of personnel with the skills that
we require is limited, and competition to hire from this pool is intense.
RISKS RELATING TO OUR COMMON STOCK
OUR STOCK PRICE IS HIGHLY VOLATILE, WHICH COULD CAUSE YOU TO LOSE PART OR
ALL OF YOUR INVESTMENT.
The market price of our common stock is highly volatile. Prices for our
common stock will be determined in the market place and may be influenced by
many factors, including variations in our financial results and investors'
perceptions of us, as well as their perceptions of general economic, industry
and market conditions. Broad market fluctuations may adversely affect the market
price of our common stock and may cause a rapid and substantial decline in the
value of your investment in our common stock.
WE HAVE ANTITAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION AND
COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.
Provisions of our certificate of incorporation, our bylaws and Delaware law
may have the effect of deterring hostile takeovers or delaying or preventing
changes in control or our management, including transactions in which our
stockholders might otherwise receive a premium for their shares over then
current market prices. In addition, these provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interest. For example, our bylaws limit the manner in which stockholders may
call a special meeting. Our certificate of incorporation permits our board of
directors to issue preferred stock without stockholder approval. In addition to
delaying or preventing an acquisition, the issuance of a substantial number of
preferred shares could adversely effect the price of our common stock.
26
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
BioTransplant and Eligix believe this document contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are subject to risks and uncertainties and are based
on the beliefs and assumptions of the management of BioTransplant and Eligix,
based on information currently available to each company's management. When we
use words such as "believes," "expects," "anticipates," "intends," "plans,"
"estimates," "should," "likely" or similar expressions, we are making
forward-looking statements. Forward-looking statements include the information
concerning possible or assumed future results of operations of BioTransplant set
forth under:
- "Summary";
- "Risk Factors";
- "The Merger--Background of the Merger," "--Recommendation of the Board of
Directors of BioTransplant; BioTransplant's Reasons for the Merger,"
"--Recommendation of the Board of Directors of Eligix; Eligix' Reasons for
the Merger" and "--Opinion of BioTransplant's Financial Advisor";
- "Information Concerning BioTransplant";
- "Information Concerning Eligix"; and
- "Unaudited Pro Forma Condensed Combined Financial Information."
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder values
of BioTransplant or Eligix may differ materially from those expressed in the
forward-looking statements. Many of the factors that will determine these
results and values are beyond our ability to control or predict. Stockholders
are cautioned not to put undue reliance on any forward-looking statements. For
those statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
For a discussion of some of the factors that may cause actual results to
differ materially from those suggested by the forward-looking statements, please
read carefully the information under "Risk Factors." This list of factors that
may affect future performance and the accuracy of forward-looking statements is
illustrative, but by no means exhaustive. Accordingly, all forward-looking
statements should be evaluated with the understanding of their inherent
uncertainty. We expressly disclaim any obligation to update or alter our
forward-looking statements, whether as a result of new information, future
events or otherwise.
27
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
MARKET PRICE INFORMATION
BioTransplant common stock has traded on the Nasdaq National Market under
the symbol "BTRN" since May 8, 1996.
The table below sets forth, for the periods indicated, the reported high and
low sale prices of BioTransplant common stock on the Nasdaq National Market.
Because there is no established trading market for shares of Eligix stock,
information with respect to the market prices of Eligix stock has been omitted.
<TABLE>
<CAPTION>
BIOTRANSPLANT
COMMON STOCK
-------------------
HIGH LOW
-------- --------
<S> <C> <C>
CALENDAR 1998
Quarter ended March 31, 1998............................... $ 6.13 $4.00
Quarter ended June 30, 1998................................ 4.25 3.13
Quarter ended September 30, 1998........................... 3.75 1.50
Quarter ended December 31, 1998............................ 3.00 1.00
CALENDAR 1999
Quarter ended March 31, 1999............................... $ 2.69 $1.88
Quarter ended June 30, 1999................................ 4.93 1.94
Quarter ended September 30, 1999........................... 7.50 4.50
Quarter ended December 31, 1999............................ 9.28 5.00
CALENDAR 2000
Quarter ended March 31, 2000............................... $23.00 $6.25
Quarter ended June 30, 2000................................ 10.56 4.68
Quarter ended September 30, 2000........................... 18.31 8.38
Quarter ended December 31, 2000............................ 18.50 6.19
CALENDAR 2001
Quarter ending March 31, 2001 (through January 5, 2001).... $ 9.22 $8.13
</TABLE>
On December 8, 2000, the last full trading day prior to the public
announcement of the proposed merger, the last reported sale price of
BioTransplant common stock on the Nasdaq National Market was $8.375 per share.
On , 2001, the most recent practicable date prior to the printing
of this joint proxy statement/prospectus, BioTransplant had approximately
stockholders of record and the last reported sale price of BioTransplant
common stock on the Nasdaq National Market was $ per share.
Because the market price of BioTransplant common stock may fluctuate, the
market price per share of the shares of BioTransplant common stock that holders
of Eligix stock will receive in the merger may increase or decrease prior to the
merger.
WE URGE ELIGIX STOCKHOLDERS TO OBTAIN A CURRENT MARKET QUOTATION FOR
BIOTRANSPLANT COMMON STOCK.
We cannot assure you as to what the market price will be at the effective
time of the merger. The number of shares to be issued by BioTransplant in the
merger is fixed. Accordingly, the market value of the shares of BioTransplant
common stock that holders of Eligix securities will receive may vary
significantly from the prices shown above.
28
<PAGE>
DIVIDEND INFORMATION
BioTransplant has never declared or paid any dividends on its common stock.
BioTransplant does not expect to pay cash dividends in the foreseeable future.
In addition, BioTransplant is party to a loan agreement that prohibits
BioTransplant from paying dividends without the written consent of the lending
institution. See "Information Concerning BioTransplant--Management's Discussion
and Analysis of Financial Condition and Results of Operations" and note 3 to the
consolidated financial statements of BioTransplant.
Eligix has never paid any cash dividends on the Eligix common stock, and if
the merger is not consummated, it anticipates that it will continue to retain
any earnings for the foreseeable future for use in the operation of its
business.
29
<PAGE>
THE BIOTRANSPLANT SPECIAL MEETING
GENERAL
This joint proxy statement/prospectus is being furnished to stockholders of
BioTransplant as part of the solicitation of proxies by the BioTransplant board
of directors for use at a special meeting of stockholders of BioTransplant. The
BioTransplant board will use the proxies at the special meeting to be held on
and at the date, time and place set forth below.
DATE, TIME AND PLACE
We will hold the special meeting at the offices of Hale and Dorr LLP, 60
State Street, Boston, Massachusetts 02109, at 10:00 a.m. local time on
, 2001.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, we are asking holders of BioTransplant common stock
to approve the issuance of an aggregate of up to 5,610,000 shares of
BioTransplant common stock to Eligix security holders, either in the merger or
upon exercise or conversion of Eligix options, warrants and notes assumed by
BioTransplant in the merger, and 990,000 shares of BioTransplant common stock to
members of Eligix management, in connection with the agreement and plan of
merger, dated as of December 8, 2000, among BioTransplant, BT/EL Acquisition
Co., a wholly owned subsidiary of BioTransplant, and Eligix.
BIOTRANSPLANT BOARD OF DIRECTORS' RECOMMENDATION
The BioTransplant board of directors, after careful consideration, has
unanimously approved the merger agreement and the merger and recommends a vote
FOR the proposed issuance of BioTransplant common stock in connection with the
merger.
RECORD DATE
Only holders of record of BioTransplant common stock at the close of
business on , 2001 are entitled to notice of and to vote at the
BioTransplant special meeting. On the record date there were outstanding
shares of BioTransplant common stock held by stockholders of record. Each
share is entitled to one vote. The representation, in person or by properly
executed proxy, of the holders of a majority of all of the shares of common
stock entitled to vote at the BioTransplant special meeting is necessary to
constitute a quorum at the BioTransplant special meeting.
VOTE REQUIRED; VOTE AT THE SPECIAL MEETING
Pursuant to applicable rules of the Nasdaq National Market, the proposed
issuance of BioTransplant common stock in connection with the merger will
require the affirmative vote of the holders of a majority of the votes
represented by the shares of BioTransplant common stock cast on such proposal,
whether in person or by proxy, because the number of shares of BioTransplant
common stock to be issued in the merger will exceed 20% of the outstanding
shares of BioTransplant common stock prior to the merger.
Shares of BioTransplant common stock represented in person or by proxy will
be counted for the purposes of determining whether a quorum is present at the
BioTransplant special meeting. Shares which abstain from voting as to the
proposal, and shares held in "street name" by brokers or nominees who indicate
on their proxies that they do not have discretionary authority to vote such
shares on the proposal, will be treated as shares that are present and entitled
to vote at the BioTransplant special meeting for purposes of determining whether
a quorum exists. Abstentions and broker non-votes are not considered to be votes
cast with respect to a particular matter and will thus have no effect on the
proposal to issue shares of BioTransplant common stock in connection with the
merger.
30
<PAGE>
As of the record date for the BioTransplant special meeting, directors and
executive officers of BioTransplant and their affiliates held approximately %
of the outstanding shares of BioTransplant common stock.
PROXIES
All shares of BioTransplant common stock which are entitled to vote and are
represented at the BioTransplant special meeting by properly executed proxies
received prior to or at such meeting, and not revoked, will be voted at such
meeting in accordance with the instructions indicated on such proxies. Except
for the case of broker non-votes, if no instructions are indicated, such proxies
will be voted for approval of the proposed issuance of BioTransplant common
stock in connection with the merger.
The BioTransplant board does not know of any matters other than those
described in the notice of the BioTransplant special meeting that are to come
before such meeting. If any other matters are properly presented at the
BioTransplant special meeting for consideration, including, among other things,
consideration of a motion to adjourn or postpone such meeting to another time
and/or place (including, without limitation, for the purposes of soliciting
additional proxies or allowing additional time for the satisfaction of
conditions to the merger), the persons named in the enclosed form of proxy and
acting thereunder generally will have discretion to vote on such matters in
accordance with their best judgment. Notwithstanding the foregoing, proxies
voting against a specific proposal may not be used by the persons named in the
proxies to vote for adjournment or postponement of the meeting for the purpose
of giving management additional time to solicit votes to approve such proposal.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by:
- filing with the Secretary of BioTransplant, at or before the taking of the
vote at the BioTransplant special meeting, a written notice of revocation
bearing a later date than the proxy; or
- duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of BioTransplant before the taking of the
vote at the BioTransplant special meeting; or
- attending the BioTransplant special meeting and voting in person, although
attendance at the BioTransplant special meeting will not in and of itself
constitute a revocation of a proxy.
Any written notice of revocation or subsequent proxy should be sent to
BioTransplant, Building 75, 3rd Avenue, Charlestown, MA 02109, Attention:
Corporate Secretary, or hand delivered to the Secretary of BioTransplant at or
before the taking of the vote at the BioTransplant special meeting. Stockholders
that have instructed a broker to vote their shares must follow directions
received from such broker in order to change their vote or to vote at the
BioTransplant special meeting.
SOLICITATION OF PROXIES
All expenses of BioTransplant's solicitation of proxies for the
BioTransplant special meeting will be borne by BioTransplant. In addition to
solicitation by use of the mails, proxies may be solicited from BioTransplant
stockholders by directors, officers and employees of BioTransplant in person or
by telephone, facsimile or other means of communication. Such directors,
officers and employees will not be additionally compensated, but may be
reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. BioTransplant has retained W.F. Doring & Co., a proxy solicitation
firm, for assistance in connection with the solicitation of proxies for the
BioTransplant special meeting at a cost of approximately $5,000 plus
reimbursement of reasonable out-of-pocket expenses. Arrangements will also be
made with brokerage houses, custodians, nominees and fiduciaries for forwarding
of proxy solicitation materials to beneficial owners of shares held of record by
such brokerage houses, custodians, nominees and fiduciaries, and BioTransplant
will reimburse such brokerage houses, custodians, nominees and fiduciaries for
their reasonable expenses incurred in connection therewith.
31
<PAGE>
THE ELIGIX SPECIAL MEETING
GENERAL
This joint proxy statement/prospectus is being furnished to stockholders of
Eligix as part of the solicitation of proxies by the Eligix board of directors
for use at a special meeting of stockholders of Eligix. The Eligix board will
use the proxies at the special meeting to be held on and at the date, time and
place set forth below.
DATE, TIME AND PLACE
We will hold the special meeting at the offices of Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, P.C., One Financial Center, Boston, Massachusetts
02111, at 10:00 a.m., local time, on , 2001.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, we are asking Eligix stockholders to approve and
adopt the agreement and plan of merger dated as of December 8, 2000 among
BioTransplant, BT/EL Acquisition Co., a wholly-owned subsidiary of
BioTransplant, and Eligix, and the merger.
We are also asking Eligix stockholders to approve an amendment to the
certificate of incorporation of Eligix that changes the manner in which proceeds
are to be distributed upon any liquidation, distribution or winding up of
Eligix.
ELIGIX BOARD OF DIRECTORS' RECOMMENDATION
The Eligix board of directors, after careful consideration, has unanimously
approved the merger agreement and the merger and has declared the merger
agreement advisable and in the best interests of Eligix and its stockholders. In
addition, the Eligix board of directors has unanimously approved the amendment
to the certificate of incorporation and has declared the amendment advisable and
in the best interests of Eligix and its stockholders. The Eligix board of
directors recommends a vote FOR approval and the adoption of the merger
agreement and the merger and the amendment of the Eligix certificate of
incorporation.
RECORD DATE
Only holders of record of Eligix common stock and preferred stock at the
close of business on , 2001 are entitled to notice of and to vote at
the Eligix special meeting. On the record date there were:
- outstanding shares of Eligix common stock;
- outstanding shares of Eligix Series A preferred stock;
- outstanding shares of Eligix Series B preferred stock;
- outstanding shares of Eligix Series C-1 preferred stock;
- outstanding shares of Eligix Series C-2 preferred stock; and
- outstanding shares of Eligix Series C-3 preferred stock.
32
<PAGE>
Each share of Eligix common stock and preferred stock will be entitled to
one vote. The representation, in person or by properly executed proxy, of the
holders of a majority of all of the shares of common stock and preferred stock
entitled to vote at the Eligix special meeting is necessary to constitute a
quorum at the Eligix special meeting.
VOTE REQUIRED; VOTE AT THE SPECIAL MEETING
The approval and adoption of the merger agreement and the merger will
require the affirmative vote of the holders of a majority of the votes
represented by the shares of Eligix common stock and preferred stock outstanding
on the Eligix record date, voting together as a single class, and two-thirds of
the votes represented by the shares of Eligix preferred stock outstanding on the
Eligix record date, voting together as a single class.
The approval and adoption of the amendment to the Eligix certificate of
incorporation will require the affirmative vote of:
- the holders of a majority of the votes represented by the shares of Eligix
common stock and preferred stock outstanding on the Eligix record date,
voting together as a single class;
- two-thirds of the votes represented by the shares of Eligix preferred
stock outstanding on the Eligix record date, voting together as a single
class; and
- a majority of the votes represented by the shares of Eligix Series A
preferred stock and Series B preferred stock outstanding on the Eligix
record date, voting together as a single class.
Shares of Eligix common stock and preferred stock represented in person or
by proxy will be counted for the purposes of determining whether a quorum is
present at the Eligix special meeting. All shares with respect to which holders
abstain from voting as to a proposal will be treated as shares that are present
and entitled to vote at the Eligix special meeting for purposes of determining
whether a quorum exists, but abstentions will have the same effect as votes
against the proposals being brought before the special meeting.
VOTING AGREEMENTS
Fourteen stockholders, each either a director, officer or 5% stockholder of
Eligix, have executed a voting and transfer restriction agreement with
BioTransplant whereby they have agreed to vote an aggregate of 14,900,679 shares
of Eligix capital stock, representing approximately 66.6% of the capital stock
entitled to vote at the Eligix special meeting, 67.3% of the preferred stock
entitled to vote at the Eligix special meeting and 67.3% of the Series A
preferred stock and Series B preferred stock entitled to vote at the special
meeting, in favor of the approval and adoption of the merger agreement and the
merger and of the amendment to the certificate of incorporation. See "Other
Agreements--Voting and Transfer Restriction Agreements."
PROXIES
All shares of Eligix common stock and preferred stock that are entitled to
vote and are represented at the Eligix special meeting by properly executed
proxies received prior to or at such meeting, and not revoked, will be voted at
such meeting in accordance with the instructions indicated on such proxies. If
no instructions are indicated, such proxies will be voted for each proposal.
The Eligix board of directors does not know of any matters other than those
described in the notice of the Eligix special meeting that are to come before
such meeting. If any other matters are properly presented at the Eligix special
meeting for consideration, including, among other things, consideration of a
motion to adjourn or postpone such meeting to another time and/or place
(including, without limitation, for the purposes of soliciting additional
proxies or allowing additional
33
<PAGE>
time for the satisfaction of conditions to the merger), the persons named in the
enclosed form of proxy and acting thereunder generally will have discretion to
vote on such matters in accordance with their best judgment. Notwithstanding the
foregoing, proxies voting against a specific proposal may not be used by the
persons named in the proxies to vote for adjournment or postponement of the
meeting for the purpose of giving management additional time to solicit votes to
approve such proposal.
REVOCABILITY OF PROXIES
Any proxy given in connection with this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by:
- filing with the Secretary of Eligix, at or before the taking of the vote
at the Eligix special meeting, a written notice of revocation bearing a
later date than the proxy; or
- duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Eligix before the taking of the vote at
the Eligix special meeting; or
- attending the Eligix special meeting and voting in person, although
attendance at the Eligix special meeting will not in and of itself
constitute a revocation of a proxy.
Any written notice of revocation or subsequent proxy should be sent to
Eligix, 200 Boston Avenue, Medford, MA 02155, Attention: Corporate Secretary, or
hand delivered to the Secretary of Eligix at or before the taking of the vote at
the Eligix special meeting.
SOLICITATION OF PROXIES
All expenses of Eligix' solicitation of proxies for the Eligix special
meeting will be borne by Eligix and BioTransplant. In addition to solicitation
by use of the mails, proxies may be solicited from Eligix stockholders by
directors, officers and employees of Eligix in person or by telephone, facsimile
or other means of communication. Such directors, officers and employees will not
be additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation.
APPRAISAL RIGHTS
If you do not wish to accept BioTransplant common stock in the merger, you
have the right under Delaware law to have the fair value of your shares
determined by the Delaware Court of Chancery. This right to appraisal is subject
to a number of restrictions and technical requirements. Generally, in order to
exercise your appraisal rights you must:
- send a written demand to Eligix for appraisal in compliance with Delaware
law before the vote on the merger;
- not vote in favor of the merger; and
- continuously hold your Eligix capital stock, from the date you make the
demand for appraisal through the closing of the merger.
Merely voting against the merger will not protect your rights to an
appraisal. Annex D to this joint proxy statement/prospectus contains a copy of
the Delaware statute governing appraisal rights. If you do not follow all the
steps required by Delaware law, you will lose your rights to appraisal. See "The
Merger--Right of Stockholders to Appraisals" and "--Appraisal Rights Procedures"
on page 53 and "Comparison of Stockholder Rights" on page 125.
34
<PAGE>
THE MERGER
The following summarizes the material terms of the merger and the merger
agreement. We urge stockholders to read carefully the merger agreement and the
fairness opinion of Lazard Freres & Co. LLC which are attached as Annexes A and
C, respectively, to this joint proxy statement/prospectus.
BACKGROUND OF THE MERGER
BioTransplant is regularly involved in the review of private and public
companies with which it may form strategic partnerships to further its
objectives in the cancer and transplantation therapy markets. In early 1999,
representatives of Eligix and BioTransplant held discussions primarily focused
on a range of partnering possibilities with respect to the transplantation
technologies being developed by each party. Elliot Lebowitz, President and Chief
Executive Officer of BioTransplant, proposed that Eligix supply its HDM
technology for use in BioTransplant's AlloMune System. Following a discussion
with members of Eligix' board of directors, Walter C. Ogier, President and Chief
Executive Officer of Eligix, informed Dr. Lebowitz that Eligix was not
interested in BioTransplant's proposal. Dr. Lebowitz and Mr. Ogier decided to
discontinue further discussions at that time.
Throughout 1999 and early 2000, BioTransplant engaged in discussions with a
number of biopharmaceutical and medical device companies concerning a potential
business combination or other partnering transaction. On April 17, 2000,
BioTransplant retained Lazard as its financial advisor to assist BioTransplant
in identifying potential merger and acquisition opportunities.
On May 4, 2000, Eligix retained Pacific Growth Equities as its financial
advisor to provide advisory services in connection with the potential
acquisition of Eligix by a third party.
On June 2, 2000, Dr. Lebowitz and Mr. Ogier met to discuss the potential
benefits of a merger.
During June 2000, George Milstein of Pacific Growth Equities, financial
advisor to Eligix, contacted Dr. Lebowitz concerning the potential business
combination between BioTransplant and Eligix.
On June 13, 2000, Dr. Lebowitz provided non-confidential information
concerning Eligix to the BioTransplant board of directors and notified the board
that Eligix was a private company with interesting technology and was a
potential acquisition candidate.
On June 13, 2000, BioTransplant and Eligix entered into a confidentiality
agreement.
On June 21, 2000, Dr. Lebowitz, Mr. Ogier, the management teams from
BioTransplant and Eligix, and representatives of Lazard and Pacific Growth
Equities met to present and review respective business plans and discuss
potential strategic synergies of a business combination.
During late June through August 2000, Dr. Lebowitz and Mr. Ogier engaged in
a series of exploratory, non-binding discussions relating to the structure and
pricing of the potential acquisition and informally briefed their respective
boards at that time.
On July 7, 2000, Dr. Lebowitz provided the BioTransplant board of directors
with information concerning the advantages of merging with Eligix.
On July 11, 2000, Mr. Ogier provided the Eligix board of directors with
information concerning the advantages of merging with BioTransplant.
In late July 2000, BioTransplant delivered a due diligence request list to
Eligix and in mid-August 2000, Eligix delivered a due diligence request list to
BioTransplant.
On August 7, 2000, Dr. Lebowitz transmitted to Mr. Ogier a non-binding
proposal outlining the potential benefits of the business combination and the
economic and other key terms of the acquisition. Mr. Ogier circulated the
proposal to the Eligix board.
35
<PAGE>
On August 16, 2000, August 23, 2000, September 15, 2000, September 27, 2000,
November 8, 2000 and November 21, 2000, the Eligix board of directors met, in
person or by telephonic conference call, to discuss the proposed business
combination. At each meeting, the board reviewed with management information
regarding the strategic fit of the two companies and the proposed structure and
terms of the merger. The board also considered at each meeting the potential
risks related to the proposal.
On September 8, 2000, Dr. Lebowitz transmitted to Mr. Ogier a non-binding
proposal outlining the potential benefits of the business combination and the
economic and other key terms of the acquisition.
On September 19, 2000, Mr. Ogier sent a letter to Dr. Lebowitz in response
to the September 8, 2000 proposal in which Mr. Ogier requested a clarification
of some of the terms of the proposed structure of the business combination.
On September 25, 2000, Dr. Lebowitz sent a letter to Mr. Ogier to clarify
the terms of the September 8, 2000 proposal.
On September 26, 2000, Dr. Lebowitz, Richard Capasso, Vice President of
Finance of BioTransplant, and representatives from Lazard met with and made a
presentation to the Eligix board of directors.
During late September and early October 2000, members of senior management
of BioTransplant and Eligix, with the assistance of legal counsel and
representatives of Lazard and Pacific Growth Equities, continued to negotiate
the structure and terms of a merger.
Throughout September, October and November 2000, the management of each of
BioTransplant and Eligix and their respective legal, financial and accounting
advisors, conducted a detailed due diligence review of the other party's
business, financial condition and operations.
On October 10, 2000, Hale and Dorr LLP, outside counsel to BioTransplant,
delivered to Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., outside
counsel to Eligix, a draft of a proposed agreement and plan of merger and
related documents.
During the period from October 16, 2000 through October 30, 2000,
BioTransplant's management team and legal, financial and accounting advisors met
by telephonic conference call to review and summarize the progress of their due
diligence.
During the period between October 13, 2000 through October 30, 2000, Eligix'
management team and legal, financial and accounting advisors met by telephonic
conference call to review and summarize the progress of their due diligence.
On October 18, 2000, Eligix and BioTransplant entered into a reciprocal
exclusivity agreement.
On October 18, 2000, BioTransplant transmitted to Eligix a proposal focusing
on specific elements of the proposed business combination.
On October 24, 2000, November 6, 2000, November 14, 2000 and November 20,
2000, the BioTransplant board of directors met by telephonic conference call to
discuss the proposed business combination. At each meeting, the board reviewed
with management information regarding the valuation of Eligix, the strategic fit
of the two companies and the proposed structure and terms of the merger. The
board also considered at each meeting the potential risks related to the
proposal and the due diligence information reported to it by Dr. Lebowitz.
During the period from October through December 8, 2000, senior management
of BioTransplant and Eligix, together with their legal, financial and accounting
advisors engaged in a series of discussions to negotiate the terms of the
definitive agreement and plan of merger.
36
<PAGE>
On December 8, 2000, at a special meeting of the BioTransplant board of
directors, management reported on the status of the merger discussions with
Eligix and the BioTransplant board of directors discussed various issues
relating to the proposed business combination. At the meeting, representatives
of Lazard reviewed its financial analysis with respect to the possible
combination of BioTransplant and Eligix, and then delivered the oral opinion of
Lazard, later confirmed in writing, that the total consideration to be paid in
the merger was fair to BioTransplant, from a financial point of view.
Additionally, Hale and Dorr LLP made a presentation regarding the significant
terms of the merger agreement and the voting agreement to be entered into by
certain stockholders of Eligix and reviewed with the board its fiduciary duties
in connection with the proposed transaction. Following the presentations and
further discussion, the execution of the agreement and plan of merger and
related matters were approved by the BioTransplant board.
On December 8, 2000, the Eligix board of directors met by telephonic
conference call to review the final merger agreement. After reviewing the terms
of the agreement and discussing the benefits of and risks of the merger and the
board's fiduciary duties with its legal and financial advisors, the Eligix board
of directors approved the agreement and plan of merger and related matters.
On December 8, 2000, following final approval by the BioTransplant board and
the Eligix board, the merger agreement was executed by both companies and a
significant majority of the stockholders of Eligix delivered voting agreements.
On December 11, 2000, prior to the commencement of trading on the Nasdaq
National Market, BioTransplant and Eligix issued a joint press release
announcing the merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF BIOTRANSPLANT; BIOTRANSPLANT'S
REASONS FOR THE MERGER
THE BIOTRANSPLANT BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE
TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, BIOTRANSPLANT AND
ITS STOCKHOLDERS. THE BIOTRANSPLANT BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE PROPOSED ISSUANCE OF BIOTRANSPLANT COMMON STOCK IN CONNECTION WITH THE
MERGER.
In reaching its decision to approve the merger agreement, the BioTransplant
board of directors consulted with its management team and legal, financial,
accounting and other advisors and independently considered the proposed merger
agreement and the transaction contemplated by the merger agreement. Among the
factors considered by BioTransplant's board of directors were the following
factors in favor of the merger:
- Eligix is focused on the development of proprietary cellular
transplantation and immune therapy technologies for the treatment of
cancer, which is an area of strategic importance for BioTransplant. The
board of directors of BioTransplant believes that the acquisition of
Eligix will broaden BioTransplant's strategic direction in the development
of proprietary technologies for the treatment of cancer, hematologic,
autoimmune and other disorders, as well as for organ transplantation.
- Eligix' high density microparticle cell separation devices under
development are expected to provide a key component of BioTransplant's
AlloMune System, enabling BioTransplant to offer, along with the MEDI-507
antibody, a comprehensive approach to increase the safety and efficiency
of transplantations for cancer and other diseases.
- BioTransplant has a significant early-stage product pipeline. Eligix
brings a portfolio of complementary early- and late-stage products under
development, including one and possibly two products that are expected to
enter Phase III clinical trials in 2001. Eligix has significant
pre-clinical development programs for applications of its high density
microparticles, from which one or more products may start clinical
development over the next 24 months.
37
<PAGE>
- BioTransplant's board of directors believes that Eligix' capabilities in
the areas of manufacturing, marketing and sales will provide the
opportunity to more rapidly advance the BioTransplant product pipeline
toward commercialization.
- Eligix has two products, pending CE mark approval, that it expects to be
on the market in Europe in 2001. Anticipated near-term revenue from sales
of these products in Europe will enable BioTransplant to achieve its
strategy of accelerating its generation of initial product revenues.
- Eligix has collaborations with notable academic collaborators, including
Harvard University's Dana Farber Cancer Institute and Johns Hopkins
University, which BioTransplant's board of directors believes will enable
BioTransplant to engage in a broader spectrum of activities than it would
engage in alone, thereby strengthening its research and development
platform.
- Eligix and BioTransplant have complementary management teams, both of
which have extensive experience in immunology and transplantation, which
BioTransplant's board of directors believes will significantly strengthen
BioTransplant's infrastructure.
- The board of directors of BioTransplant has determined that, compared to
continuing to operate alone, the merger with Eligix will have better
potential to improve BioTransplant's long-term operating and financial
results and make BioTransplant a more competitive enterprise, which
BioTransplant's board of directors expects will benefit its stockholders.
- The BioTransplant board considered the terms of the merger agreement,
including the termination fee to be paid by Eligix in the event of the
termination of the merger agreement for specified reasons.
- The opinion of Lazard that, as of December 8, 2000, and based upon and
subject to the matters described in its opinion, the total consideration
to be paid in the merger is fair to BioTransplant from a financial point
of view.
The board of directors of BioTransplant also considered factors which
weighed against the merger, including:
- The potential adverse effect that the public announcement of the merger
would have on the market price of BioTransplant common stock for example,
as a result of the dilutive effect of the shares of BioTransplant common
stock issued in the merger.
- The fixed nature of the exchange ratio and the resulting risk that, should
there be a significant increase in the market value of BioTransplant's
common stock, the value of the consideration to be received by Eligix
stockholders would be increased.
- The risk that Eligix' products would not be successfully developed and
marketed in the projected timetable, if at all, and the risk that other
benefits of the merger or financing needs would not be fully achieved.
- The risk that Eligix' products would not have the expected compatibility
as a component of BioTransplant's AlloMune System.
- The difficulty in successfully integrating separate operations of
BioTransplant and Eligix.
- The risk that the merger would not be consummated following the public
announcement thereof.
- The termination fee to be paid by BioTransplant in the event of the
termination of the merger agreement for specified reasons.
In view of the wide variety of factors considered in connection with its
evaluation of the merger and the complexity of these matters, the BioTransplant
board did not find it useful to and did not
38
<PAGE>
attempt to quantify, rank or otherwise assign relative weights to these factors.
In addition, the BioTransplant board did not undertake to make any specific
determination as to whether any particular factor, or any aspect of any
particular factor, was favorable or unfavorable to the BioTransplant board's
ultimate determination, but rather the BioTransplant board conducted an overall
analysis of the factors described above, including thorough discussions with and
questioning of BioTransplant's management and legal, financial and accounting
advisors. In considering the factors described above, individual members of the
BioTransplant board may have given different weight to different factors.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF ELIGIX; ELIGIX' REASONS FOR THE
MERGER
THE ELIGIX BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND BELIEVES THAT THE TERMS
OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, ELIGIX AND ITS
STOCKHOLDERS. THE ELIGIX BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF
THE MERGER AGREEMENT AND THE MERGER.
In the course of reaching its decision to adopt the merger agreement, the
Eligix board consulted with Eligix' management, as well as its legal, financial,
accounting and other advisors, and considered the following material factors:
- The risks and potential rewards associated with, as an alternative to the
merger, continuing to execute Eligix' strategic plan as an independent
entity. Such risks include, among others, the risks associated with
remaining independent amidst industry-wide consolidation, risks relating
to Eligix' ability to obtain the additional cash required to fund its
operating and capital requirements as a stand-alone company, and such
rewards include, among others, the ability of existing Eligix stockholders
to partake in the potential future growth and profitability of
BioTransplant.
- The possibility, as alternatives to the merger, of seeking to be acquired
by another company, seeking to engage in one or more joint ventures or
seeking to engage in a combination with a company other than BioTransplant
and the Eligix board's conclusion that a transaction with BioTransplant is
more feasible, and is expected to yield greater benefits, than the likely
alternatives. The Eligix board concluded that a combination with
BioTransplant was more feasible than the other alternatives it reviewed
for reasons including the fact that BioTransplant was interested in
pursuing a transaction with Eligix, and Eligix' view that the transaction
could be acceptably completed from a timing and regulatory standpoint, and
would yield greater benefits than the alternatives given BioTransplant's
financial strength, and the ability of a combined company to fund a
greater number of long-term growth projects and to compete effectively.
- The value of the consideration provided for in the merger agreement based
on the then-current market price and historical trading price of
BioTransplant shares over the past year and relative to the stock price
premiums paid in mergers of comparable size that the premium offered in
the merger was within the range of premiums paid in comparable
transactions, and that Eligix' stockholders would hold approximately 32.1%
of the fully-diluted stock of the combined company after the merger.
- The prospects of Eligix to compete effectively in the future, the
prospects of BioTransplant based on Eligix' analysis of publicly available
information, and Eligix management's view, based on its due diligence, of
BioTransplant's prospects to compete effectively in the future.
- The ability to complete the merger as a tax-free reorganization for U.S.
federal income tax purposes.
39
<PAGE>
- The terms and conditions of the merger agreement, which permit Eligix
generally to conduct its business in the ordinary course during the period
prior to the consummation of the merger. See "The Merger
Agreement--Certain Covenants--Conduct of Business Prior to the Merger."
- That two or three members of the Eligix board would become directors of
BioTransplant, as described under "The Merger Agreement--Certain
Covenants--Board of Directors of BioTransplant."
- That while the merger is likely to be completed, there are risks
associated with obtaining necessary approvals, and as a result of certain
conditions to the completion of the merger, it is possible that the merger
may not be completed. See "The Merger Agreement--Conditions to Obligations
to Effect Merger."
- The interests that certain executive officers and directors of Eligix may
have with respect to the merger in addition to their interests as
stockholders of Eligix generally. See "--Interests of Executive Officers
and Directors of Eligix in the Merger."
- The merger will enable Eligix stockholders to participate in, and benefit
from the future growth potential of, an integrated company with a greater
depth of technologies, marketing opportunities and financial and operating
resources which should enhance the ability to bring technology to market.
- The public market for BioTransplant common stock will offer Eligix
stockholders liquidity while avoiding the risk and investment in time and
expense of an initial public offering.
- The availability of stock options for the publicly traded BioTransplant
stock, which Eligix expects will enable the combined companies to attract
and retain high caliber employees and consultants to continue the
development of technology.
- After the merger, the combined companies will be able to pursue further
potential acquisitions to strengthen their technology offerings using the
publicly traded BioTransplant common stock as all or part of the
consideration.
In view of the wide variety of factors considered in connection with its
evaluation of the merger and the complexity of these matters, the Eligix board
did not find it useful to and did not attempt to quantify, rank or otherwise
assign relative weights to these factors. In addition, the Eligix board did not
undertake to make any specific determination as to whether any particular
factor, or any aspect of any particular factor, was favorable or unfavorable to
the Eligix board's ultimate determination, but rather the Eligix board conducted
an overall analysis of the factors described above, including thorough
discussions with and questioning of Eligix' management and legal, financial and
accounting advisors. In considering the factors described above, individual
members of the Eligix board may have given different weight to different
factors.
OPINION OF BIOTRANSPLANT'S FINANCIAL ADVISOR
At a meeting of the BioTransplant board of directors held on December 8,
2000, at which the BioTransplant board of directors considered the merger and
approved the merger agreement and the merger, Lazard rendered its oral opinion,
which was subsequently confirmed in writing, that, as of such date and based
upon and subject to the matters reviewed with the BioTransplant board of
directors, the total consideration to be paid in the merger was fair from a
financial point of view to BioTransplant.
The full text of the Lazard opinion is attached hereto as Annex C and is
incorporated herein by reference. The description of the Lazard opinion set
forth herein is qualified in its entirety by reference to the full text of the
Lazard opinion set forth in Annex C. BioTransplant stockholders are urged to
read the Lazard opinion in its entirety for a description of the procedures
followed, assumptions made, matters considered and qualifications and
limitations on the review undertaken by Lazard in connection
40
<PAGE>
therewith. The Lazard opinion is necessarily based upon the economic, monetary,
market and other conditions as they were in effect on, and the information made
available as of, the date of the Lazard opinion. The Lazard opinion is directed
to the BioTransplant board of directors and addresses only the fairness from a
financial point of view to BioTransplant of the total consideration to be paid
in the merger. It does not address the merits of the underlying decision by
BioTransplant to engage in the merger and does not constitute a recommendation
to any BioTransplant stockholder as to how such stockholder should vote on any
matter relating to the merger at any meeting of BioTransplant stockholders held
for the purpose of considering the merger.
In the course of performing its review and analyses for rendering its
opinion, Lazard:
- reviewed the financial terms and conditions contained in the merger
agreement and the form of escrow agreement appended thereto;
- analyzed certain historical business and financial information relating to
BioTransplant and Eligix;
- reviewed various financial forecasts and other data provided to Lazard by
BioTransplant and Eligix relating to their respective businesses;
- held discussions with members of the senior management of BioTransplant
and Eligix with respect to the businesses and prospects of BioTransplant
and Eligix, respectively, the strategic objectives of each and possible
benefits which might be realized following the merger;
- reviewed public information with respect to certain other companies in
lines of business Lazard believed to be generally comparable to the
businesses of BioTransplant and Eligix;
- reviewed the financial terms of certain business combinations involving
companies in lines of business Lazard believed to be generally comparable
to those of BioTransplant and Eligix;
- reviewed the historical stock prices and trading volumes of BioTransplant
common stock; and
- conducted such other financial studies, analyses and investigations as
Lazard deemed appropriate.
Lazard relied upon the accuracy and completeness of the financial and other
information provided by BioTransplant and Eligix and reviewed by Lazard for
purposes of the Lazard opinion. Lazard did not assume any responsibility for any
independent verification of such information or any independent valuation or
appraisal of any of the assets or liabilities of BioTransplant or Eligix, or
concerning the solvency or fair value of either BioTransplant or Eligix. With
respect to financial forecasts, Lazard assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of BioTransplant and Eligix as to the future
financial performance of BioTransplant and Eligix, respectively. Lazard assumed
no responsibility for and expressed no view as to such forecasts or the
assumptions on which they were based.
In rendering its opinion, Lazard assumed that the merger would be completed
on the terms described in the merger agreement, without any waiver of any
material terms or conditions by BioTransplant, and that obtaining the necessary
regulatory approvals, if any, for the merger would not have an adverse effect on
BioTransplant. Lazard further assumed that the merger would be accounted for as
a purchase under United States generally accepted accounting principles and that
the merger would qualify as a tax free reorganization for United States federal
income tax purposes.
In connection with rendering the Lazard opinion, Lazard performed a variety
of financial analyses. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to a partial analysis
or summary description. Accordingly, notwithstanding the separate analyses
summarized below, Lazard believes that
41
<PAGE>
its analyses must be considered as a whole and that selecting portions of the
analyses or factors considered by it, without considering all such factors or
analyses, or attempting to ascribe relative weights to some or all such analyses
and factors could create an incomplete view of the evaluation process underlying
the Lazard opinion.
In performing its analyses, Lazard made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of BioTransplant. The analyses
performed by Lazard are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than suggested
by such analyses. Lazard did not assign any specific weight to any of the
analyses described below and did not draw any specific conclusions from or with
regard to any one method of analysis. With respect to the analysis of comparable
companies and the analysis of selected precedent transactions summarized below,
no public company utilized as a comparison is identical to BioTransplant or
Eligix and no transaction is identical to the merger. Accordingly, an analysis
of publicly traded comparable companies and comparable business combinations is
not mathematical; rather, it involves complex considerations and judgments
concerning the differences in financial and operating characteristics of the
companies and other factors that could affect the public trading values or
announced merger transaction values, as the case may be, of BioTransplant or
Eligix and the companies to which they were compared. The analyses do not
purport to be appraisals or to reflect the prices at which any securities may
trade at the present time or at any time in the future. In addition, as
described above, the Lazard opinion was just one of many factors taken into
consideration by the BioTransplant board of directors. Consequently, Lazard's
analyses should not be viewed as determinative of the decision of the
BioTransplant board of directors or the BioTransplant management with respect to
the fairness of the total consideration set forth in the merger agreement.
The following is a summary of the material financial and comparative
analyses performed by Lazard in connection with providing to, and reviewing
with, the BioTransplant board of directors its oral opinion, subsequently
confirmed in writing, at the meeting of the BioTransplant board of directors on
December 8, 2000.
ELIGIX SENSITIVITIES. The BioTransplant management prepared three cases of
sensitivities to the projections provided by Eligix: (1) low case, (2) mid case
and (3) high case. Lazard based its analyses on both the low case and mid case
projections.
COMPARABLE PUBLICLY TRADED COMPANIES ANALYSIS. Lazard performed a
comparable public companies analysis to assist the BioTransplant board of
directors in valuing Eligix based on various financial multiples of selected
comparable public companies in the biotechnology industry. In performing this
analysis, Lazard reviewed certain financial information relating to Eligix from
the low case and mid case scenarios and compared such information to
corresponding financial information, ratios and public market multiples for four
other biotechnology companies Lazard deemed to be comparable to Eligix. The
companies included in this analysis were:
- BioTransplant Incorporated
- Immune Response Corporation
- IntraBiotics Pharmaceuticals, Inc.
- ViroLogic, Inc.
42
<PAGE>
Using publicly available information, Lazard calculated the following
multiples for the aforementioned comparable companies:
<TABLE>
<CAPTION>
LOW MEAN MEDIAN HIGH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Enterprise value as a multiple of:
2000E revenues.................................. 4.15x 10.71x 13.12x 14.87x
2001E revenues.................................. 3.58 6.91 3.68 13.48
2002E revenues.................................. 1.62 9.50 6.18 24.02
2003E revenues.................................. 0.97 3.14 2.25 7.08
2004E revenues.................................. 0.63 1.75 1.25 3.86
2005E revenues.................................. 1.17 1.39 1.39 1.61
</TABLE>
Using the multiples calculated in the comparable companies analysis, based
on the mid case scenario and 2003E and 2004E revenue multiples, Lazard derived a
range of implied equity values of $80 million to $131 million and $68 million to
$120 million, respectively, for Eligix. Based on the low case scenario and 2003E
and 2004E revenue multiples, Lazard derived a range of implied equity values of
$46 million to $75 million and $53 million to $94 million, respectively, for
Eligix, compared to an implied offer price for Eligix of $59 million in the
merger.
SELECTED PRECEDENT TRANSACTIONS ANALYSIS. Lazard performed a selected
precedent transactions analysis to assist the BioTransplant board of directors
in valuing Eligix based on transaction values expressed as multiples of various
financial measures in selected transactions. Using publicly available
information, Lazard reviewed and analyzed certain financial and operating data
relating to the following selected transactions in the biotechnology industry:
- Chiron Corporation/PathoGenesis Corporation
- Elan Corporation/Liposome Company, Inc.
- Genzyme Corporation/Biomatrix, Inc.
- King Pharmaceuticals, Inc./Medco Research
- MedImmune, Inc./US Bioscience
- Celltech plc/Chiroscience Group plc
- Gilead Sciences, Inc./NeXstar Pharmaceuticals, Inc.
- Warner-Lambert Company/Agouron Pharmaceuticals, Inc.
Lazard compared, among other things, the transaction value of the selected
precedent transaction as a multiple of revenues:
<TABLE>
<CAPTION>
LOW MEAN MEDIAN HIGH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Transaction value as a multiple of:
LTM revenues..................................... 3.78x 8.38x 8.21x 14.04x
FY+1 revenues.................................... 3.71 6.45 7.12 8.80
FY+2 revenues.................................... 3.42 5.64 6.24 7.55
FY+3 revenues.................................... 2.74 3.77 3.76 5.09
</TABLE>
43
<PAGE>
Based on the mid case scenario and 2002E and 2003E revenue multiples, the
range of multiples from precedent transactions produces a range of implied
equity values of $185 million to $247 million and $152 million to $202 million,
respectively, for Eligix. Based on the low case scenario and 2002E and 2003E
revenue multiples, the range of multiples from precedent transactions produces a
range of implied equity values of $98 million to $130 million and $87 million to
$116 million, respectively, for Eligix, compared to an implied offer price for
Eligix of $59 million in the merger.
DISCOUNTED CASH FLOW ANALYSIS. Lazard performed a probability-adjusted
discounted cash flow analysis to assist the BioTransplant board of directors in
valuing Eligix based on the present value of expected future cash flows of
Eligix. The discounted cash flow analysis was based upon perpetual growth rates
of 0.0%, 2.5% and 5.0% and a range of discount rates from 11% to 13%. The range
of discount rates is derived from a weighted average cost of capital analysis
from comparable publicly traded companies.
Using this analysis, Lazard derived a range of implied equity values of
$116 million to $176 million for Eligix based on the mid case scenario and
$81 million to $141 million for Eligix based on the low case scenario, compared
to an implied offer price for Eligix of $59 million in the merger.
CONTRIBUTION ANALYSIS. Lazard performed a contribution analysis to assist
the BioTransplant board of directors in valuing Eligix based on the relative
contribution of each company to the combined pro forma entity. Lazard calculated
the relative contribution by both BioTransplant and Eligix to the combined
company with respect to implied discounted cash flow equity values and projected
financial data including revenues, earnings before interest, taxes, depreciation
and amortization (EBITDA) and earnings before interest and taxes (EBIT), and
compared these results to the pro forma equity ownership of 66% by BioTransplant
and 34% by Eligix of the combined company.
The following table illustrates the relative contribution of both
BioTransplant and Eligix to the combined company:
<TABLE>
<CAPTION>
MID CASE SCENARIO LOW CASE SCENARIO
------------------------ ------------------------
BIOTRANSPLANT ELIGIX BIOTRANSPLANT ELIGIX
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Revenue:
2001E............................... 27% 73% 42% 58%
2002E............................... 5% 95% 9% 91%
2003E............................... 4% 96% 6% 94%
2004E............................... 15% 85% 19% 81%
2005E............................... 13% 87% 15% 85%
EBITDA:.............................
2001E............................... NM NM NM NM
2002E............................... NM NM NM NM
2003E............................... NM NM NM NM
2004E............................... 41% 59% NM NM
2005E............................... 22% 78% 44% 56%
EBIT:
2001E............................... NM NM NM NM
2002E............................... NM NM NM NM
2003E............................... NM NM NM NM
2004E............................... 40% 60% NM NM
2005E............................... 20% 80% 43% 57%
DCF Equity Values................... 61% 39% 69% 31%
</TABLE>
44
<PAGE>
Lazard is an internationally recognized investment banking firm and is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, leveraged
buyouts, and valuations for estate, corporate and other purposes. Lazard was
selected to act as financial advisor to the BioTransplant board of directors
because of its expertise and its reputation in investment banking and mergers
and acquisitions combined with its strong presence in the healthcare industry.
In connection with Lazard's services as financial advisor to BioTransplant,
including its delivery of the opinion summarized above, BioTransplant has agreed
to pay Lazard a fee of approximately $1.0 million, a substantial portion of
which is contingent upon the completion of the merger. BioTransplant has also
agreed to reimburse Lazard for all reasonable expenses incurred in connection
with the engagement. In addition, BioTransplant agreed to indemnify Lazard
against certain liabilities, including liabilities under the federal securities
law, relating to or arising out of the engagement. In the ordinary course of its
business, Lazard and its affiliates may actively trade in the securities of
BioTransplant for its own account and for the account of its customers and,
accordingly, may at any time hold a long or short position.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS OF ELIGIX IN THE MERGER
In considering the recommendation of the Eligix board of directors in favor
of the merger agreement and the merger, Eligix stockholders should be aware of
the interests that certain directors and executive officers of Eligix have in
the merger that are different from, or in addition to the interests of the
stockholders of Eligix generally. These interests are different from and in
addition to their interests as stockholders. These interests relate to or arise
from, among other things:
- the issuance of 990,000 shares of BioTransplant common stock, in the
aggregate, to specified officers of Eligix, referred to as management
members, in fulfillment of Eligix' management equity incentive payment
obligation;
- accelerated vesting of certain stock options upon consummation of the
merger;
- employment offers being extended to Eligix management members;
- the continued indemnification of Eligix directors and officers for actions
taken prior to the merger; and
- the election of Walter C. Ogier, Susan Racher and Arnold Oronsky as
members of the BioTransplant board of directors upon the completion of the
merger.
Except as described below, those persons have, to the knowledge of
BioTransplant and Eligix, no material interest in the merger apart from those of
stockholders generally. The Eligix board of directors was aware of, and
considered the interests of, their directors and executive officers when it
approved the merger agreement and the merger.
ELIGIX MANAGEMENT EQUITY INCENTIVE PLAN. On May 25, 2000, the board of
directors of Eligix adopted a management equity incentive plan. The board
subsequently amended and restated the plan on December 8, 2000. Pursuant to the
amended plan, 12 individuals, each a member of the Eligix management team, will
receive an aggregate of 15% of the total consideration received by Eligix in the
45
<PAGE>
event of a merger or similar business transaction. Accordingly, BioTransplant
will issue an aggregate of 990,000 shares of BioTransplant common stock as
follows:
<TABLE>
<CAPTION>
NUMBER OF
BIOTRANSPLANT
NAME ELIGIX TITLE SHARES
---- ------------ -------------
<S> <C> <C>
Walter C. Ogier........... President and Chief Executive Officer 162,295
James R. Fitzgerald, Senior Vice President, Finance and Operations and
Jr...................... Chief Financial Officer 97,377
David N. Cook, Ph.D....... Senior Vice President, Research and Development 97,377
Tara Clark................ Vice President, Marketing 97,377
James Embree.............. Vice President, Manufacturing 97,377
Judith Snow............... Vice President, Quality Assurance 97,377
Non-executive managers
(six individuals)....... 340,820
</TABLE>
The shares of BioTransplant common stock issued pursuant to the management
equity incentive plan will vest as follows:
- 33 1/3% will vest 90 days after the closing of the merger;
- another 33 1/3% will vest 180 days after the closing of the merger;
- another 23 1/3% will vest 270 days after the closing of the merger; and
- the final 10% will vest 365 days after the closing of the merger.
Pursuant to the merger agreement, BioTransplant has agreed to file a
registration statement on Form S-8 within 75 days of the closing of the merger
in order to register the 990,000 shares of BioTransplant common stock issuable
to the Eligix management members. Ten percent of the management equity incentive
shares will be placed in escrow to secure any indemnification claims by
BioTransplant, and ten percent of the management equity incentive shares will be
placed in escrow to secure the achievement of the CE mark milestone by Eligix.
If a member of Eligix management is offered employment and BioTransplant
terminates the employment for cause, or the employee terminates employment
without good reason, BioTransplant will have the option to repurchase any of
that person's unvested shares of BioTransplant common stock at a price of $.01
per share. It is a condition to the closing of the merger that BioTransplant
offer employment to all Eligix management members. Please see "Other
Agreements--Employment Offer Letters" below for a discussion of the employment
terms.
However:
- if an Eligix management member is not offered employment with
BioTransplant, that person's shares of BioTransplant common stock will
vest upon the closing of the merger; and
- if an Eligix management member becomes an employee of BioTransplant but
BioTransplant terminates his or her employment without cause or the
employee terminates his or her employment for good reason, that person's
shares of BioTransplant common stock will vest immediately upon
termination.
In addition, the shares of BioTransplant common stock issued pursuant to the
management equity incentive plan will immediately vest in the event that:
- BioTransplant merges into another corporation;
- more than 50% of BioTransplant's voting power is transferred in one
transaction or a series of related transactions;
46
<PAGE>
- BioTransplant sells, leases or otherwise disposes of all or substantially
all of its assets; or
- BioTransplant sells or transfers all or substantially all of the assets
held by Eligix prior to the merger.
ELIGIX STOCK OPTIONS. Options to purchase an aggregate of approximately
1,130,000 shares of Eligix common stock granted to directors and executive
officers of Eligix will accelerate upon the completion of the merger. In
addition, options to purchase an aggregate of 2,749,100 shares of Eligix common
stock issued on May 25, 2000, which were exercisable in full on the date of
issuance but are subject to a right of repurchase by Eligix, will no longer be
subject to the repurchase right in the event of a merger. The following table
shows options held by directors and executive officers of Eligix as of
December 31, 2000 and assumes the merger occurs on March 15, 2001:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
ELIGIX
COMMON
STOCK
NUMBER OF SUBJECT TO
SHARES OF OPTION ELIGIX
ELIGIX THAT ARE OPTION SHARES
COMMON VESTED ACCELERATED
DATE OF STOCK AS OF UPON
OPTION SUBJECT TO EXERCISE DECEMBER 31, CONSUMMATION
OFFICER OR DIRECTOR GRANT OPTIONS PRICE 2000 OF MERGER
------------------- -------- ----------------------- -------- ------------------------ -------------------------
<S> <C> <C> <C> <C> <C>
Walter C. Ogier............ 10/17/97 600,000 $0.15 370,000 230,000
5/25/00 600,000 $0.01 0* 600,000
James R. Fitzgerald, Jr.... 2/9/00 450,000 $0.15 0 450,000
2/9/00 450,000 $0.01 0* 450,000
David N. Cook, Ph.D........ 12/1/99 300,000 $0.15 70,000 0
2/9/00 4,500 $0.15 4,500 0
5/25/00 304,500 $0.01 0* 304,500
Tara Clark................. 9/30/99 175,000 $0.15 43,750 0
2/9/00 3,500 $0.15 3,500 0
5/25/00 178,500 $0.01 0* 178,500
James Embree............... 3/27/98 125,000 $0.15 72,916 0
7/14/99 50,000 $0.15 14,167 0
2/9/00 16,000 $0.15 16,000 0
5/25/00 291,000 $0.01 0* 291,000
Judith Snow................ 10/22/98 175,000 $0.15 75,833 0
7/14/99 50,000 $0.15 14,167 0
2/9/00 15,000 $0.15 15,000 0
5/25/00 240,000 $0.01 0* 240,000
Laura Coulter-Jones........ -- -- -- -- --
Robert Momsen.............. -- -- -- -- --
Arnold L. Oronsky, Ph.D.... -- -- -- -- --
Susan Racher............... -- -- -- -- --
Pieter Schiller............ -- -- -- -- --
</TABLE>
------------------------
* These options are immediately exercisable. However, the shares issuable upon
exercise vest over a five-year period with any unvested shares being subject
to repurchase by Eligix. The shares fully vest and the repurchase right
terminates upon consummation of the merger.
47
<PAGE>
EMPLOYMENT OFFER LETTERS. As a condition to the closing of the merger,
BioTransplant must offer employment to all members of the management team.
BioTransplant is offering the six executive officers of Eligix the following
positions:
<TABLE>
<CAPTION>
NAME PROPOSED TITLE
---- --------------
<S> <C>
Walter C. Ogier............... President and Chief Operating Officer
James R. Fitzgerald, Jr....... Executive Vice President, Finance and Administration
David N. Cook, Ph.D........... Senior Vice President, Development
Tara Clark.................... Vice President, Marketing
James Embree.................. Vice President, Manufacturing
Judith Snow................... Vice President, Quality Assurance
</TABLE>
BioTransplant has agreed that each of these officers will be eligible for an
annual cash bonus and will be able to participate in BioTransplant's annual
merit-based stock option plan. Please see "Other Agreements--Employment Offer
Letters" below for a detailed description of the offers.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. The merger agreement provides
that for six years after the completion of the merger, BioTransplant will not
alter or impair any exculpatory or indemnification provision now existing in the
Eligix certificate of incorporation or bylaws. In addition, the merger agreement
provides that BioTransplant will indemnify each present and former director and
officer for all liabilities pertaining to matters existing or occurring at or
prior to the completion of the merger to the fullest extent permitted by
Delaware law.
STOCK OPTIONS, WARRANTS AND CONVERTIBLE NOTES
Under the merger agreement, at the effective time of the merger,
BioTransplant will assume the Eligix 1997 equity incentive plan and all stock
options granted under the plan. Each stock option outstanding under the plan at
the effective time will be converted into a stock option to acquire
BioTransplant common stock on the same terms and conditions as applied to the
Eligix stock option. The number of shares of BioTransplant common stock to be
issued in respect of a BioTransplant option will be equal to the number of
shares of Eligix common stock that would be issued in respect of that option
multiplied by the common stock conversion ratio, rounded down to the nearest
whole share. The exercise price per share of BioTransplant common stock for any
Eligix option will be equal to the exercise price per share of Eligix common
stock for that option divided by the common stock conversion ratio, rounded down
to the nearest whole cent. Assuming the holders of Eligix preferred stock elect
to receive their liquidation preferences, the common stock conversion ratio will
be 0.0961. To the extent that holders of Eligix preferred stock elect to convert
their shares into Eligix common stock, rather than receive their liquidation
preferences, the common stock conversion ratio will be between 0.0961 and
0.1541. As of December 31, 2000, the number of shares of Eligix common stock
reserved for issuance pursuant to outstanding Eligix stock options under the
plan was 8,000,000.
Under the merger agreement, Eligix agrees to use its reasonable best efforts
to cause the exercise of any outstanding Eligix warrants prior to the effective
time of the merger. To the extent there are outstanding Eligix warrants at the
effective time, BioTransplant will assume the warrants as follows:
- each Eligix common stock warrant will be deemed to constitute a warrant to
acquire, on the same terms as were applicable under the Eligix common
stock warrant at the effective time, as modified by the merger agreement,
the number of shares of BioTransplant common stock as is equal to the
number of Eligix common shares subject to the unexercised portion of the
warrant multiplied by the common stock conversion ratio, and the exercise
price per share of BioTransplant common stock will be equal to the
exercise price per share of Eligix common stock for that warrant divided
by the common stock conversion ratio; and
48
<PAGE>
- each Eligix Series B preferred stock warrant will be deemed to constitute
a warrant to acquire, on the same terms as were applicable under the
Eligix Series B preferred stock warrant at the effective time, as modified
by the merger agreement, the number of shares of BioTransplant common
stock as is equal to the number of shares of BioTransplant common stock as
is equal to the number of Series B preferred shares subject to the
unexercised portion of the warrant multiplied by 0.1296, and the exercise
price per share of BioTransplant common stock will be equal to the
exercise price per share of Eligix Series B preferred stock for that
warrant divided by 0.1296.
Under the merger agreement, Eligix agrees to use its reasonable best efforts
to cause the conversion of any outstanding Eligix convertible notes, together
with accrued interest thereon, into Eligix Series C-1 preferred stock prior to
the effective time of the merger. To the extent there are outstanding Eligix
convertible notes at the effective time, BioTransplant will deem each
outstanding convertible note that is convertible into Eligix Series C-1
preferred stock, together with accrued interest thereon, to be convertible into
the number of shares of BioTransplant common stock as is equal to the number of
Eligix Series C-1 preferred shares into which the Eligix Series C-1 note is
convertible immediately prior to the effective time of the merger multiplied by
0.3889. The maturity date, payment, subordination, subrogation and other terms
of any assumed notes will otherwise remain unchanged.
ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for under the "purchase" method of accounting
in accordance with generally accepted accounting principles. BioTransplant
expects a significant portion of the purchase price to be allocated to goodwill
and identifiable intangible assets. The merger is expected to result in a charge
against earnings for in-process research and development.
FORM OF MERGER
Subject to the terms and conditions of the merger agreement and in
accordance with Delaware law, at the effective time of the merger, BT/EL
Acquisition Co., a wholly owned subsidiary of BioTransplant, will merge with and
into Eligix. Eligix will be the surviving corporation of the merger and a wholly
owned subsidiary of BioTransplant, and will continue under the name
"Eligix, Inc."
MERGER CONSIDERATION
At the effective time of the merger, the amount of BioTransplant common
stock allocated to any particular Eligix stockholder will depend on whether the
holders of shares of Eligix preferred stock elect to receive their liquidation
preference or convert their shares of preferred stock into common stock. If the
holders of Eligix preferred stock elect to receive their liquidation preferences
and the remaining merger shares are allocated proportionately to holders of
Eligix common stock:
- each holder of Eligix preferred stock will be entitled to receive, subject
to adjustment to account for any stock splits, as a liquidation
preference:
- 0.1152 of a share of BioTransplant common stock for each share of
Series A preferred stock;
- 0.1296 of a share of BioTransplant common stock for each share of
Series B preferred stock;
- 0.3889 of a share of BioTransplant common stock for each share of
Series C-1 preferred stock;
- 0.1152 of a share of BioTransplant common stock for each share of
Series C-2 preferred stock; and
- 0.1296 of a share of BioTransplant common stock for each share of
Series C-3 preferred stock that such stockholder owns; and
49
<PAGE>
- each holder of Eligix common stock will be entitled to receive, subject to
adjustment to account for any stock splits, 0.0961 of a share of
BioTransplant common stock for each share of Eligix common stock that such
stockholder owns.
To the extent that holders of Eligix preferred stock elect to convert their
shares into Eligix common stock, rather than receive their liquidation
preferences, the number of shares of BioTransplant common stock exchangeable for
each share of Eligix common stock will be between 0.0961 of a share of
BioTransplant common stock assuming no conversion of Eligix preferred stock into
Eligix common stock and 0.1541 of a share of BioTransplant common stock assuming
full conversion of Eligix preferred stock into Eligix common stock.
Stockholders will receive cash for any fractional share that they would
otherwise receive in the merger. As of the effective time of the merger, all
shares of Eligix stock will no longer be outstanding, will automatically be
cancelled and will cease to exist. At that time, each holder of a certificate
representing shares of Eligix stock, other than shares as to which appraisal
rights have been properly exercised, will cease to have any rights as a
stockholder except the right to receive BioTransplant common stock, the right to
any dividends or other distributions in accordance with the merger agreement and
the right to receive cash for any fractional share of BioTransplant common
stock.
The merger consideration was determined through arm's-length discussions
between BioTransplant and Eligix.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware, or at such later time as
stated in the certificate of merger or agreed upon by BioTransplant and Eligix.
The filing of the certificate of merger will occur at the time of closing of the
merger.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERALLY. The following discussion is a general summary of the material
United States federal income tax consequences of the merger. The discussion is
based on and subject to the Internal Revenue Code, Treasury Regulations under
the Internal Revenue Code, existing administrative interpretations and court
decisions as of the date of this joint proxy statement prospectus, all of which
are subject to change, possibly with retroactive effect, and all of which are
subject to differing interpretation. The discussion does not address the effects
of the merger under any state, local or foreign tax laws.
The discussion does not purport to deal with all aspects of federal income
taxation that may affect particular stockholders in light of their individual
circumstances, and it does not address any tax consequences for stockholders
subject to special treatment under the federal income tax law, including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign individuals or entities, stockholders who hold their
stock as part of a hedge, appreciated financial position, straddle or conversion
transaction, stockholders who do not hold their stock as capital assets and
stockholders who have acquired their stock upon the exercise of employee stock
options or otherwise as compensation, including the shares of BioTransplant
issued to the management members. In addition, the discussion below does not
consider the effect of any applicable state, local or foreign laws.
EACH ELIGIX STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS TAX ADVISOR WITH
RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM, HER OR IT,
INCLUDING THE EFFECT OF UNITED STATES FEDERAL, STATE AND LOCAL, AND FOREIGN AND
OTHER TAX RULES, AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS.
BioTransplant has received an opinion dated the date hereof from, its
counsel, Hale and Dorr LLP, a copy of which is filed as Exhibit 8.1 to the
registration statement of which this joint proxy statement/
50
<PAGE>
prospectus is a part, to the effect that, based upon and subject to the facts,
representations, covenants and assumptions set forth therein, the merger
constitutes a reorganization with the meaning of Section 368(a) of the Code.
Eligix has received an opinion dated the date hereof from its counsel, Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C., a copy of which is filed as
Exhibit 8.2 to the registration statement of which this joint proxy
statement/prospectus is a part, to the effect that, based upon and subject to
the facts, representations, covenants and assumptions set forth therein, the
merger constitutes a reorganization with the meaning of Section 368(a) of the
Code. The above opinions are based on facts existing at the date hereof and the
date of the closing of the merger. In addition, it is a condition to the
obligation of BioTransplant to effect the merger that BioTransplant receive an
opinion dated the date of closing of the merger from Hale and Dorr LLP, and it
is a condition to the obligation of Eligix to effect the merger that Eligix
receive an opinion dated the date of the closing of the merger from Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C., in each case to the effect that
the merger constitutes a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code for federal income tax purposes. The opinions issued
at the closing will be based on facts existing at the date thereof.
As a result of the merger qualifying as a reorganization there are the
following tax consequences:
TAX CONSEQUENCES TO BIOTRANSPLANT, BT/EL ACQUISITION CO. AND ELIGIX. For
federal income tax purposes, no gain or loss will be recognized by
BioTransplant, BT/EL Acquisition Co. or Eligix solely as a result of the merger.
TAX CONSEQUENCES TO ELIGIX STOCKHOLDERS. For federal income tax purposes:
(1) no gain or loss will be recognized by the stockholders of Eligix upon the
exchange of their shares of Eligix stock for shares of BioTransplant common
stock pursuant to the merger, except with respect to cash, if any, received
in lieu of fractional shares of BioTransplant common stock;
(2) the aggregate tax basis of the shares of BioTransplant common stock received
in exchange for shares of Eligix stock pursuant to the merger (including a
fractional share of BioTransplant common stock for which cash is received)
will be the same as the aggregate tax basis of such shares of Eligix stock
surrendered in the merger;
(3) the holding period for shares of BioTransplant common stock received in
exchange for shares of Eligix stock will include the holder's holding period
for such shares of Eligix stock; and
(4) a stockholder of Eligix who receives cash in lieu of a fractional share of
BioTransplant common stock will recognize gain or loss equal to the
difference, if any, between such stockholder's basis in the fractional share
(determined under clause (2) above) and the amount of cash received.
The above description does not apply to stockholders who exercise appraisal
rights. A holder of Eligix stock who exercises appraisal rights with respect to
the merger and receives cash in exchange for shares of Eligix stock will
generally recognize capital gain or loss measured by the difference between the
amount of cash received and the stockholder's basis in those shares, provided
that the payment is not treated as a dividend pursuant to Section 302 of the
Code or otherwise. A sale of shares based on an exercise of appraisal rights
generally will not be treated as a dividend if the stockholder exercising
appraisal rights owns no shares of BioTransplant immediately after the merger,
after giving effect to the constructive ownership rules pursuant to the Code.
The capital gain or loss will be long-term capital gain or loss if the holder's
holding period in the shares is more than one year. Any payment in respect of an
exercise of appraisal rights may be subject to backup withholding where required
by the Code.
The opinions described above will neither bind the Internal Revenue Service
nor preclude the Internal Revenue Service from adopting positions contrary to
those expressed above, and no assurance can be given that contrary positions
will not be asserted successfully by the Internal Revenue Service or
51
<PAGE>
adopted by a court if the issues are litigated. Neither BioTransplant nor Eligix
intends to obtain a ruling from the Internal Revenue Service with respect to the
tax consequences of the merger.
If the IRS were to successfully challenge the "reorganization" status of the
merger, each Eligix stockholder would recognize taxable gain or loss with
respect to the Eligix stock surrendered, measured by the difference between
(1) the fair market value, as of the time of the merger, of the BioTransplant
common stock received in the merger and (2) the stockholder's tax basis in the
Eligix stock surrendered therefor in the merger. In such event, a stockholder's
aggregate basis in the BioTransplant common stock so received would equal its
fair market value as of the time of the merger and the holding period for such
stock would begin the day after the merger.
TAXATION OF ESCROWED SHARES. Under the merger agreement, each Eligix
stockholder (other than a stockholder validly asserting appraisal rights) will
receive outright, upon surrender of its shares of Eligix stock, shares of
BioTransplant common stock equal to 80% of the whole number of shares of
BioTransplant common stock into which the shares of Eligix stock surrendered by
the stockholder are to be converted. The remaining 20% of the whole number of
shares of BioTransplant common stock into which the Eligix stock are to be
converted will be placed in escrow as security for indemnification obligations
incurred by the Eligix stockholders and payment of the milestone escrow shares,
pursuant to the merger agreement. Each Eligix stockholder will be credited with
the number of shares placed in escrow on its behalf. See "The Merger
Agreement--Indemnification of BioTransplant by Eligix Stockholders and Eligix
Management Members."
Each Eligix stockholder will allocate its basis in its shares of Eligix
stock among all of the shares of BioTransplant common stock received by the
stockholder as a result of the merger, including both shares of BioTransplant
common stock received outright and shares of BioTransplant common stock placed
in escrow on the stockholder's behalf.
No gain or loss will be recognized by an Eligix stockholder upon the
distribution of escrowed shares to the stockholder upon termination of the
escrow or upon the distribution of escrowed shares to BioTransplant in
satisfaction of indemnification claims or as a result of a failure to meet the
milestone.
Each Eligix stockholder will be subject to United States federal income tax
on all amounts earned on property held by the escrow representatives and
credited to that stockholder. Any dividends paid on the escrowed BioTransplant
common stock will be distributed currently to the Eligix stockholders, subject
to limited exceptions.
In the event that some or all of the escrow shares are distributed to
BioTransplant in satisfaction of an indemnification claim or as a result of a
failure to meet the milestone, the stockholder's tax basis in such escrow shares
that have been returned to BioTransplant will be allocated among and added to
the stockholder's tax basis in the stockholder's remaining shares of
BioTransplant common stock.
REPORTING REQUIREMENTS. Eligix stockholders will be required to attach a
statement to their tax returns for the year of the merger that contains the
information listed in Treasury Regulation Section 1.368-3(b). Such statement
must include the holder's tax basis in the holder's Eligix stock and a
description of the BioTransplant common stock received therefor. ELIGIX
STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY TAX
REPORTING REQUIREMENTS.
52
<PAGE>
WE INTEND THIS DISCUSSION TO PROVIDE ONLY A SUMMARY OF THE MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER. WE DO NOT INTEND THAT IT BE A COMPLETE
ANALYSIS OR DESCRIPTION OF ALL POTENTIAL FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER. WE DO NOT ADDRESS CERTAIN CATEGORIES OF STOCKHOLDERS, AND WE DO NOT
ADDRESS STATE, LOCAL OR FOREIGN TAX CONSEQUENCES. IN ADDITION, AS NOTED ABOVE,
WE DO NOT ADDRESS TAX CONSEQUENCES THAT MAY VARY WITH, OR ARE CONTINGENT UPON,
INDIVIDUAL CIRCUMSTANCES. WE STRONGLY URGE YOU TO CONSULT YOUR TAX ADVISOR TO
DETERMINE YOUR PARTICULAR UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN INCOME
OR OTHER TAX CONSEQUENCES RESULTING FROM THE MERGER, IN LIGHT OF YOUR INDIVIDUAL
CIRCUMSTANCES.
NASDAQ NATIONAL MARKET QUOTATION
It is a condition to the closing of the merger that BioTransplant file a
notification form for listing of additional shares with the Nasdaq National
Market.
RIGHT OF STOCKHOLDERS TO APPRAISALS
Under the Delaware General Corporation Law, any holder of Eligix capital
stock who does not wish to accept the merger consideration in respect of his,
her or its shares of common stock has the right to dissent from the merger and
to seek an appraisal of, and to be paid the fair cash value (exclusive of any
element of value arising from the accomplishment or expectation of the merger)
for, his, her or its shares of stock, judicially determined, and paid to the
stockholder in cash, together with a fair rate of interest, if any, provided
that the stockholder fully complies with the provisions of Section 262 of the
Delaware General Corporation Law.
Making sure that you actually perfect your appraisal rights can be
complicated. The procedural rules are specific and must be followed precisely.
Failure to comply with the procedure may cause a termination or waiver of your
appraisal rights. The following information is intended as a brief summary of
the material provisions of the statutory procedures you must follow in order to
perfect your appraisal right. Please review Section 262 for the complete
procedure. Eligix will not give you any notice other than as described in this
joint proxy statement/prospectus and as required by the Delaware General
Corporation Law. A copy of Section 262 is attached as Annex D to this joint
proxy statement/ prospectus.
The holders of BioTransplant common stock do not have any appraisal rights
in connection with the transactions contemplated by the merger agreement.
APPRAISAL RIGHTS PROCEDURES
If you are an Eligix stockholder and you wish to exercise your appraisal
rights, you must satisfy the provisions of Section 262 of the Delaware General
Corporation Law. Section 262 requires the following:
YOU MUST MAKE A WRITTEN DEMAND FOR APPRAISAL. You must deliver a
written demand for appraisal to Eligix before the vote on the merger
agreement is taken at the special meeting. This written demand for appraisal
must be separate from your proxy. A vote against the merger agreement alone
will not constitute demand for appraisal.
YOU MUST REFRAIN FROM VOTING FOR APPROVAL OF THE MERGER. You must not
vote for approval of the merger agreement. If you vote, by proxy or in
person, in favor of the merger agreement, this will terminate your right to
appraisal. You can also terminate your right to appraisal if you return a
signed proxy and (1) fail to vote against approval of the merger or
(2) fail to note that you are abstaining from voting. Your appraisal rights
will be terminated even if you previously filed a written demand for
appraisal.
53
<PAGE>
YOU MUST CONTINUOUSLY HOLD YOUR ELIGIX SHARES. You must continuously
hold your shares of Eligix capital stock, from the date you make the demand
for appraisal through the closing of the merger. If you are the record
holder of Eligix capital stock on the date the written demand for appraisal
is made but thereafter transfer the shares prior to the merger, you will
lose any right to appraisal in respect of those shares. You should read the
paragraphs below for more details on making a demand for appraisal.
A written demand for appraisal of Eligix stock is only effective if it is
signed by, or for, the stockholder of record who owns such shares at the time
the demand is made. The demand must be signed as the stockholder's name appears
on the Eligix common stock certificates(s). If you are the beneficial owner of
Eligix capital stock, but not the stockholder of record, you must have the
stockholder of record sign a demand for appraisal.
If you own Eligix capital stock in a fiduciary capacity, such as a trustee,
guardian or custodian, you must disclose the fact that you are signing the
demand for appraisal in that capacity.
If you own Eligix capital stock with more than one person, such as in a
joint tenancy or tenancy in common, all the owners must sign, or have signed for
them, the demand for appraisal. An authorized agent, which could include one or
more of the joint owners, may sign the demand for appraisal for a stockholder of
record; however, the agent must expressly disclose who the stockholder of record
is and that the agent is signing the demand as that stockholder's agent.
If you are a record owner, such as a broker, who holds Eligix capital stock
as a nominee for others, you may exercise a right of appraisal with respect to
the shares held for one or more beneficial owners, while not exercising such
right for other beneficial owners. In such a case, you should specify in the
written demand the number of shares as to which you wish to demand appraisal. If
you do not expressly specify the number of shares, we will assume that your
written demand covers all the shares of Eligix capital stock that are in your
name.
If you are an Eligix stockholder who elects to exercise appraisal rights,
you should mail or deliver a written demand to:
Eligix, Inc.
200 Boston Ave.
Medford, MA 02155
Attention: Robert Momsen, Secretary
It is important that Eligix receive all written demands before the vote
concerning the merger agreement is taken at the special meeting. As explained
above, this written demand should be signed by, or on behalf of, the stockholder
of record. The written demand for appraisal should specify the stockholder's
name and mailing address, the number of shares of stock owned, and that the
stockholder is thereby demanding appraisal of that stockholder's shares.
If you fail to comply with any of these conditions and the merger becomes
effective, you will only be entitled to receive the merger consideration
provided in the merger agreement.
WRITTEN NOTICE. Within ten days after the closing of the merger, Eligix
must give written notice that the merger has become effective to each
stockholder who has fully complied with the conditions of Section 262.
PETITION WITH THE CHANCERY COURT. Within 120 days after the merger, either
the surviving corporation or any stockholder who has complied with the
conditions of Section 262, may file a petition in the Delaware Court of
Chancery. This petition should request that the chancery court determine the
value of the shares of stock held by all the stockholders who are entitled to
appraisal rights. A dissenting stockholder must serve a copy of the petition on
the surviving corporation. If no petition is filed by either the surviving
corporation or any stockholder within the 120-day period, the rights of all
54
<PAGE>
dissenting stockholders will cease. Stockholders seeking appraisal rights should
not assume that the surviving corporation will file a petition with respect to
the fair value of their shares. Because the surviving corporation has no
obligation and no present intention to file this petition, if you do not file
this petition within 120 days after the closing, you will lose your rights of
appraisal.
WITHDRAWAL OF DEMAND. If you change your mind and decide you no longer want
appraisal rights, you may withdraw your demand for appraisal rights at any time
within 60 days after the closing of the merger. You may also withdraw your
demand for appraisal rights after the 60-day period, but only with the written
consent of the surviving corporation. If you effectively withdraw your demand
for appraisal rights, you will receive the merger consideration provided in the
merger agreement.
REQUEST FOR APPRAISAL RIGHTS STATEMENT. If you have complied with the
conditions of Section 262, you are entitled to receive a statement from the
surviving corporation. This statement will set forth the number of shares that
have demanded appraisal rights, and the number of stockholders who own those
shares. In order to receive this statement, you must send a written request to
the surviving corporation within 120 days after the merger. After the merger,
the surviving corporation has ten days after receiving a request to mail you the
statement.
CHANCERY COURT PROCEDURES. If you properly file a petition for appraisal in
the Delaware Court of Chancery and deliver a copy to Eligix, Eligix will then
have 20 days to provide the chancery court with a list of the names and
addresses of all stockholders who have demanded appraisal rights and have not
reached an agreement with Eligix as to the value of their shares. The chancery
court will then send notice to all the stockholders who have demanded appraisal
rights. If the chancery court thinks it is appropriate, the chancery court has
the power to conduct a hearing to determine whether the stockholders have fully
complied with Section 262 of the Delaware General Corporation Law and whether
they are entitled to appraisal rights under that section. The chancery court may
also require you to submit your stock certificates to the Registry in Chancery
so that it can note on the certificates that an appraisal proceeding is pending.
If you do not follow the chancery court's directions, you may be dismissed from
the proceeding.
APPRAISAL OF SHARES. After the chancery court determines which stockholders
are entitled to appraisal rights, the chancery court will appraise the shares of
stock. To determine the fair value of the shares, the chancery court will
consider all relevant factors except for any appreciation or depreciation due to
the anticipation or accomplishment of the merger. After the chancery court
determines the fair value of the shares, it will direct the surviving
corporation to pay that value to the stockholders who are entitled to appraisal
rights. The chancery court can also direct the surviving corporation to pay
interest, simple or compound, on that value if the chancery court determines
that interest is appropriate. In order to receive payment for your shares, you
must then surrender your stock certificates to the surviving corporation.
The chancery court could determine that the fair value of shares of stock is
more than, the same as, or less than the merger consideration. In other words,
if you demand appraisal rights, you could receive less consideration than you
would under the merger agreement. You should also be aware that an opinion of an
investment banking firm that the merger is fair is not an opinion that the
merger consideration is the same as the fair value under Section 262.
COSTS AND EXPENSES OF APPRAISAL PROCEEDING. The costs of the appraisal
proceeding may be assessed against the surviving corporation and the
stockholders participating in the appraisal proceeding, as the chancery court
deems equitable under the circumstances. You may request that the chancery court
determine the amount of interest, if any, the surviving corporation should pay
on the value of stock owned by stockholders entitled to the payment of interest.
You may also request that the chancery court allocate the expenses of the
appraisal action incurred by any stockholder pro rata against the value of all
the shares entitled to appraisal.
55
<PAGE>
LOSS OF STOCKHOLDER'S RIGHTS. If you demand appraisal rights, after the
closing of the merger you will not be entitled:
- to vote the shares of stock for which you have demanded appraisal rights
for any purpose;
- to receive payment of dividends or any other distribution with respect to
the shares of stock for which you have demanded appraisal, except for
dividends or distributions, if any, that are payable to holders of record
as of a record date prior to the effective time of the merger; or
- to receive the payment of the consideration provided for in the merger
agreement (unless you properly withdraw your demand for appraisal).
If no petition for an appraisal is filed within 120 days after the closing
of the merger, your right to an appraisal will cease. You may withdraw your
demand for appraisal and accept the merger consideration by delivering to the
surviving corporation a written withdrawal of your demand, except that (1) any
attempt to withdraw made more than 60 days after the closing of the merger will
require the written approval of the surviving corporation, and (2) an appraisal
proceeding in the chancery court cannot be dismissed unless the chancery court
approves.
IF YOU FAIL TO COMPLY STRICTLY WITH THE PROCEDURES DESCRIBED ABOVE, YOU WILL
LOSE YOUR APPRAISAL RIGHTS. CONSEQUENTLY, IF YOU WISH TO EXERCISE YOUR APPRAISAL
RIGHTS, WE STRONGLY URGE YOU TO CONSULT A LEGAL ADVISOR BEFORE ATTEMPTING TO
EXERCISE YOUR APPRAISAL RIGHTS.
RESALE OF BIOTRANSPLANT COMMON STOCK ISSUED IN CONNECTION WITH THE MERGER
The shares of BioTransplant common stock issuable to stockholders of Eligix
upon consummation of the merger have been registered under the Securities Act of
1933. Such shares will be freely tradeable without restriction by those
stockholders who are not deemed to be "affiliates" of BioTransplant or Eligix,
as that term is defined under the Securities Act.
Shares of BioTransplant common stock received by those stockholders of
Eligix who are deemed to be affiliates of Eligix may be resold without
registration under the Securities Act only as permitted by Rule 145 under the
Securities Act or as otherwise permitted under the Securities Act. Each person
deemed to be an affiliate of Eligix will enter into an affiliate agreement with
BioTransplant in which he or she agrees not to offer, sell, pledge, transfer or
otherwise dispose of any shares of BioTransplant common stock distributed to
them pursuant to the merger, except in compliance with Rule 145 under the
Securities Act, or in a transaction that is otherwise exempt from the
registration requirements of the Securities Act and provided an opinion of
counsel, satisfactory to BioTransplant, has been provided to BioTransplant to
the effect that no such registration is required in connection with the proposed
transaction, or in an offering that is registered under the Securities Act.
In addition, a number of stockholders of Eligix have signed or will sign
lock-up agreements and/or voting and transfer restriction agreements that
contractually limit their ability to sell shares of BioTransplant common stock.
Please see "Other Agreements" below for a description of these agreements.
This joint proxy statement/prospectus does not cover any resales of
BioTransplant common stock received by persons who are deemed to be affiliates
of Eligix.
56
<PAGE>
THE MERGER AGREEMENT
The following description summarizes the material provisions of the merger
agreement. We urge stockholders to read the merger agreement carefully, which is
attached as Annex A to this joint proxy statement/prospectus.
THE MERGER
Following the adoption of the merger agreement by the stockholders of
Eligix, the approval of the issuance of shares of BioTransplant common stock as
contemplated by the merger agreement by the stockholders of BioTransplant and
the satisfaction or waiver of the other conditions to the merger, a wholly-owned
subsidiary of BioTransplant, BT/EL Acquisition Co., will be merged with and into
Eligix. Eligix will survive the merger as a wholly-owned subsidiary of
BioTransplant. If all conditions to the merger are satisfied or waived, the
merger will become effective at the time of the filing by the surviving
corporation of a duly executed certificate of merger with the Secretary of State
of the State of Delaware.
CONSIDERATION
In connection with the merger, BioTransplant will issue an aggregate of up
to 6,600,000 shares of common stock. Of these 6,600,000 shares:
- an aggregate of up to 5,610,000 shares will be issued in exchange for all
of the shares of Eligix capital stock outstanding immediately prior to the
effective time of the merger and upon exercise or conversion of Eligix
options, warrants and notes outstanding immediately prior to the effective
time of the merger; and
- an aggregate of 990,000 shares will be issued to Eligix management members
pursuant to the Eligix management equity incentive plan.
CONVERSION OF SHARES
TREATMENT OF ELIGIX PREFERRED STOCK. Holders of Eligix preferred stock
immediately prior to the merger may elect either to receive the liquidation
preference applicable to such series of preferred stock or to convert their
shares of preferred stock into Eligix common stock and receive BioTransplant
common stock at the common stock conversion ratio described below.
Pursuant to the merger agreement, the merger shares are first allocated to
holders of Eligix preferred stock to satisfy the liquidation preference of that
stock. The remaining merger shares are allocated proportionately to holders of
Eligix common stock interests, giving effect to the amount of common stock that
would have been issued upon the exercise or conversion of all Eligix stock
options, warrants and notes outstanding immediately prior to the completion of
the merger.
As of December 31, 2000, the number of shares of Eligix Series A, Series B,
Series C-1, Series C-2 and Series C-3 preferred stock outstanding, assuming the
exercise or conversion of all warrants or notes exercisable for or convertible
into shares of preferred stock, the conversion ratio and the number of
57
<PAGE>
shares of BioTransplant common stock to be received in satisfaction of the
liquidation preference were as follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SERIES ELIGIX SHARES CONVERSION RATIO BIOTRANSPLANT SHARES
------ ------------- ---------------- --------------------
<S> <C> <C> <C>
Series A........................................ 10,911,332 0.1152 1,256,985
Series B........................................ 11,246,005 0.1296 1,457,482
Series C-1...................................... 5,215,604 0.3889 2,028,348
Series C-2...................................... 0 0.1152 0
Series C-3...................................... 0 0.1296 0
---------
Total BioTransplant Shares Issuable in
Satisfaction of Series A, B, C-1, C-2 and
C-3 Liquidation Preferences................. 4,742,815
=========
</TABLE>
The average closing price of BioTransplant common stock that will be used to
calculate the value of the liquidation preference is $11.5714, which is the
average of the closing prices for a share of BioTransplant common stock on the
Nasdaq National Market for the 30 trading days immediately preceding
December 5, 2000, which is three calendar days prior to the date of the merger
agreement.
TREATMENT OF ELIGIX COMMON STOCK. Assuming all of the preferred
stockholders elect to receive their liquidation preferences, rather than convert
their shares into Eligix common stock prior to the merger, each issued and
outstanding share of Eligix common stock, other than shares held in the treasury
of Eligix, shares held by BioTransplant or BT/EL Acquisition Co. or dissenting
shares, will be converted into the right to receive 0.0961 shares of
BioTransplant. In any event, the common stock conversion ratio will be equal to
a fraction:
- the numerator of which is 6,600,000, the total consideration, minus the
sum of:
- 990,000, the management incentive shares, and
- the number of shares of BioTransplant common stock issued to holders of
Eligix preferred stock in fulfillment of liquidation preferences,
including shares of BioTransplant common stock issuable to the holders of
Eligix preferred warrants and preferred convertible notes; and
- the denominator of which is the total number of issued and outstanding
shares of Eligix common stock at the effective time of the merger,
including all shares of Eligix common stock issued or issuable upon
exercise of any outstanding Eligix common stock options and warrants,
whether vested or unvested.
If any preferred stockholders elect to convert their shares of Eligix
preferred stock into Eligix common stock prior to the merger, the common stock
conversion ratio will be between 0.0961 and 0.1541, depending on how many
preferred stockholders, if any, convert their shares into Eligix common stock.
All shares of Eligix common stock, when converted, will no longer be
outstanding and will automatically be canceled and retired and will cease to
exist.
ESCROW
Twenty percent of all shares received by Eligix stockholders and management
members in the merger will be placed in escrow. One half of the escrowed shares
will consist of the shares to cover indemnification obligations and the other
one half will consist of the milestone escrow shares. By approving the merger,
the Eligix stockholders will authorize the creation of the escrow and the
appointment of Robert Momsen and Pieter Schiller as their indemnification
representatives with
58
<PAGE>
respect to indemnification matters. The management members will be bound by the
terms of the escrow agreement by becoming signatories to the agreement.
TREATMENT OF ELIGIX STOCK OPTIONS
At the effective time of the merger, each unexpired and unexercised
outstanding option to purchase shares of Eligix common stock, whether vested or
unvested, previously granted by Eligix under its stock option plan will be
assumed by BioTransplant and converted into options to purchase shares of
BioTransplant common stock. The number of shares of BioTransplant common stock
subject to the assumed Eligix stock options will be adjusted pursuant to the
conversion ratio described above. Any fractional shares of BioTransplant common
stock resulting from such adjustment will be rounded down to the nearest share.
The exercise price per share of BioTransplant common stock under the Eligix
stock options will equal the exercise price per share of the Eligix common stock
under the original stock options divided by the conversion ratio. The exercise
prices will be rounded up to the next highest whole cent.
TREATMENT OF ELIGIX WARRANTS
Under the merger agreement, Eligix agrees to use its reasonable best efforts
to cause the exercise of any outstanding Eligix warrants prior to the effective
time of the merger. To the extent there are outstanding Eligix warrants at the
effective time of the merger, BioTransplant will assume all unexpired and
unexercised outstanding warrants to purchase Eligix capital stock and convert
the warrants into warrants to purchase BioTransplant common stock. The number of
shares of, and the exercise price for, the BioTransplant common stock subject to
the assumed Eligix warrants will be adjusted pursuant to the conversion ratios
described above.
TREATMENT OF ELIGIX CONVERTIBLE NOTES
Under the merger agreement, Eligix agrees to use its reasonable best efforts
to cause the conversion of any outstanding Eligix convertible notes, together
with accrued interest thereon, into Eligix Series C-1 preferred stock prior to
the effective time of the merger. To the extent there are outstanding Eligix
convertible notes at the effective time of the merger, BioTransplant will deem
each outstanding convertible note that is convertible into Eligix C-1 preferred
stock, together with accrued interest thereon, to be convertible into the number
of shares of BioTransplant common stock as is equal to the number of Eligix
Series C-1 preferred shares into which the Eligix Series C-1 note is convertible
immediately prior to the effective time of the merger multiplied by 0.3889. The
maturity date, payment, subordination, subrogation and other terms of any
assumed note will otherwise remain unchanged.
EXCHANGE OF STOCK CERTIFICATES
SURRENDER OF SHARES OF ELIGIX COMMON STOCK AND ELIGIX PREFERRED STOCK. From
and after the effective time of the merger, each holder of a certificate which
represented, prior to the effective time, shares of Eligix capital stock will
have the right to surrender each certificate to BioTransplant and receive
certificates representing the number of shares of BioTransplant common stock,
other than the shares placed in the escrow, cash in lieu of any fractional
shares of BioTransplant common stock and any dividends or distributions to which
they are entitled. The surrendered certificates will be cancelled. ELIGIX
STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE ADDITIONAL
INFORMATION FROM EITHER BIOTRANSPLANT OR ELIGIX.
FRACTIONAL SHARES. BioTransplant will not issue any fractional shares of
BioTransplant common stock in the merger. Instead, each holder of shares of
Eligix common stock or Eligix preferred stock exchanged pursuant to the merger
who would otherwise have been entitled to receive a fraction of a
59
<PAGE>
share of BioTransplant common stock will be entitled to receive cash (without
interest) in an amount equal to the product of such fractional part of
BioTransplant common stock multiplied by $11.5714, which is the average of the
closing prices for a share of BioTransplant common stock on the Nasdaq National
Market for the 30 trading days immediately preceding December 5, 2000, which is
three calendar days prior to the date of the merger agreement.
NO FURTHER REGISTRATION OR TRANSFER OF ELIGIX COMMON STOCK AND ELIGIX
PREFERRED STOCK. At the effective time of the merger, the stock transfer books
of Eligix will be closed and there will be no further transfers of shares of
Eligix common stock or Eligix preferred stock on the records of Eligix. After
the effective time of the merger, the holders of Eligix stock certificates will
cease to have any rights with respect to such shares of Eligix common stock and
Eligix preferred stock except as otherwise provided for in the merger agreement
or by applicable law.
DISSENTING SHARES. Dissenting Eligix shares will not be converted into or
represent the right to receive BioTransplant common stock. If the holder of the
dissenting shares forfeits his, her or its right to appraisal under the Delaware
General Corporation Law or has properly withdrawn his, her or its right to
appraisal:
- these shares will no longer be dissenting shares and will be converted
into and represent the right to receive shares of BioTransplant common
stock in connection with the merger; and
- BioTransplant will deliver to the holder of these shares a certificate
representing eighty percent of the shares issued to the stockholder in
connection with the merger, and will deliver to the escrow agent a
certificate representing the remaining twenty percent of the shares of
BioTransplant common stock issued to the stockholder in connection with
the merger. Please see "The Merger--Right of Stockholders to Appraisals"
and --"Appraisal Rights Procedures."
LOST CERTIFICATES. If any Eligix certificates are lost, stolen or
destroyed, an Eligix stockholder must provide an appropriate affidavit of that
fact. BioTransplant may require the owner of such lost, stolen or destroyed
Eligix certificates to deliver a bond as indemnity against any claim that may be
made against BioTransplant with respect to the Eligix certificates alleged to
have been lost, stolen or destroyed.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, BioTransplant, Eligix and BT/EL Acquisition Co.
have made a number of representations and warranties about their business,
financial condition, structure and other facts pertinent to the merger. These
relate to:
- their organization, existence, good standing, corporate power and similar
corporate matters;
- their capitalization;
- their authorization, execution, delivery and performance and the
enforceability of the merger agreement and related matters;
- the absence of conflicts, violations and defaults under their corporate
charters and bylaws and other agreements and documents;
- required governmental and third-party consents;
- their financial statements;
- the absence of certain changes in their businesses since September 30,
2000;
- tax matters;
- preclinical and clinical testing;
60
<PAGE>
- intellectual property;
- their contracts;
- litigation;
- their employees;
- their employee benefit plans;
- environmental matters;
- legal compliance;
- brokers' fees;
- their books and records; and
- the accuracy of information provided to the other party.
Eligix has also represented and warranted as to:
- its subsidiaries;
- the absence of undisclosed liabilities;
- its assets;
- its properties and leases;
- powers of attorney;
- its insurance policies;
- its licenses and permits; and
- business relationships with affiliates.
BioTransplant has also represented and warranted as to the interim
operations of BT/EL Acquisition Co. and the accuracy and completeness of
documents and reports filed by BioTransplant with the SEC.
CERTAIN COVENANTS
Each of BioTransplant and Eligix has agreed to use its reasonable best
efforts to take all actions and to do all things necessary, proper or advisable
to consummate the transactions contemplated by the merger agreement.
CONDUCT OF BUSINESS PRIOR TO THE MERGER. Each of BioTransplant and Eligix
has agreed to use its reasonable best efforts to carry on its business in the
ordinary course in substantially the same manner as previously conducted, except
as contemplated by the merger agreement. Specifically, Eligix has agreed not to,
without the prior written consent of BioTransplant:
- issue, sell or redeem any shares of capital stock or other securities,
except pursuant to the conversion or exercise of convertible securities,
options or warrants;
- effect a stock split or declare or make any dividends or other
distributions on its shares of capital stock;
- create, incur or assume indebtedness, guarantee the obligations of any
other person or entity or make any loans or investments in any other
person or entity;
61
<PAGE>
- enter into, adopt or amend the management equity incentive plan, any
employee benefit plan or employment or severance arrangement or increase
the compensation or fringe benefits of, or materially modify the
employment terms of, its directors, officers or employees generally, or
pay any benefit not required by any existing employee benefit plan;
- acquire, sell, lease, encumber or otherwise dispose of any assets or
property with a value of greater than $25,000 per transaction and $100,000
in the aggregate, other than purchases and sales in the ordinary course of
business;
- mortgage or pledge any of its property or assets or subject any assets to
a security interest;
- discharge or satisfy any security interest or pay any obligation or
liability other than in the ordinary course of business;
- amend its charter or bylaws;
- change its accounting methods, principles or practices in any material
respect, except as required by GAAP;
- enter into, amend, terminate, take or omit to take any action that would
constitute a violation or default under, or waive any rights under, any
material contract or agreement;
- make or commit to any capital expenditure in excess of $25,000 per item or
$100,000 in the aggregate;
- institute or settle any legal proceeding;
- take or fail to take any action with the knowledge that the action or
failure to take action would result in any of the representations or
warranties in the merger agreement becoming untrue or any of the
conditions of the merger set forth in the merger agreement not being
satisfied;
- make or change any material tax election; or
- agree in writing or otherwise to take any of the actions listed above.
In addition, BioTransplant has agreed not to, without the prior written
consent of Eligix:
- amend its charter or bylaws;
- change its accounting methods, principles or practices in any material
respects, except as required by GAAP;
- take or fail to take any action with the knowledge that the action or
failure to take action would result in any of its representations and
warranties set forth in the merger agreement becoming untrue or any of the
conditions set forth in the merger agreement not being satisfied;
- enter into a term sheet or letter of intent to acquire, acquire or agree
to acquire, by any manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets, for a value that
requires approval of BioTransplant's stockholders or that exceeds either
$5,000,000 in cash or 10% of BioTransplant's outstanding capital stock;
- with certain exceptions, including the granting of options under an equity
incentive plan, issue or sell shares of capital stock, or any securities
exercisable for or convertible into shares of capital stock, at a
purchase, exercise or conversion price which is, as determined by the
board of BioTransplant:
- less than the fair market value of the securities at the time the
obligation to issue or sell the securities arises; and
62
<PAGE>
- not commercially reasonable given the nature of the transaction involved;
or
- agree in writing or otherwise to take any of the actions listed above.
GOVERNMENTAL AND THIRD-PARTY APPROVALS. Eligix and BioTransplant have
agreed to use their respective best efforts to obtain all approvals,
authorizations and consents of all third parties and governmental entities which
are necessary to be obtained by them to consummate the merger.
ELIGIX IS RESTRICTED FROM TRYING TO SELL TO ANOTHER PARTY. Except for
specified exceptions, Eligix has agreed that it will not, directly or
indirectly:
- initiate, solicit, encourage or otherwise facilitate any inquiry,
proposal, offer or discussion with any person or entity, other than
BioTransplant, concerning any merger, reorganization, consolidation, sale,
license or distribution of material assets, liquidation, dissolution,
share exchange, recapitalization or other similar business transaction
involving Eligix or a division of Eligix;
- provide any non-public information concerning the business, properties or
assets of Eligix, or a division of Eligix, to any person or entity, other
than BioTransplant;
- engage in discussions or negotiations with any person or entity other than
BioTransplant concerning any such transaction; or
- execute an agreement with respect to, or otherwise enter into, any such
transaction without the consent of BioTransplant.
Eligix has further agreed to cause each of its officers, directors,
employees, representatives and agents not to do any of the things described
above. Eligix has agreed that it will immediately notify BioTransplant in detail
about inquiries, discussions or negotiations of the nature described above.
DIRECTOR AND OFFICER INDEMNIFICATION. BioTransplant has agreed that, to the
extent allowed by applicable law, all rights to indemnification existing on the
date of the merger agreement in favor of the present officers and directors of
Eligix prior to the merger as provided in Eligix' certificate of incorporation
or bylaws shall continue in full force and effect for a period of six years
following the merger.
The merger agreement provides that from and after the effective time of the
merger, BioTransplant will, and will cause the surviving corporation to,
indemnify and hold harmless each present and former director and officer of
Eligix against any costs, expenses, judgments, fines, losses, claims, damages,
liabilities or amounts paid in settlement incurred in connection with any
actions taken in their capacities as directors and/or officers of Eligix, to the
fullest extent permitted by Delaware law.
LOCK-UP AND AFFILIATE AGREEMENTS. Eligix has agreed to use its reasonable
best efforts to deliver or caused to be delivered to BioTransplant as soon as
practicable and, in any case, prior to the effective time of the merger, lock-up
agreements executed by certain Eligix stockholders and optionholders, as
specified in the merger agreement. The lock-up agreement restricts the
stockholder's or optionholder's ability to sell shares of BioTransplant common
stock for a period of one year, beginning when the merger becomes effective.
Eligix has also agreed to use its reasonable best efforts to deliver or
cause to be delivered to BioTransplant as soon as practicable and, in any case,
prior to the mailing of this joint proxy statement/ prospectus, an affiliate
agreement executed by each affiliate of Eligix who has not previously executed a
voting and transfer restriction agreement.
LISTING OF MERGER SHARES. BioTransplant has agreed that, prior to the
effective time of the merger, it will file a Nasdaq National Market Notification
for listing of Additional Shares with Nasdaq with
63
<PAGE>
respect to the 6,600,000 shares of BioTransplant common stock being issued to
Eligix security holders and management members in connection with the merger.
BOARD OF DIRECTORS OF BIOTRANSPLANT. The BioTransplant board of directors
has agreed to use its best efforts to cause the BioTransplant board, immediately
after the merger becomes effective, to include two members designated by Eligix.
The BioTransplant board also agrees to continue to nominate the two members
designated by Eligix, except to the extent that the designee dies, resigns,
refuses to stand for re-election or is otherwise removed from office in
accordance with BioTransplant's certificate of incorporation and bylaws. In the
event that an open position of the BioTransplant board is otherwise to be filled
prior to the effective time of the merger, BioTransplant will seek the
concurrence of Eligix in the appointment of a third person as well, which
concurrence will not be unreasonably withheld. It is currently anticipated that
the BioTransplant board will elect Walter C. Ogier, Eligix' President and Chief
Executive Officer, Susan Racher and Arnold L. Oronsky, Ph.D., all Eligix
directors, as BioTransplant directors.
DELIVERY OF TAX NOTICES. Eligix has agreed, if requested by BioTransplant
on or before the closing of the merger, to deliver to BioTransplant and the
Internal Revenue Service notices that the Eligix shares are not "U.S. real
property interests" in accordance with the Treasury Regulations under Sections
897 and 1445 of the Internal Revenue Code or the Eligix stockholders will
deliver to BioTransplant certifications that they are not foreign persons in
accordance with the Treasury Regulations under Section 1445 of the Internal
Revenue Code. If Eligix fails to deliver these notices or the Eligix
stockholders fail to deliver these certificates, BioTransplant has the right to
withhold from the amount payable (including any BioTransplant common stock) to
the Eligix stockholders all amounts required under Section 1445 of the Internal
Revenue Code.
EXPENSES
Each of BioTransplant and Eligix will bear its own costs and expenses,
including legal fees and expenses, incurred in connection with the merger.
However, if the merger is completed, Eligix will not incur more than an
aggregate of $375,000 in legal and accounting fees and expenses in connection
with the merger.
RELATED MATTERS AFTER THE MERGER
At the time of the merger, BT/EL Acquisition Co. will be merged into Eligix,
and Eligix will become the surviving corporation in the merger and a
wholly-owned subsidiary of BioTransplant. Each share of BT/EL Acquisition Co.
common stock issued and outstanding immediately prior to the merger will be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock of the surviving corporation. The
certificate of incorporation of BT/EL Acquisition Co., as in effect immediately
prior to the time of the merger, will become the certificate of incorporation of
the surviving corporation, except that the name will be changed to
"Eligix, Inc." and the name of the incorporator shall be deleted. The bylaws of
BT/EL Acquisition Co. will become the bylaws of the surviving corporation,
except that the name will be changed to "Eligix, Inc."
INDEMNIFICATION OF BIOTRANSPLANT BY ELIGIX STOCKHOLDERS AND ELIGIX MANAGEMENT
MEMBERS
The merger agreement provides that the holders of Eligix stock who receive
BioTransplant common stock in the merger and the Eligix management members who
receive BioTransplant common stock pursuant to the management equity incentive
plan will indemnify BioTransplant for any and all damages, subject to the
limitations described below, that BioTransplant may suffer as a result of any of
the following:
- a misrepresentation, breach of warranty or failure to perform any covenant
or agreement of Eligix contained in the merger agreement;
64
<PAGE>
- any failure by any Eligix stockholder to have good, valid and marketable
title to the outstanding shares of Eligix stock issued in the name of the
Eligix stockholder, free and clear of all security interests; or
- with respect to dissenting shares in excess of five percent and less than
or equal to ten percent of the outstanding shares of Eligix stock as of
the effective time, any written demand by an Eligix stockholder for a
judicial determination of the fair value of his, her or its dissenting
shares in accordance with Section 262 of the Delaware General Corporation
Law, whether or not the stockholder withdraws his or her demand for
appraisal prior to the effective time of the merger.
The representations and warranties contained in the merger agreement
continue in effect for 15 months following the closing.
To secure the indemnification obligations of the Eligix stockholders and
members of management, ten percent of the BioTransplant common stock that would
otherwise be payable to them in connection with the merger will be held in
escrow. Pursuant to the merger agreement, Robert Momsen and Pieter Schiller have
been designated as the representatives of the indemnifying holders with respect
to indemnification matters.
The total liability of the indemnifying holders for their indemnification
obligations shall not exceed the fair market value of the indemnification escrow
shares held in escrow, and the indemnifying holders shall not be liable until
the aggregate claim for damages exceeds $500,000, at which time the indemnifying
holders shall be liable for amounts in excess of $500,000.
No Eligix stockholder or member of management shall have a right of
contribution against Eligix or the surviving corporation with respect to any
breach by Eligix of any representation, warranty, covenant or agreement.
Except with respect to claims based on fraud, after the closing of the
merger, the indemnification rights of BioTransplant are BioTransplant's
exclusive remedy with respect to claims resulting from or relating to any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement contained in the merger agreement.
CONDITIONS TO OBLIGATIONS TO EFFECT MERGER
The respective obligations of BioTransplant and Eligix to effect the merger
are subject to the satisfaction or waiver of the following conditions: (1) the
merger and merger agreement must have been approved by the stockholders of
Eligix, (2) the authorization of the issuance of shares of BioTransplant common
stock in connection with the merger must have been approved by the stockholders
of BioTransplant and (3) the registration statement on Form S-4 must have been
declared effective by the Securities and Exchange Commission and there must be
no stop order in effect suspending the effectiveness of the registration
statement or any proceedings pending that seek a stop order.
In addition, the obligations of BioTransplant and BT/EL Acquisition Co. to
effect the merger are subject to the satisfaction or waiver of the following
conditions:
- the holders of no more than 10% of the outstanding voting stock of Eligix
have exercised appraisal rights;
- Eligix must have obtained all waivers, permits, consents, approvals or
other authorizations, and effected certain registrations, filings and
notices, required by Eligix to effect the merger;
- the representations and warranties of Eligix in the merger agreement must
be true and correct as of the date of the merger agreement and at the
effective time, except to the extent that the representation is
specifically made as of a particular date or as of the date of the merger
65
<PAGE>
agreement, in which case the representation or warranty must be true and
correct as of that date;
- Eligix shall have performed or complied with in all material respects all
agreements and covenants required to be performed or complied with under
the merger agreement at or prior to the effective time of the merger;
- no action, suit or proceeding shall be pending or threatened where an
unfavorable judgment, order, decree, stipulation or injunction would
prevent or cause the rescission of the merger or have a material adverse
effect on Eligix, and no judgment, order, decree, stipulation or
injunction of this type shall be in effect;
- Eligix shall have delivered to BioTransplant a certificate making
representations as required by the merger agreement;
- BioTransplant must have received a letter from PricewaterhouseCoopers LLP,
independent auditors of Eligix, containing statements and information of
the type ordinarily included in accountants' "comfort letters";
- BioTransplant shall have received an opinion from counsel to Eligix with
respect to matters as set forth in the merger agreement;
- BioTransplant shall have received copies of resignations, effective as of
the time the merger becomes effective, of each director and officer of
Eligix;
- BioTransplant shall have received an opinion from its counsel to the
effect the merger is a reorganization for federal income tax purposes
under Section 368(a) of the Internal Revenue Code;
- with certain exceptions, the holders of at least 95% of the total number
of outstanding shares of Eligix capital stock on a fully diluted basis
will have signed a lock-up agreement or voting and transfer restriction
agreement, as applicable, by the closing of the merger;
- BioTransplant shall have received the other certificates and instruments
that it reasonably requests in connection with the closing of the merger;
- BioTransplant shall have received originally-executed voting and transfer
restriction agreements from Eligix stockholders as required by the merger
agreement;
- the escrow representatives, the management members and the escrow agent
must have entered into the escrow agreement;
- there shall have been no material adverse change in the business,
properties, operations, condition, assets or liabilities of Eligix and no
event or events shall have occurred that could reasonably be expected to
have a material adverse effect on Eligix, with certain exceptions, and
BioTransplant shall have received a certificate signed on behalf of Eligix
as required by the merger agreement;
- each of the stockholder agreements, investor rights agreements and voting
agreements entered into prior to the date of the merger agreement by the
holders of Eligix stock, registration rights agreements entered into prior
to the date of the merger agreement by Eligix and other similar
agreements, including agreements with holders of Eligix warrants and
holders of Eligix notes, shall have been terminated by Eligix and each of
the other parties to the agreements;
- the Eligix board of directors shall have recommended to the stockholders
of Eligix, and the stockholders shall have approved, an amendment to the
Eligix amended and restated certificate of incorporation as required by
the merger agreement and Eligix shall have taken all necessary
66
<PAGE>
or appropriate action to cause this amendment to the certificate of
incorporation to be, and the certificate of incorporation, as so amended
shall be, in full force and effect; and
- the management members of Eligix shall have entered into employment offer
letters and invention, non-disclosure and non-competition agreements as
required by the merger agreement.
In addition, the obligation of Eligix to effect the merger is subject to the
satisfaction of the following conditions:
- BioTransplant shall have filed a notice with the Nasdaq National Market
with respect to the listing of the shares of BioTransplant common stock
issued in connection with the merger;
- BioTransplant shall have obtained all of the waivers, permits, consents or
authorizations, and effected all of the registrations, filings and
notices, which are required by BioTransplant to effect the merger;
- the representations and warranties of BioTransplant and BT/EL Acquisition
Co. in the merger agreement must be true and correct as of the date of the
merger agreement and at the effective time, except to the extent that the
inaccuracy of any representation is specifically made as of a particular
date or as of the date of the merger agreement, in which case the
representation or warranty must be true and correct as of that date;
- each of BioTransplant and BT/EL Acquisition Co. must have performed or
complied with, in all material respects, all agreements and covenants
required to be performed or complied with by it under the merger agreement
at or prior to the effective time of the merger;
- no action, suit or proceeding shall be pending or threatened where an
unfavorable judgment, order, decree, stipulation or injunction would
prevent or cause the rescission of the merger or have a material adverse
effect on BioTransplant, and no judgment, order, decree, stipulation or
injunction of this type shall be in effect;
- BioTransplant shall have delivered to Eligix a certificate making
representations as required by the merger agreement;
- Eligix must have received a letter from Arthur Andersen LLP,
BioTransplant's independent auditors, containing statements and
information of the type ordinarily included in accountants' "comfort
letters";
- Eligix must have received an opinion from counsel to BioTransplant with
respect to certain matters as set forth in the merger agreement;
- Eligix shall have received an opinion from its counsel in a form
satisfactory to Eligix to the effect the merger is a reorganization for
federal income tax purposes under Section 368(a) of the Internal Revenue
Code;
- Eligix shall have received the other certificates and instruments that it
reasonably requests in connection with the closing of the merger;
- BioTransplant, the escrow representatives, the Eligix management members
and the escrow agent shall have executed the escrow agreement;
- BioTransplant shall have entered into employment offer letters and
invention, non-disclosure and non-competition agreements with the Eligix
management members as required by the merger agreement; and
- there shall have been no material adverse change in the business,
properties, condition, assets or liabilities of BioTransplant and no event
or events shall have occurred that could reasonably be expected to have a
material adverse effect on BioTransplant, with certain exceptions, and
Eligix
67
<PAGE>
shall have received a certificate signed on behalf of BioTransplant as
required by the merger agreement.
TERMINATION; BREAKUP FEES
The merger agreement may be terminated at any time prior to the closing of
the merger as follows:
- BioTransplant and Eligix may terminate the merger agreement by mutual
written consent;
- BioTransplant or Eligix may terminate the merger agreement if the other
party is in breach of any representation, warranty or covenant contained
in the merger agreement, which breach causes the other party to be unable
to "bring down" the representations, warranties and covenants at closing,
and such breach is not remedied within 20 days of delivery of written
notice;
- BioTransplant or Eligix may terminate the merger agreement by giving
written notice to the other parties at any time after the Eligix
stockholders have voted on, and failed to approve, the merger agreement or
the BioTransplant stockholders have voted on, and failed to approve, the
issuance of the BioTransplant shares in connection with the merger; or
- BioTransplant or Eligix may terminate the merger agreement by giving
written notice to the other party if the closing has not occurred on or
before April 30, 2001 by reason of the failure of any condition precedent
to the terminating party's closing of the merger, unless the failure
results primarily from a breach by the terminating party of any
representation, warranty or covenant contained in the merger agreement.
If either BioTransplant or Eligix terminates the merger agreement pursuant
to the reasons above, all obligations of the parties under the merger agreement
shall terminate and there will be no liability, except that if the merger
agreement is terminated by either party as a result of the other party's failure
to perform or comply in all material respects with the agreements and covenants
under the merger agreement, the non-terminating party will pay the terminating
party $2,000,000 in cash.
AMENDMENT AND WAIVER
Generally, the boards of directors of BioTransplant and Eligix may amend the
merger agreement at any time prior to the effective time. However, after the
stockholders of Eligix approve the merger and/or the BioTransplant stockholders
approve the issuance of the shares, any amendment will be restricted by the
Delaware General Corporation Law, and no amendment shall be made that by law
requires further approval by such stockholders without such approval. Amendments
must be in writing and signed by all parties and waivers must be in writing and
signed by the waiving party.
68
<PAGE>
OTHER AGREEMENTS
VOTING AND TRANSFER RESTRICTION AGREEMENTS
Contemporaneously with the execution of the merger agreement, BioTransplant
entered into voting and transfer restriction agreements with officers, directors
and 5% holders of Eligix owning approximately 66.6% of the combined voting power
of the outstanding capital stock of Eligix, 67.3% of the voting power of the
outstanding preferred stock of Eligix and 67.3% of the voting power of the
outstanding Series A preferred stock and Series B preferred stock of Eligix.
Pursuant to the voting and transfer restriction agreements, each signing
stockholder has agreed to vote, and has executed an irrevocable proxy to vote,
all shares of Eligix common and preferred stock in the following manner:
- in favor of adoption of the merger agreement, the merger, or any matter
that reasonably could be expected to facilitate the merger, including the
proposed certificate of amendment to the Eligix certificate of
incorporation;
- in opposition to any matter inconsistent with the merger; and
- not in favor of any competing acquisition for all or a majority of the
outstanding capital stock or assets of Eligix.
The stockholders who have signed the voting and transfer restriction
agreements further agree not to solicit, encourage or recommend that other
Eligix stockholders:
- vote their shares in a manner contrary to the merger;
- not vote their Eligix shares at all;
- tender, exchange or otherwise dispose of their shares pursuant to an offer
to buy all or a majority of the outstanding capital stock or assets of
Eligix from an entity other than BioTransplant; or
- attempt to exercise any appraisal rights or other similar rights a
stockholder may have.
During the term of the voting and transfer restriction agreement, each
signing stockholder has agreed not to sell, transfer, pledge or otherwise
dispose of, or reduce an interest in or risk relating to, any of the shares of
Eligix stock that he or she owns unless such transfer is pursuant to the terms
of the merger agreement or the transferee of the shares agrees to be bound by
the voting and transfer restriction agreement. Each signing stockholder has also
agreed, with respect to the BioTransplant common stock owned as a result of the
transactions contemplated by the merger agreement, not to sell, transfer, pledge
or otherwise dispose of, or reduce an ownership interest in such shares in
accordance with the percentages set forth below:
- for a period of 90 days following the effective time of the merger, any of
its, his or her shares;
- for the period beginning on the 91st day following the effective time and
ending 180 days after the effective time, 66 2/3% of its, his or her
shares;
- for the period beginning on the 181st day following the effective time and
ending on the 270th day following the effective time, 33 1/3% of its, his
or her shares; and
- for the period beginning on the 271st day following the effective time and
ending on the 365th day after the effective time, 10% of its, his or her
shares.
If BioTransplant enters into a registered public offering of its stock at
any time during the one-year period following the effective time, the signing
stockholders agree, upon the request of BioTransplant and the managing
underwriter, not to sell, transfer, pledge or otherwise dispose of any of its,
his or her shares received pursuant to the merger for a period of up to 90 days
following the effective date of the
69
<PAGE>
registration statement. This 90-day restriction will not apply if the officers
and directors of BioTransplant are not bound by the same terms.
The signing stockholder further agrees not to offer, sell, transfer, pledge
or otherwise dispose of shares owned by him or her as a result of the
transactions contemplated by the merger agreement unless (1) done in accordance
with the provisions of Rule 145 of the Securities Act of 1933, (2) by means of a
registration statement covering the proposed sale or transfer, or (3) the
selling stockholder furnishes an opinion of counsel stating registration of the
shares under the Securities Act of 1933 is not required for their sale or
transfer.
LOCK-UP AGREEMENTS
As a condition to the closing of the merger, the holders of at least 95% of
the total number of outstanding shares of Eligix capital stock at the effective
time, on a fully-diluted basis, subject to specified exceptions, must enter into
lock-up agreements or voting and transfer restriction agreements with
BioTransplant. Pursuant to the lock-up agreements, the signing stockholders
agree, with respect to the shares of BioTransplant common stock owned as a
result of the transactions contemplated by the merger agreement, not to sell,
transfer, pledge or otherwise dispose of, or reduce an interest in or risk
relating to such shares in accordance with the percentages set forth below:
- for a period of 90 days following the effective time of the merger, any of
its, his or her shares;
- for the period beginning on the 91st day following the effective time and
ending 180 days after the effective time, 66 2/3% of its, his or her
shares;
- for the period beginning on the 181st day following the effective time and
ending on the 270th day following the effective time, 33 1/3% of its, his
or her shares; and
- for the period beginning on the 271st day following the effective time and
ending on the 365th day after the effective time, 10% of its, his or her
shares.
If BioTransplant enters into a registered public offering of its stock at
any time during the one-year period following the effective time, the signing
stockholders agree that, upon the request of BioTransplant and the managing
underwriter, not to sell, transfer, pledge or otherwise dispose of any of its,
his or her shares received pursuant to the merger for a period of up to 90 days
following the effective date of the registration statement. This 90-day
restriction will not apply if BioTransplant's officers and directors are not
bound by the same terms.
ESCROW AGREEMENT
BioTransplant will deposit in escrow, with The American Stock Transfer and
Trust Company, as escrow agent, certificates representing 20% of the shares of
BioTransplant common stock issuable to the holders of Eligix stock and the
management members for the purpose of securing:
- the indemnification obligations of the Eligix stockholders and the
management members pursuant to the merger agreement (one half of the
escrow shares); and
- the payment of milestone escrow shares to the Eligix stockholders and
management members subject to Eligix receiving the CE mark, which denotes
conformity with European standards for safety, for the TCell-HDM product
on or before December 31, 2001 (one half of the escrow shares).
The escrow shares will be issued in the name of the escrow agent or its
nominee and may not be transferred or assigned while held in escrow, other than
by operation of law. BioTransplant will pay all of the fees of the escrow agent
for services performed under the escrow agreement.
70
<PAGE>
BioTransplant and the Eligix stockholders and management members whose
shares are held in escrow agree to jointly and severally indemnify the escrow
agent for carrying out any duties under the escrow agreement.
In the event BioTransplant distributes any securities in respect to, or in
exchange for, the shares of BioTransplant common stock by way of a stock
dividend, stock split or otherwise, such securities shall be issued in the name
of the escrow agent or its nominee and delivered to the escrow agent who shall
hold such shares in escrow. In the event BioTransplant distributes cash
dividends or property other than securities, in respect to the shares held in
escrow, such cash or property shall be promptly distributed by the escrow agent
to those for whom the BioTransplant shares are being held in escrow.
Under the escrow agreement, the escrow shares will be voted by the escrow
agent on behalf of the Eligix stockholders and management members in accordance
with instructions received by the escrow agent from the escrow representatives.
In the absence of these instructions, the escrow agent will not vote the shares
held in escrow.
The escrow agent shall distribute the BioTransplant shares held in escrow
(1) in accordance with a written instrument signed by BioTransplant and the
escrow representative or (2) in accordance with the written directive of a
court. In the event neither of the preceding occurs, the escrow agent shall
distribute fifty percent of the shares in escrow to the persons in whose names
the shares are registered upon the achievement of milestones established in the
escrow agreement and fifty percent to the persons in whose names the shares are
registered after the passage of 15 months following the execution of the escrow
agreement. If the milestone established pursuant to the merger agreement is not
satisfied, the escrow agent will deliver fifty percent of the shares in escrow
to BioTransplant. If BioTransplant asserts an indemnification claim, some (but
no more than the number of indemnification escrow shares) of the shares held in
escrow will remain in escrow and be distributed upon resolution of the
indemnification claim.
AFFILIATE AGREEMENTS
To ensure compliance with the Securities Act of 1933, the directors,
executive officers and principal stockholders of Eligix have entered into
affiliate agreements with BioTransplant. Pursuant to the affiliate agreements,
the signing stockholders have agreed not to offer, sell, transfer, pledge or
otherwise dispose of, or reduce an interest in or risk relating to, shares owned
by it, him or her as a result of the transactions contemplated by the merger
agreement, unless: (1) done in accordance with the provisions of Rule 145 of the
Securities Act of 1933, (2) by means of a registration statement covering the
proposed sale or transfer, or (3) the selling stockholder furnishes an opinion
of counsel stating registration of the shares under the Securities Act of 1933
is not required for their sale or transfer.
EMPLOYMENT OFFER LETTERS
Pursuant to the merger agreement, each of the twelve management members of
Eligix will receive an employment letter from BioTransplant offering that
employee a position at BioTransplant. The letter states that the employee is
eligible to receive the following:
- a salary paid on a semi-monthly basis;
- an annual cash bonus;
- stock distributions in accordance with the annual merit-based stock option
program;
- severance payments;
- medical, dental, life and long-term disability insurance; and
71
<PAGE>
- three weeks paid vacation.
The terms of the offer letters for the six executive officers within Eligix
management are:
<TABLE>
<CAPTION>
PROPOSED TITLE
CURRENT TITLE PROPOSED BASE TARGET SEVERANCE AT
NAME AT ELIGIX SALARY CASH BONUS % PAYMENT BIOTRANSPLANT
---- --------------- ------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
Walter C. Ogier President and $240,000 35% 1 year at President and
Chief Executive double base Chief Operating
Officer salary Officer
James R. Fitzgerald, Senior Vice 190,000 25 6 months base Executive Vice
Jr. President, salary President,
Finance and Finance and
Operations, Administration
Chief Financial
Officer
David N. Cook, Ph. D. Senior Vice 187,500 25 6 months base Senior Vice
President, salary President,
Research and Development
Development
Tara Clark Vice President, 130,000 20 6 months base Vice President,
Marketing salary Marketing
James Embree Vice President, 157,504 20 6 months base Vice President,
Manufacturing salary Manufacturing
Judith Snow Vice President, 145,000 20 6 months base Vice President,
Quality salary Quality
Assurance Assurance
</TABLE>
Employment with BioTransplant is contingent upon the employee signing an
Invention, Non-Disclosure and Non-Competition Agreement with BioTransplant.
INVENTION, NON-DISCLOSURE AND NON-COMPETITION AGREEMENTS
BioTransplant requires all of its employees to enter into an invention,
non-disclosure and non-competition agreement upon commencement of employment.
Accordingly, all employees of Eligix hired by BioTransplant, including the
twelve management members of Eligix, must execute such an agreement upon the
closing of the merger.
Under the terms of this agreement, an employee agrees that all proprietary
information relating to BioTransplant's business that is of a confidential
nature is the exclusive property of BioTransplant and as such will not be
disclosed to a person or entity that is not employed by BioTransplant without
BioTransplant's prior written approval. Upon the request of BioTransplant or
upon an employee's termination, any proprietary information reduced to a
tangible form, and any copies thereof, will be delivered to BioTransplant by the
employee. The employee's obligation not to use or disclose and to return
material extends to information, material and tangible property of customers,
suppliers and third parties who have disclosed the same to BioTransplant.
Pursuant to this agreement, the employee agrees to promptly disclose to
BioTransplant all inventions, improvements, discoveries, methods, developments,
software and works of authorship, collectively referred to as inventions,
created or reduced to practice during the term of employment at BioTransplant.
Further, the employee agrees to assign to BioTransplant all right, title and
interest in inventions, patents, patent applications, copyrights and copyright
applications. If the invention is made
72
<PAGE>
during non-business hours, at a location other than BioTransplant and without
BioTransplant's tools, equipment or proprietary information, the employee need
not assign his/her interest in such invention.
For the duration of his/her employment and the subsequent two years, the
employee agrees not to:
- own any interest in, lend to, hold any position in, or perform any work on
behalf of any entity, including on the employee's own behalf, that is
competitive with products developed, designed, produced or sold by
BioTransplant during his/her employment at BioTransplant;
- divert, take away or attempt to take away clients, customers or accounts,
potential or otherwise, of BioTransplant which were served or contacted
while the employee was employed by BioTransplant; or
- directly or indirectly recruit, solicit, or hire any employee of
BioTransplant or cause, or attempt to cause, an employee of BioTransplant
to terminate or otherwise cease his/her relationship with BioTransplant.
The employee further agrees to represent that he/she is not bound by the
terms of any non-disclosure or non-compete agreement with another entity, other
than those disclosed in writing to BioTransplant. Additionally, such employee
agrees to represent that, in carrying out the terms and duties of employment
(1) he/she will not violate any agreements prohibiting the disclosure of
confidential information of another entity and (2) he/she will not disclose or
cause BioTransplant to use confidential information or material belonging to any
other entity or person.
73
<PAGE>
INFORMATION CONCERNING BIOTRANSPLANT
BUSINESS
COMPANY OVERVIEW
BioTransplant is developing pharmaceutical products and systems to enable
the body's immune system to better tolerate the transplantation of foreign
cells, tissues and organs. Our lead product, MEDI-507, is being developed in
collaboration with MedImmune, Inc. We are also independently developing other
proprietary technology, which we refer to as ImmunoCognance technology, which is
based upon mixing elements of a donor's immune system with that of a patient in
a manner that enables the patient to recognize the donor's tissues as if those
foreign tissues belonged to the patient. We believe that our ImmunoCognance
technology will have the following benefits when compared to current
technologies:
- improve clinical outcomes in bone marrow transplantation for cancer and
other diseases;
- reduce or eliminate the need for long-term administration of potentially
debilitating immunosuppressive drugs to a patient after a transplantation
procedure;
- minimize infections and health complications that may result from
conventional therapies used in connection with the transplantation of
foreign cells, tissues and organs;
- reduce the cost of treating end-stage organ disease; and
- increase the supply of cells, tissues and organs available for
transplantation procedures.
Based upon our ImmunoCognance technology, we are developing a portfolio of
products designed to improve therapies associated with organ and bone marrow
transplantation as well as to improve the treatment of cancer, autoimmune
diseases and blood disorders. Our AlloMune System for Cancer is currently in a
multi-center Phase I/II clinical trial for therapy-resistant lymphoma, and we
anticipate filing an investigational new drug application in 2001 for a Phase I
clinical trial in patients with advanced melanoma and kidney cell tumors. We
expect that Phase I clinical studies of our AlloMune System for Transplantation
for human kidney transplantation will begin in 2001.
In September 2000, we and Novartis Pharma AG formed a new company, Immerge
BioTherapeutics AG, to conduct further research in the area of
xenotransplantation, which is the transplantation of cells, tissues and organs
from one species to another. We and Novartis contributed our respective
technology and intellectual property to Immerge. Novartis owns 67% of Immerge,
and we own 33%. See "--Collaborations and Agreements--Novartis/BioTransplant
Joint Venture."
We are working with MedImmune in the development of MEDI-507. We have
exclusively licensed MEDI-507 to MedImmune as a stand-alone agent, and we are
entitled to royalties on the sale of the drug, as well as milestone payments for
the achievement of specific product-related milestones. MEDI-507 is currently in
Phase I/II clinical trials for the treatment of psoriasis, and we expect that
Phase II clinical trials for the treatment of psoriasis will begin in 2001.
MedImmune has completed Phase I/II trials for graft-versus-host disease, an
often fatal outcome of bone marrow transplantation procedures.
In addition to our corporate collaboration with MedImmune and our joint
venture with Novartis, we are collaborating with a number of other
organizations, including the Massachusetts General Hospital, in the field of
cell, tissue and organ transplantation.
We believe that we have built a strong patent portfolio relating to our
ImmunoCognance technology. As of December 31, 2000, we owned or had licensed 36
issued United States patents and 41 allowed or pending United States patent
applications, as well as foreign counterparts for certain of the patent
applications.
74
<PAGE>
INDUSTRY OVERVIEW
TRANSPLANTATION BIOLOGY
The immune system is one of the major biological defense mechanisms
protecting an individual against disease and invasion by disease-carrying
agents, referred to as pathogens. In the context of transplantation, the immune
system can distinguish self from foreign, non-self, cells by recognizing
specific markers on cells called antigens. The immune system is capable of
producing a biological response to clear and destroy the cells carrying the
foreign, non-self antigens.
When an individual receives a cell, tissue or organ transplant, the
recipient's immune system generally recognizes the transplanted tissue as
foreign and initiates an immune response, resulting in rejection of the foreign
cell, tissue or organ. This immune response results from the recognition by the
immune system of foreign antigens on the surface of the cells of the donor that
are different from those of the recipient. If, as in the case of identical
twins, the antigens of the donor and the recipient are identical, no rejection
response occurs. In all other cases, differences between antigens can provide
sufficient stimulus to cause an immune response and, consequently, rejection of
the cell, tissue or organ.
Throughout an individual's life, the immune system reacts to foreign
antigens and develops white blood cells known as T cells that are capable of
recognizing and responding to specific foreign antigens. T cells learn to
distinguish self from non-self when they mature in a specialized organ called
the thymus. This maturation step induces tolerance to the individual's own
antigens. When mature antigen-specific T cells recognize antigens in
transplanted tissue, they become activated and initiate a cascade of events,
including the proliferation of T cells and another type of white blood cell,
known as B cells. Certain activated T cells can kill cells bearing foreign
antigens and B cells are capable of producing antigen-specific proteins called
antibodies. Antibodies can bind to foreign cells or proteins and lead to their
destruction or clearance from the body.
There are two primary types of immune response to transplanted foreign
tissue--hyperacute and acute rejection. Hyperacute rejection occurs immediately
upon transplantation and results from the reactivity of pre-existing antibodies
with antigens presented by the donor tissue. In hyperacute rejection, the donor
cell, tissue or organ is destroyed within hours and no treatment is currently
available. Acute rejection occurs after transplantation of a cell, tissue or
organ when T cells recognize the antigens of the donor as foreign, become
activated and, over a period of days or weeks, initiate a rejection response
that may lead to the ultimate loss of the cell, tissue or organ. Approximately
50% of organ transplant patients will experience an acute rejection episode in
the first year after transplantation.
The current approach to preventing acute rejection in transplant patients is
to administer a combination of immunosuppressive medications, which suppress the
ability of T cells to recognize and respond to antigens. These medications,
however, not only inhibit T cells from recognizing antigens of donor cells,
tissues or organs, but also block the patient's T cells from recognizing other
foreign antigens. As a result, the transplant recipient is vulnerable to viral,
bacterial and fungal infections. In addition, long-term use of these
immunosuppressive drugs can lead to cardiovascular disease, kidney and liver
damage, as well as an increased incidence of certain types of cancer such as
skin and lip cancer and lymphomas. Most importantly, despite the administration
of various immunosuppressive medications, instances of rejection still occur
frequently and may necessitate increased doses of immunosuppressive drugs or
inclusion of other anti-rejection therapies, thus compounding unwanted side
effects and complications. If the rejection cannot be controlled, the rejected
cell, tissue or organ must be removed and another transplant will be required.
75
<PAGE>
BONE MARROW TRANSPLANTATION
Bone marrow contains cells, referred to as stem cells, which have the
ability to develop into the different kinds of blood cells in the human body.
When bone marrow containing these stem cells is collected from one individual
and transplanted into a recipient who has been conditioned with irradiation or
chemotherapy, the stem cells from the donor bone marrow take root, or engraft,
into the bone marrow of the recipient and replace some or all of the recipient's
blood cells. Because it is often easier to collect the stem cells from blood
rather than bone marrow, a donor can be treated with chemical agents that induce
the stem cells to migrate from the bone marrow into the blood. Thus, the same
effect can be achieved by transplanting either bone marrow or blood from
pretreated individuals. For simplicity, we use the term bone marrow
transplantation to refer to the transplantation of stem cells from either bone
marrow or blood.
Bone marrow transplantation is used as a treatment for:
- certain types of cancers, including:
- kidney cell tumors,
- breast tumors,
- certain childhood cancers, such as Ewing's sarcoma, and
- hematologic, or blood cell, cancers such as acute and chronic
leukemia, lymphoma, and multiple myeloma;
- certain congenital immune system deficiencies; and
- bone marrow failure, referred to as aplastic anemia.
Researchers are also investigating experimentally bone marrow
transplantation for:
- the treatment of certain metabolic diseases, such as Hurler's syndrome;
- genetic disorders, such as sickle cell anemia and thalassemia; and
- severe autoimmune diseases, such as therapy-resistant psoriasis and
rheumatoid arthritis.
There are two types of bone marrow transplantation that are currently
performed: autologous bone marrow transplantation and allogeneic bone marrow
transplantation.
AUTOLOGOUS BONE MARROW TRANSPLANTATION. In autologous transplantation,
doctors treat the patient with high-dose chemotherapy to kill the tumor, and use
the patient's own bone marrow cells, harvested prior to administration of the
chemotherapy, to reconstitute the patient's bone marrow cells following the
chemotherapy treatment. In autologous transplantation, the goal of
administration of the bone marrow that had been harvested prior to the
chemotherapy is to overcome the damage to the patient's bone marrow that occurs
during the chemotherapy.
ALLOGENEIC BONE MARROW TRANSPLANTATION. In allogeneic transplantation, the
patient receives transplanted bone marrow cells harvested from a healthy donor.
In allogeneic transplantation for cancer, not only does the bone marrow
transplantation overcome the damage that the chemotherapy causes to the bone
marrow, but the transplanted donor immune cells also may be capable of
eradicating the patient's tumor. In allogeneic transplantation for metabolic
diseases and genetic disorders, the infusion of donor cells allows for the
recovery of healthy, metabolically normal donor cells to replace the recipient's
genetic defects. In autoimmune disease, the body's immune response becomes
abnormal in that it mistakenly recognizes its own cells or tissues as non-self.
For allogeneic transplantation for severe autoimmune disease, the goal is to
ablate, or destroy, the patient's malfunctioning immune system and replace it
with the donor immune system. We expect this treatment
76
<PAGE>
to result in the patient's reconstituted immune system ceasing to recognize its
own cells or tissues as non-self and tolerating them.
In conventional autologous or allogeneic bone marrow transplantation,
patients first undergo a pre-transplant process called ablation in which their
diseased bone marrow is destroyed by either intense radiation or chemotherapy,
essentially wiping out their immune system. More recently, milder conditioning
regimens have been introduced to minimize the damage of the chemotherapy. The
use of milder, non-ablative preparatory regimens has expanded the group of
patients eligible for bone marrow transplantation.
Differences in the antigens of donor and recipient significantly limit donor
availability for allogeneic bone marrow transplantation. Even when the donor and
the recipient are tissue-matched siblings, complications such as
graft-versus-host disease, poor immune function, and graft failure can occur
from minor antigen differences between donor and recipient as well as from the
side effects caused by the treatments used to overcome these differences.
Graft-versus-host disease is a potentially fatal complication of allogeneic
transplantation in which the donor cells, once transplanted in the patient,
recognize the patient as non-self, and attack the patient's normal tissues, such
as the skin, gastrointestinal track and liver. Moderately severe to
life-threatening acute graft-versus-host disease occurs in 10 to 50% of patients
given an allogeneic transplantation from a tissue-matched sibling donor. A
significantly higher incidence and severity of the disease is reported in
patients receiving transplants from partially matched family donors or unrelated
volunteers. The treatment for graft-versus-host disease includes steroids and
other immunosuppressive drugs. However, up to 50% of patients do not respond to
steroids and other currently-available immunosuppressants, and a significant
number of these patients will die as a result of the graft-versus-host disease.
To minimize the possibility of graft-versus-host disease, typically only
patients who have closely genetically matched donors are considered suitable
candidates for allogeneic bone marrow transplantation. The likelihood of having
a perfectly matched donor is only approximately 1%, which is the approximate
rate of identical twin births in the United States. Statistically, the
likelihood of any sibling being a full tissue match is 25%, and there is
approximately an additional 5% likelihood of finding a full tissue matched
relative in the extended family. Thus, there is approximately a 30% chance of
finding a suitably matched donor in the family, where suitability is defined as
being an appropriate donor for a conventional transplant. Because of the
difficulty in locating a fully tissue matched bone marrow donor, many patients
are unable to undergo the bone marrow transplantation procedure.
ORGAN TRANSPLANTATION
During the last two decades organ transplantation has become an established
therapy for end-stage organ disease due in part to the significant progress that
has been made since the introduction of cyclosporine by Novartis in 1983. In
1999, over 30,000 organ transplants were performed in patients suffering from
end-stage kidney, liver, heart and lung disease in the United States and Western
Europe. We estimate that patients in the United States spend over $5.0 billion
annually on organ transplantation. However, rejection of the transplanted organ
by the recipient's immune system frequently limits the success of these
procedures. To prevent rejection of the transplanted organ, recipients must
maintain a lifelong regimen of immunosuppressive therapy. Care subsequent to the
transplant accounts for over half of the costs of organ transplantation. Such
healthcare costs include costs associated with lifelong immunosuppressive
therapy and hospitalizations due to complications resulting from the chronic use
of immunosuppressive drugs, infections and transplant rejections. Other
treatments for end-stage organ disease, such as kidney dialysis, are even more
expensive. While dialysis is an option for the treatment of kidney failure, many
non-kidney transplant patients die while waiting for organs. Accordingly, we
expect that improvements in transplantation technology that reduce the wait for
suitable organs and minimize infections and other complications, including
retransplantation
77
<PAGE>
and the toxicities associated with chronic use of immunosuppressive drugs, will
lower the overall cost of treating end-stage organ disease.
There is a critical shortage of organs worldwide and waiting lists have been
established for potential organ transplant recipients. Over 74,000 patients in
the United States suffering from end-stage organ disease were on waiting lists
for a lifesaving organ transplant in 2000, based on data provided by the United
Network for Organ Sharing. This number has more than quadrupled since 1988, and
the number of deaths on the waiting list has increased proportionately. If an
adequate supply of transplant organs were available and the complications of
transplantation minimized, we estimate that an additional 100,000 critically ill
patients annually could benefit from treating end-stage organ disease by using
organ transplantation to replace disease-damaged organs instead of using
artificial devices.
While the number of cadaver donors has increased in the last ten years, the
demand for organs has increased even more rapidly. Efforts to ease this organ
shortage through public campaigns and advertisements designed to enlarge the
pool of potential organ donors have been only moderately successful. Increased
automotive safety has adversely affected the donation rate by reducing the
number of deaths resulting from automobile accidents. In addition, we believe
the decline in the quality of organs available for transplant may reduce organ
graft half-lives, thereby increasing the need for additional organs to be used
in repeated transplantation procedures. The potential donor pool has also been
limited by the risk that allotransplantation, which is the transplantation of
organs between different individuals of the same species, can spread infectious
disease. Advances have been made in the procedures used to obtain multiple
organs from a single donor and in organ preservation techniques, but a severe
shortage of organs still exists and the backlog of patients awaiting
transplantation continues to grow. The shortage of donor organs restricts the
number of transplant procedures performed and forces many patients to undergo
costly and less effective alternatives to transplantation. This delay renders
transplant candidates much sicker at the time of transplantation than they would
have been if the organ transplant had been possible sooner.
78
<PAGE>
PRODUCTS UNDER DEVELOPMENT
The following table summarizes the status of our, and our collaborator's and
joint venture's, product research and development programs:
<TABLE>
<CAPTION>
PRODUCT UNDER DEVELOPMENT INDICATION STATUS* COLLABORATOR
------------------------- ----------------------------- ----------- ------------------
<S> <C> <C> <C>
MEDI-507..................... Psoriasis Phase I/II MedImmune
Graft-Versus-Host Disease Phase I/II MedImmune
ALLOMUNE SYSTEM FOR CANCER... Lymphoma Phase I/II None
Kidney Cell Tumors IND in None
preparation
Melanoma IND in None
preparation
Other cancers Preclinical None
ALLOMUNE SYSTEM FOR Kidney Transplantation Phase I None
TRANSPLANTATION............
Congenital Blood Disorders Preclinical None
Autoimmune Diseases Preclinical None
Metabolic Diseases Preclinical None
Animal to Human Preclinical Joint Venture with
Transplantation Novartis
XENOTRANSPLANTATION..........
</TABLE>
------------------------
* Preclinical means that the product is being evaluated or optimized in animal
models. Phase I means an investigational new drug application, or IND, has
been filed with the United States Food and Drug Administration and that the
product candidate is in clinical trials to evaluate safety. Phase I/II means
that the product candidate is in clinical trials for safety and potential
efficacy.
MEDI-507
MEDI-507 is a novel and proprietary humanized monoclonal antibody derived
from the BTI-322 monoclonal antibody. A monoclonal antibody is a single antibody
that reacts to a specific antigen and can trigger or block an immune response.
Drs. Herve Bazin and Dominique Latinne of the Experimental Immunology Unit of
the Catholic University of Louvain, Belgium, discovered BTI-332, the rodent
precursor of MEDI-507. In early 1993, we obtained exclusive rights to develop
and commercialize BTI-322. We modified the BTI-322 antibody to create MEDI-507,
a molecule more similar to a human antibody, and in 1995 we formed a
collaboration with MedImmune to develop and commercialize products derived from
MEDI-507. We are also independently developing MEDI-507 as an important
component of our AlloMune System and have sublicensed to our joint venture with
Novartis our rights to develop MEDI-507 as part of a xenotransplantation system.
MedImmune is focusing its initial development efforts with MEDI-507 for the
treatment of psoriasis and graft-versus-host disease. In psoriasis, an
autoimmune response leads to chronic inflammation and hyperproliferating skin,
as well as other more serious consequences. Graft-versus-host disease is an
often fatal outcome of bone marrow transplantation where certain white blood
cells from the donor bone marrow attack the tissue of the recipient.
We believe that MEDI-507 could be used to reduce undesired immune system
activity by binding to CD2, which is a receptor found on T cells. T cells are
immune cells that act as the agents of the immune system and are responsible for
part of the body's primary immune response to foreign antigens. When these
immune cells come in contact with foreign tissue, they become activated and
proliferate. The immune cells then attack and destroy the targeted foreign
tissue, or in the case of autoimmune disease, mistakenly attack the body's own
tissue. The theory behind MEDI-507's
79
<PAGE>
development plan is tied to its ability to bind to the T cell and block
activation of these cells. We expect that through this process, MEDI-507 can
either turn off the T cells completely or selectively eliminate them from the
body, while allowing other immune cells to respond normally to other antigens.
Clinical studies conducted by us and by others have demonstrated that
MEDI-507 has the potential to be a safe and effective agent for the prevention
and treatment of graft-versus-host disease, as well as transplant rejection. For
example, during 1999, MedImmune concluded a multicenter Phase I/II trial of
MEDI-507 in patients with severe acute graft-versus-host disease who had failed
previous treatment with corticosteroids, the most commonly used initial
treatment in this patient population. Seventeen patients with moderate to severe
graft-versus-host disease were given four doses of MEDI-507. Over the 100-day
observation period, 71 percent of the patients experienced a reduction in grade
of graft-versus-host disease; over half of the patients resolved their disease
at some point during the follow up.
MedImmune is currently conducting additional Phase I/II clinical trials to
evaluate MEDI-507 for the treatment of graft-versus-host disease. One such
study, which was completed in 2000, examined the effect of adding MEDI-507 to
conventional steroid treatment at the onset of graft-versus-host disease. In
this study, 34 adult patients who developed severe acute graft-versus-host
disease following a stem cell transplant or bone marrow transplant were treated
with steroids in addition to either four doses of MEDI-507 or a placebo. The
results demonstrated that the addition of MEDI-507 to steroid treatment at the
onset of graft-versus-host disease was well tolerated. In another study,
MedImmune is using an open label trial to assess the ability of MEDI-507 to
treat graft-versus-host disease in pediatric stem cell transplant or bone marrow
transplant patients. Currently, there are no agents approved for the treatment
of graft-versus-host disease in children. MedImmune did not design these initial
clinical trials to allow retreatment of the patient with MEDI-507.
We believe that MEDI-507 may also be effective in treating T cell mediated
diseases such as psoriasis, inflammatory bowel disease, multiple sclerosis and
rheumatoid arthritis. Presently, MedImmune has completed a Phase I clinical
trial evaluating MEDI-507 and is conducting two Phase I/II clinical trials for
the treatment of psoriasis as a proof-of-concept for its use in autoimmune
disease. The results of the Phase I study showed that MEDI-507 was well
tolerated by the patients. We expect MedImmune to conduct Phase II trials for
this indication in 2001.
In 1998, MedImmune received orphan drug designation from the Office of
Orphan Products Development of the FDA for the use of MEDI-507 in the treatment
of graft-versus-host disease. Congress enacted the Orphan Drug Act to encourage
development of drugs for rare diseases and conditions affecting a small patient
population, generally less than 200,000 people. Orphan drug designation of a
product can potentially provide a company with seven years of market exclusivity
if the company is the first to receive FDA product marketing approval for the
orphan drug in the designated indication. Additionally, this designation
provides a company with tax credits of 50% for clinical research expenses and
the opportunity for clinical research grants.
ALLOMUNE SYSTEMS
We are designing our AlloMune Systems to re-educate a patient's immune
system so that it does not reject transplanted cells, tissues and organs. We are
currently evaluating the use of our AlloMune Systems in the treatment of blood
cell cancers and to reduce the need for lifelong immunosuppressive therapy in
connection with human organ transplants.
The AlloMune System is a proprietary system that we are developing to
incorporate multiple components. We are designing it to allow a milder procedure
for allogeneic bone marrow transplantation and to reduce or eliminate the need
for lifelong immunosuppressive therapy in human-to-human organ transplantation.
Because the AlloMune System is expected to be suitable for elderly and
relatively infirm patients, as well as patients without tissue-matched donors,
we expect that
80
<PAGE>
it will enable a significantly expanded pool of patients to be considered for
transplantation. We expect that the AlloMune System will expand the pool of
eligible transplantation recipients by reprogramming the immune system to
recognize donor and patient as self, thereby overcoming the complications that
result when the patient or the donor recognizes the other's cells, tissues and
organs as non-self. This reprogramming of the immune system is expected to be
created by establishing a state of mixed bone marrow chimerism between the donor
and the patient with the use of MEDI-507.
Mixed bone marrow chimerism refers to bone marrow in which the cells of both
the donor and the patient co-exist. To achieve mixed bone marrow chimerism, the
doctor first blocks the patient's immune response to the new foreign antigens
from the donor by giving the patient injections of anti-T cell antibody, such as
MEDI-507, which depletes the patient's mature T cells. The doctor performs this
process prior to the transplantation of the donor bone marrow into the patient.
Concurrent with the administration of the anti-T cell antibody, the patient
receives doses of radiation or, in the case of cancer patients, chemotherapy, to
make space in the patient's bone marrow and allow the transplanted bone marrow
to "seed" the newly created space. The doctor then injects bone marrow cells
from the donor into the patient.
We and others have conducted studies that demonstrate that the creation of
the mixed bone marrow chimerism will cause the patient to tolerate the donor
antigens and regard them as antigens of the patient. By regarding the donor's
antigens as self, the patient's immune system retains its ability to respond to
foreign pathogens without rejecting cells, tissues or organs transplanted from
the bone marrow donor. In addition, in the case of blood cell cancers, the
creation of mixed bone marrow chimerism allows the immune cells from the donor
to preferentially attack the cancer cells rather than the patient's own cells.
ALLOMUNE SYSTEM FOR CANCER. We are developing our AlloMune System to treat
certain types of blood cancers, such as lymphomas, leukemias and myelomas, as
well as other malignancies such as kidney cell tumors, melanoma and other
cancers. We are designing our AlloMune System for Cancer to re-program a
patient's immune defenses so that the patient can benefit from potentially life
saving bone marrow transplantation. By using a combination of chemotherapy and
the AlloMune System, we are seeking to make bone marrow transplants more
successful by allowing the transplanted bone marrow to aggressively attack
cancer cells but not the patient's own immune defenses, and without the side
effects of graft-versus-host disease or the morbidity caused by destroying the
patient's own bone marrow, as is done in conventional bone marrow transplants.
We are designing the AlloMune System for Cancer to employ a less-intensive,
non-ablative amount of chemotherapy, which we believe will increase the types of
disease conditions that can be treated, as well as patients' ability to tolerate
the treatment. We believe that doctors can administer this regimen safely to
patients who, because of their age or concomitant other medical problems, would
not have been suitable transplant candidates with ablative regimens.
In 1999, our research collaborator, Massachusetts General Hospital,
performed a study under an investigational new drug application using a
prototype of the AlloMune System for Cancer with 21 patients having
therapy-resistant blood cancers, including lymphomas. Results of the study
demonstrated that treatment led to an overall positive response rate of 67% (38%
complete response, 29% partial response). In a recent extension of that study,
Massachusetts General Hospital demonstrated the feasibility of using this
prototype AlloMune System for transplantation using donors who were not fully
tissue matched.
In early 2000, we initiated a Phase I/II clinical trial of our AlloMune
System for Cancer to treat patients with therapy-resistant lymphoma under an
investigational new drug application. We expect to complete our Phase I/II
clinical trial in late 2001. We are planning to file an investigational new drug
application and begin studies in patients with solid tumors in 2001.
81
<PAGE>
ALLOMUNE SYSTEM FOR TRANSPLANTATION. We are also developing the AlloMune
System for Transplantation to re-program the patient's immune system to accept a
transplanted donor organ without the need for life-long immunosuppressive
therapy. During 1999, we received clearance of an investigational new drug
application with the FDA to begin a Phase I clinical trial of the AlloMune
System for Transplantation in living-donor kidney transplantation. Recent
results from our cancer clinical studies have led us to make changes to the
protocol for this Phase I clinical trial.
Our academic collaborators at the Massachusetts General Hospital have
initiated a hospital internal review board-approved Phase I/II
proof-of-principle evaluation of the prototype AlloMune System for
transplantation in humans. Physicians at Massachusetts General Hospital treated
the initial patient under the investigational new drug application for myeloma,
a blood cell cancer, and end-stage kidney disease using a prototype AlloMune
System approach. The patient received both a kidney transplant and a bone marrow
transplant more than two years ago. The patient has been free of
immunosuppressive drugs for nearly two years and has normal kidney function, no
evidence of graft-versus-host disease, and her myeloma is at nearly undetectable
levels.
XENOTRANSPLANTATION
Xenotransplantation refers to the transplantation of cells, tissues or
organs from one species to another. Xenotransplantation is intended to address
the problems arising from the limited supply of available human cells, tissues
and organs for transplantation by developing technologies to permit the
transplantation of cells, tissues and organs from other species, such as swine.
Since 1993, we have collaborated with Novartis to research and develop
xenotransplantation products.
In September 2000, we entered into a joint venture with Novartis to continue
research on xenotransplantation products using the technology and intellectual
property that we and Novartis had previously developed, both independently and
in collaboration with one another. We expect that this joint venture will
commence operations in January 2001. The goal of the joint venture is to
demonstrate the feasibility and safety of swine to primate transplantation
leading to clinical trials of xenotransplantation for the treatment of end-stage
organ failure in humans. We expect that the joint venture will conduct this
research in three general areas:
- First, the joint venture will seek to demonstrate proof of concept for
organ survival in primate model systems in collaboration with researchers
at the Massachusetts General Hospital. These experiments will employ
several technologies and procedures, including:
- swine that carry human genes that inhibit hyperacute rejection, referred
to as transgenic swine;
- proprietary inbred miniature swine;
- proprietary technology licensed from the Alberta Research Council, which
removes natural antibodies from the recipient's blood prior to the
transplant to reduce or eliminate hyperacute rejection;
- immunosuppressive compounds; and
- the transplantation of pig thymus tissue to reprogram the recipient's
immune system to recognize the donor tissue as self.
Our objective is to extend the current survival times for swine organs
transplanted into primates from approximately one month post-transplant to
three to six months by destroying the pre-existing antibody-producing
cells in combination with pig thymus tissue transplantation. We refer to
this process as transplantation tolerance. Previous studies have
demonstrated the ability of porcine, or pig, thymic tissue transplanted
into a mouse to induce transplantation tolerance. In these studies,
researchers documented permanent acceptance of pig skin transplants in
mice
82
<PAGE>
with an otherwise normal immune system and specific T cell
unresponsiveness to pig antigens in culture. Allogeneic large animal
studies using inbred miniature swine have also demonstrated the ability of
allogeneic pig thymic transplants to induce tolerance to kidney grafts
from the donor of the thymic tissue in the absence of chronic
immunosuppressive drug use.
- Second, the joint venture will continue studies begun by us to examine the
safety of porcine to human xenotransplantation. Others have demonstrated
that certain porcine viruses, referred to as porcine endogenous
retroviruses, have the potential to infect human cells. We previously
reported on the results of studies that documented the ability of one
strain of miniature swine to be free of the porcine endogenous retrovirus
types that have been shown to be capable of infecting human cells in
culture.
- Third, the joint venture will focus on adapting recent successes in
porcine nuclear transfer technology in which a genetically modified
miniature swine has been cloned with modifications that are believed to
enhance the survival rates of porcine organs in primates.
COLLABORATIONS AND AGREEMENTS
As part of our strategy, we have established alliances with pharmaceutical
and other biotechnology companies, academic institutions, scientists and
government laboratories. Currently, our principal strategic alliances are the
following:
MEDIMMUNE
In October 1995, we formed a collaborative agreement with MedImmune for the
development and commercialization of products to treat and prevent rejection.
The collaboration is based upon the development of products derived from
BTI-322, MEDI-507 and future generations of products derived from these
molecules. Pursuant to the collaboration, we granted MedImmune an exclusive
worldwide license to develop and commercialize BTI-322 and MEDI-507 and any
products based on BTI-322 or MEDI-507, other than the use of BTI-322 or MEDI-507
in kits or systems for xenotransplantation or allotransplantation. MedImmune
paid us a $2.0 million license fee at the time of formation of the collaboration
and agreed to fund and assume responsibility for clinical testing and
commercialization of any resulting products. As of September 30, 2000, MedImmune
had provided $2.0 million in non-refundable research support and had agreed to
make milestone payments which could total an additional $11.0 million, all of
which is repayable from royalties on BTI-322 or MEDI-507, as well as to pay
royalties on any sales of BTI-322 or MEDI-507 and future generations of
products, if any. Royalties will depend, in part, upon the efforts of MedImmune
to perform clinical testing, obtain regulatory approvals and market and sell
BTI-322 and MEDI-507. MedImmune controls the amount and timing of the resources
devoted to these activities.
DR. DAVID H. SACHS/THE MASSACHUSETTS GENERAL HOSPITAL
In January 1991, we entered into a ten-year agreement with MGH, which was
extended for an additional five-year term in December 2000, under which we fund
a portion of the research of Dr. Sachs and other MGH personnel in the area of
transplantation of cells, tissues and organs. In exchange for such research
funding, MGH has granted us exclusive worldwide royalty-bearing rights to
technology and inventions developed in the course of research funded by us,
subject to a royalty to be paid to MGH and subject to customary retention rights
of the United States government. We also have a right of first refusal in
connection with any additional research proposals in the field of tissue and
organ transplantation to be submitted by Dr. Sachs and his colleagues, who are
funded by us, to other commercial sponsors.
83
<PAGE>
NOVARTIS/BIOTRANSPLANT JOINT VENTURE
From 1993 through October 2000, we were party to two collaboration
agreements with Novartis to research, develop and commercialize
xenotransplantation products. During the collaboration, we received an aggregate
of $33.5 million in research funding and $16.5 million in license fees and
milestone payments from Novartis. In September 2000, we entered into an
arrangement with Novartis to combine our respective expertise in the field of
xenotransplantation into a newly-formed, independently-run Swiss company,
Immerge BioTherapeutics AG, and terminated our prior collaborations in
xenotransplantation.
Novartis has committed to provide an aggregate of $30.0 million in research
funding over three years to the joint venture. Both we and Novartis have
exclusively licensed to the joint venture patent rights and technology in the
field of xenotransplantation. The joint venture has granted to Novartis an
exclusive, worldwide, royalty-bearing license to develop and commercialize any
xenotransplantation products resulting from its research. We will receive
royalties from the sale of xenotransplantation products by Novartis, if any.
In December 2000, Immerge BioTherapeutics AG formed a wholly-owned Delaware
subsidiary, Immerge BioTherapeutics, Inc. The Delaware subsidiary expects to
enter into a contract research agreement with us, pursuant to which we will
commit approximately 20 full-time employees to perform research for the joint
venture and we will also agree to provide administrative services for the joint
venture, all at a rate to be negotiated.
Novartis holds 67% of the shares of the joint venture and we hold the
remaining 33%. All income, gain, profit or loss of the joint venture will be
allocated to us and Novartis pro rata in accordance with our respective equity
ownership of the joint venture in effect in the period in which these items
accrue. Initially, the board of directors of Immerge BioTherapeutics AG, and any
subsidiary of Immerge BioTherapeutics AG, will consist of four directors: one
selected by us, one selected by Novartis and two additional directors, one each
designated by us and Novartis, who are experts in the field of
xenotransplantation. Immerge BioTherapeutics AG has agreed not to undertake, or
permit its subsidiaries to undertake, specified fundamental corporate actions
without the consent of both shareholders. We expect the joint venture to begin
operations in January 2001.
CHARLES RIVER LABORATORIES
Pursuant to a miniature swine transfer and maintenance agreement with
Charles River Laboratories, we and the joint venture will have exclusive rights
to use miniature swine that Charles River Laboratories is developing for use in
the allotransplantation and xenotransplantation programs, respectively. The
joint venture and BioTransplant will bear their proportionate costs of
maintaining the miniature swine herd. The agreement expires in 2003, but the
parties may agree to renew the agreement for an additional five-year period.
STEM CELL SCIENCES PTY LTD.
Pursuant to a strategic alliance with Stem Cell Sciences Pty Ltd., our joint
venture with Novartis will have worldwide, exclusive rights, subject to the
payment of a royalty, to technology, products and processes for the derivation
and manipulation of porcine embryonic stem cells and nuclear transfer technology
developed during the research term and useful in xenotransplantation in humans.
We have made equity investments in Stem Cell Sciences that represented 30% of
the outstanding shares of that company. Stem Cell Sciences has used
substantially all of the consideration from our equity investment to fund the
research and development of nuclear transfer technology and, in particular, the
development of technology, products and processes useful for xenotransplantation
in humans. We made additional investments in Stem Cell Sciences in 1996, 1997
and 1998 to maintain our 30% ownership position and to support additional
research through December 31, 1999. Stem Cell Sciences raised additional equity
during 2000, resulting in a dilution of our ownership to approximately 25%.
84
<PAGE>
ALBERTA RESEARCH COUNCIL
The Alberta Research Council has granted us a worldwide royalty-bearing
license for specified patents and patent applications covering technology
potentially useful for removal of natural antibodies against xenografts. We
expect to exclusively sublicense our rights under this agreement to our joint
venture with Novartis. The license is exclusive except for one patent
application directed to the removal of natural antibodies against xenografts,
which is co-owned by one of the inventors and was assigned to a competitor. The
Alberta Research Council has also granted a non-exclusive, worldwide, royalty-
bearing license to use any of its information, data, formulas or processing
information that pertain to the manufacture, development or use of any products
resulting from the licensed patents in the field of xenotransplantation.
CATHOLIC UNIVERSITY OF LOUVAIN (BELGIUM)
We are funding research by Drs. Herve Bazin and Dominique Latinne at the
Experimental Immunology Unit of the Catholic University of Louvain, Belgium, for
the development of monoclonal antibodies. We have exclusive, worldwide
royalty-bearing commercialization rights to discoveries, including BTI-322, made
in laboratories under our sponsorship, subject to a royalty.
MANUFACTURING AND SUPPLY
We currently have no manufacturing facilities or staff for clinical or
commercial production of any products or systems under development. We plan to
rely initially on third parties to manufacture certain of our product candidates
for research, preclinical testing, clinical trials and commercialization, if
any, with a long-term objective to develop internal manufacturing capability
where appropriate.
MedImmune is manufacturing supplies of MEDI-507 required for preclinical
studies, clinical trials and commercial products using its own manufacturing
facilities. We have the option to continue to use MedImmune as a supplier or to
use an alternative manufacturer or supplier.
Novartis has exclusive worldwide rights to manufacture xenotransplantation
products arising from the research program conducted by our joint venture with
Novartis.
SALES AND MARKETING
Due to the early stage of our development efforts, we presently have no
marketing or sales personnel.
MedImmune has exclusive worldwide marketing rights to BTI-322, MEDI-507 and
future generations of these products, if any, other than the use of BTI-322 and
MEDI-507 for kits or systems for xenotransplantation and allotransplantation.
We currently hold all marketing rights to the AlloMune System, although we
may seek a corporate partner to support the development and commercialization of
the AlloMune System. In the United States, we currently intend to market the
AlloMune System for solid organ transplantation and cancer related products and
systems to the approximately 275 transplant centers, which we believe will allow
significant market coverage with relatively few sales personnel. To implement
this marketing strategy, we intend to hire a limited number of sales and
marketing personnel. In foreign markets, we expect to use local pharmaceutical
companies to market our products and systems due to the complexities of foreign
regulations and medical practices.
Novartis has exclusive worldwide rights to market and sell
xenotransplantation products arising from the research program conducted by our
joint venture with Novartis.
85
<PAGE>
RESEARCH AND DEVELOPMENT
Our total research and development expenses were $14.0 million,
$14.7 million, $15.7 million and $11.0 million for 1997, 1998, 1999 and the nine
months ended September 30, 2000, respectively. Collaborative research and
development revenues totaled $12.1 million, $6.7 million, $9.0 million and
$4.5 million in 1997, 1998, 1999 and the nine months ended September 30, 2000,
respectively.
PATENTS AND PROPRIETARY RIGHTS
As of December 31, 2000, we owned or had been licensed 36 issued United
States patents and 41 allowed or pending United States patent applications, as
well as foreign counterparts for certain of the patent applications. These
patents and patent applications are directed to, among other things, MEDI-507,
our AlloMune Systems and our xenotransplantation technologies.
Our policy is to aggressively prosecute and enforce our patents and
proprietary technology. We intend to continue to file United States and foreign
patent applications to protect technology, inventions and improvements that are
considered important to the development of our business. We also rely upon trade
secrets, know how, continuing technological innovation and licensing
opportunities to develop and maintain our competitive position.
We are aware of granted patents that claim monoclonal antibodies that bind
to T cells. Johnson & Johnson, which manufactures and sells OKT3, a T
cell-binding monoclonal antibody, owns these patents. We believe that BTI-322 is
distinguishable from other monoclonal antibodies claimed in such patents, and
does not infringe such patents either literally or under the doctrine of
equivalents.
We have reviewed issued patents which include claims relating to humanized
monoclonal antibodies. These patents are held by biotechnology companies and an
academic institution. We, together with MedImmune, have obtained a license for
MEDI-507 from Protein Design Laboratories Inc. under its humanized antibody
patents.
We are also aware of a granted United States patent directed to the
production of transgenic animals by the use of a microinjection technique which
is licensed to a competitor. Such patent could have an adverse impact on our, or
our licensees and collaborators, ability to produce transgenic animals by
microinjection. In addition, we are aware of a United States patent that is
directed to embryonic stem cells. Such patent may have an adverse impact on our,
or our licensees' or collaborators', programs for producing transgenic swine by
the use of embryonic stem cells.
Some of our know-how and technology is not patentable. To protect our
rights, we require all of our employees, consultants, advisors and collaborators
to enter into confidentiality agreements with us.
COMPETITION
We believe that our ability to compete successfully depends on our ability
to create and maintain scientifically advanced technology, develop proprietary
products and attract and retain qualified scientific personnel. In addition, we
have to obtain adequate financing, patents, orphan drug designation or other
protection for our products, and require regulatory approvals to manufacture and
successfully market our products both independently and through collaborators.
The biopharmaceutical and pharmaceutical industries are intensely
competitive. We compete against numerous companies, many of which have financial
and other resources substantially greater than our own. Private and public
academic and research institutions also compete with us in the research and
development of human therapeutic products. In addition, many of our competitors
have significantly greater experience in testing pharmaceutical and other
therapeutic products and obtaining FDA and other regulatory approvals of
products for use in health care. Accordingly, our competitors may succeed more
rapidly than we will in obtaining FDA approval for products. If we commence
86
<PAGE>
significant commercial sales of our products, we will also be competing with
respect to manufacturing efficiency and marketing capabilities, areas in which
we have limited or no experience.
Our products under development will compete with products and therapies that
are either currently available or currently under development. Competition will
depend, among other things, on:
- efficacy;
- safety;
- reliability;
- price;
- availability of reimbursement; and
- intellectual property position.
We are aware of other companies that are pursuing research and development
of alternative products or technologies addressing the same disease categories
as our development programs. In particular, there are several commercially
available anti-rejection drugs that will compete with BTI-322/MEDI-507 products,
including OKT3 (marketed by Ortho Biotech, Inc., a subsidiary of Johnson &
Johnson), ATGAM (marketed by Pharmacia Upjohn),
ThymoGlobulin-Registered Trademark- (marketed by SangStat Medical Corporation),
Zenapax -Registered Trademark- (marketed by Roche Laboratories) and Simulect
-Registered Trademark- (marketed by Novartis). To the extent that these
therapeutics address the problems associated with transplantation on which we
have focused, they may represent significant competition.
Some of our competitors are using organs derived from genetically-modified
transgenic donors which are designed to eliminate hyperacute rejection in
humans. Despite our progress in creating tolerance for transplantation, there
can be no assurance that others will not be successful in inducing tolerance. In
addition, the development of superior immunosuppressant therapeutics, mechanical
organ systems and other improvements in therapies for end-stage organ disease
could adversely affect the size of our available markets. We are aware that
Chimeric Therapies, Inc. plans to develop mixed bone marrow chimerism to include
tolerance for allogeneic solid organ and bone marrow transplants. These
approaches may be competitive.
GOVERNMENT REGULATION
The development and commercialization of our products will be subject to
regulation in the United States by numerous regulatory authorities including the
Federal Food and Drug Administration and Federal Trade Commission and by
comparable regulatory authorities in foreign countries. These regulatory
authorities and other federal, state and local entities will regulate, among
other things, the preclinical and clinical testing, safety, effectiveness,
approval, clearance, manufacturing, labeling, packaging, export, storage,
recordkeeping, adverse event reporting, and promotion and advertising of our
products.
We will require FDA approval or clearance of our products, including a
review of the manufacturing processes and facilities used to produce such
products, before we may market the products in the United States. Based upon
initial discussions with the FDA, we believe that BTI-322 and MEDI-507 will be
classified as biological products by the FDA. Biological products are subject to
dual regulation. Their approval for marketing, among other things, is regulated
under the Public Health Service Act through a biologics license application, or
BLA. However, biological products are also drugs and must meet drug standards
under the Federal Food, Drug and Cosmetics Act. Such standards include good
manufacturing practices regulations and regulations governing clinical trials.
The manufacture of xenograft products for human transplantation can be
expected to present novel questions concerning both the safety and effectiveness
of the products and compliance with and
87
<PAGE>
further development of standards for good manufacturing practices of such
products. The Public Health Service published draft guidance in 1996 on
infectious disease issues related to xenotransplantation and in 1999 on the
infectious disease implication of blood donation from recipients of
xenotransplants. In January 1998, PHS held a public meeting on emerging policy
issues, but final guidance and/or regulations do not yet exist. We cannot
predict the content of future policy or regulations relating to such products,
or the effect such policy or regulation may have on our, or our licensees' or
collaborators', ability to research, develop, manufacture and market
xenotransplantation products.
Development of a therapeutic product for human use under applicable laws and
regulations is a multi-step process. First, in vitro and/or animal testing must
be conducted in accordance with good laboratory practices to establish the
potential safety and effectiveness of the experimental product in a given
disease. If a product is found to be reasonably safe and potentially effective
in preclinical trials, the next step in the process is human clinical trials. An
investigational new drug application, or IND, containing, among other things,
the preclinical data, chemistry, manufacturing and control information, and an
investigative plan, must be submitted to the FDA and allowed to become effective
by the agency before such trials may begin. There can be no assurance that
submission of an investigational new drug application will result in the ability
to commence clinical trials. In addition, the FDA may place a clinical trial on
hold or terminate it if, among other reasons, it concludes that clinical
subjects are being exposed to an unacceptable health risk.
Clinical trials typically involve three phases, although those phases can
overlap:
PHASE I. Phase I is conducted to evaluate the safety and
pharmacokinetics of the experimental product in humans, and if possible, to
gain early indications of effectiveness. Phase I studies may also evaluate
various routes, dosages and schedules of product administration.
PHASE II. If acceptable product safety is demonstrated in Phase I,
Phase II studies are initiated. In Phase II, clinical trials are conducted
in groups of patients afflicted with a specific disease or condition for
which the product is intended for use in order to further test safety, begin
evaluating effectiveness, optimize dosage amounts and determine dose
schedules and routes of administration.
PHASE III. If Phase II studies yield satisfactory results and no hold
is placed on further studies by the FDA, Phase III studies begin. Phase III
studies are usually randomized, double blind studies testing for product
safety and effectiveness in an expanded patient population in order to
evaluate the overall risk/benefit relationship of the product and to provide
an adequate basis for product labeling. These studies also may compare the
safety and effectiveness of the product with currently available products.
It is not possible to estimate the time in which Phase I, II and III studies
will be completed with respect to a given product, if at all, and the time
period may last as long as several years.
Following completion of clinical investigations, the preclinical and
clinical data that have been accumulated, together with chemistry, manufacturing
and controls specifications and information, are submitted to the FDA in a BLA.
To approve a product regulated under a BLA, the agency must determine, among
other things, that the product is safe, pure and potent, and that any facility
in which it is manufactured, processed, packed or held, meets standards designed
to assure the product's continued safety, purity and potency. There can be no
assurance that the FDA will approve a product in a timely manner, if at all. The
approval process can be very lengthy and depends, among other things, upon the
time it takes to review the submitted data, the FDA's comments on the
application and the time required for us to provide satisfactory answers or
additional clinical data if requested.
If the FDA approves a BLA, we will need to continue to be compliant with
strict FDA requirements concerning good manufacturing practices, enforced by
periodic inspections and adverse
88
<PAGE>
event reporting, as well as with any special requirements imposed as a part of
the BLA approval. Changes to approved biological products that affect safety or
effectiveness require approved supplemental applications, as do changes in
manufacturing that have a substantial potential to adversely affect product
safety or effectiveness. Such supplemental applications may require the
submission of clinical or comparability data and must be approved before the
product may be marketed as modified.
In addition, the nature of marketing claims that the FDA will permit us to
make in the labeling and advertising of our products will be limited to those
specified in an FDA clearance or approval, and claims exceeding those that are
cleared or approved will constitute a violation of the FDA's Food, Drug and
Cosmetics Act. Violations of the Food, Drug and Cosmetics Act or regulatory
requirements at any time during the product development process, approval
process or after approval may result in agency enforcement actions, including
recall, license suspension or revocation, seizure of products, fines,
injunctions and/or civil or criminal penalties. Any such agency action could
have a material adverse effect on us.
The advertising of our products will also be subject to regulation by the
Federal Trade Commission, under the FTC Act. The FTC Act prohibits unfair
methods of competition and unfair or deceptive acts in or affecting commerce.
Violations of the FTC Act, such as failure to have substantiation for product
claims, would subject us to a variety of enforcement actions, including
compulsory process, cease and desist orders and injunctions. FTC enforcement can
result in orders requiring, among other things, limits on advertising,
corrective advertising, consumer redress and recision of contracts. Violations
of FTC enforcement orders can result in substantial fines or other penalties.
The Orphan Drug Act of 1983 generally provides incentives to manufacturers
to undertake development and marketing of products to treat relatively rare
diseases, those where fewer than 200,000 persons in the United States at the
time of application for orphan drug designation would be likely to receive the
treatment. A product that receives orphan drug designation by the FDA and is the
first product to receive FDA marketing approval for its indication is entitled
to a seven-year exclusive marketing period in the United States for that
indication. We intend to pursue this designation with respect to any of our
products intended for patient populations in the United States of less than
200,000. MEDI-507 has received orphan drug designation, both as a stand-alone
product, and as a component of our AlloMune System. In addition, orphan drug
exclusivity can be terminated for a number of reasons, including that the
manufacturer cannot provide an adequate supply of the drug.
We also face several regulatory obstacles in the European Union. Although
there are minor orphan drug provisions in some European countries, there is, as
yet, no overall process equivalent to that followed in the United States. The
results of all preclinical, development/manufacturing and Phase I, II and III
clinical study data generated in Europe or the United States may also be
submitted to the European Medicines Evaluation Agency, the counterpart of the
FDA, for approval as a Marketing Approval Application, or MAA, which is the
equivalent of a BLA. Approval of the MAA permits product marketing within all
countries of the European Union. This MAA procedure can take a year or more to
complete. Approval procedures for marketing of products in countries that are
not European Union member states vary from country to country and the time
required for approval may be longer or shorter than that required for FDA
approval. In addition, for products exported from the United States to any
foreign country or territory, applicable FDA export requirements must be met.
EMPLOYEES
As of December 31, 2000, we had 62 full-time employees, 50 of whom were
engaged in research, development, clinical and quality assurance/quality control
activities. Of our full time employees, we expect that approximately 20 will
devote substantially all of their time to research for the joint venture
89
<PAGE>
with Novartis pursuant to a research agreement with Immerge BioTherapeutics,
Inc. None of our employees are represented by a labor union or covered by a
collective bargaining agreement.
PROPERTIES
We lease a facility which contains approximately 34,000 square feet of space
in Charlestown, Massachusetts. The lease has a 15-year term ending in 2009 with
an option to extend for an additional five years. We believe that our current
facilities will be sufficient to meet our needs for the foreseeable future.
LEGAL PROCEEDINGS
We are currently not a party to any material legal proceedings.
90
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF BIOTRANSPLANT
OVERVIEW
Since commencement of operations in 1990, BioTransplant has been engaged
primarily in the research and development of pharmaceutical products and systems
to enable the body's immune system to better tolerate the transplantation of
foreign cells, tissues and organs. The major sources of BioTransplant's working
capital have been the proceeds from sales of equity securities, sponsored
research funding and license fees, capital lease financings and borrowings under
a term loan. BioTransplant has not generated any revenues from the sale of
products to date, and does not expect to receive any product revenues for
several years, if ever. BioTransplant will be required to conduct significant
additional research, development, testing and regulatory compliance activities
that, together with general and administrative expenses, are expected to result
in significant and increasing operating losses for at least the next several
years.
From 1993 through October 2000, BioTransplant was a party to two
collaboration agreements with Novartis to research, develop and commercialize
xenotransplantation products. During the collaboration, BioTransplant received
an aggregate of $33.5 million in research funding and $16.5 million in license
fees and milestone payments from Novartis. In September 2000, BioTransplant
entered into an arrangement with Novartis to combine their respective expertise
in the field of xenotransplantation into a newly-formed, independently-run Swiss
company, Immerge BioTherapeutics AG, which BioTransplant expects to begin
operations in January 2001, and terminated their prior collaborations in
xenotransplantation.
Novartis has committed to provide an aggregate of $30.0 million in research
funding over three years to the joint venture. Both BioTransplant and Novartis
have exclusively licensed to the joint venture patent rights and technology in
the field of xenotransplantation. The joint venture has granted to Novartis an
exclusive, worldwide royalty-bearing license to develop and commercialize any
xenotransplantation products resulting from the joint venture's research.
BioTransplant will receive royalties from the sale of xenotransplantation
products by Novartis, if any.
In December 2000, Immerge BioTherapeutics AG formed a wholly-owned Delaware
subsidiary, Immerge BioTherapeutics, Inc. BioTransplant expects to enter into a
contract research agreement with the Delaware subsidiary, pursuant to which
BioTransplant will commit approximately 20 full-time employees to perform
research and will agree to provide administrative services, all at a rate to be
agreed upon.
Novartis holds 67% of the shares of the joint venture and BioTransplant
holds the remaining 33%. All income, gain, profit or loss of the joint venture
will be allocated to BioTransplant and Novartis pro rata in accordance with
their respective equity ownership of the joint venture in effect in the period
in which these items accrue. Initially, the board of directors of Immerge
BioTherapeutics AG, and any subsidiary of Immerge BioTherapeutics AG, will
consist of four directors: one selected by BioTransplant, one selected by
Novartis and two additional directors, one each designated by BioTransplant and
Novartis, who are experts in the field of xenotransplantation. Immerge
BioTherapeutics AG has agreed not to undertake, or permit its subsidiaries to
undertake, specified fundamental corporate actions without the consent of both
shareholders.
In October 1995, BioTransplant and MedImmune entered into a collaborative
research agreement for the development of products to treat and prevent organ
rejection. MedImmune paid BioTransplant a $2.0 million license fee at the time
of execution of the agreement, and agreed to fund and assume responsibility for
clinical testing and commercialization of BTI-322 and other related products.
MedImmune has provided $2.0 million of non-refundable research support and has
agreed to make
91
<PAGE>
milestone payments which could total up to an additional $11.0 million. Any
milestone payments which are received are repayable from royalties on such
products.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues decreased to $5.5 million for the nine months ended September 30,
2000 from $6.8 million for the nine months ended September 30, 1999. The
decrease in revenues was primarily due to the $2.5 million milestone fee
received from Novartis in September 1999. This decrease was partially offset by
an increase in sponsored research funding from Novartis to $4.5 million during
the nine months ended September 30, 2000, compared to $3.7 million in sponsored
research funding from Novartis during the nine months ended September 30, 1999.
Additionally, interest income increased to $1.0 million for the nine months
ended September 30, 2000 from $560,000 for the nine months ended September 30,
1999. The increase was due primarily to higher cash balances available for
investment purposes as well as rising interest rates.
Research and development expenses decreased to $11.0 million for the nine
months ended September 30, 2000 from $11.4 million for the nine months ended
September 30, 1999. This decrease was primarily due to decreased levels of
external research support.
General and administrative expenses increased to $1.9 million for the nine
months ended September 30, 2000 from $1.8 million for the nine months ended
September 30, 1999. This increase was primarily due to increases in
BioTransplant's general corporate expenditures in the nine months ended
September 30, 2000 compared to the nine months ended September 30, 1999.
As a result of the above factors BioTransplant generated a net loss for the
nine months ended September 30, 2000 of $7.4 million, or $0.65 per share,
compared to a net loss of $6.5 million, or $0.75 per share, for the nine months
ended September 30, 1999.
YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues increased to $9.5 million in 1999 from $8.0 million in 1998. The
increase in revenues was primarily due to $8.7 million in sponsored research,
milestone payments and license revenue from the Novartis agreements in 1999,
compared to $6.7 million in sponsored research and license revenue from Novartis
during 1998. Interest income decreased to $0.8 million in 1999 compared to
$1.3 million in 1998. The decrease was due to lower average cash balances
available for investment during 1999.
Research and development expenses increased to $15.7 million in 1999 from
$14.7 million in 1998. This increase was primarily due to additional external
research support combined with increases in research and development staff and
associated increases in supplies and support services.
General and administrative expenses decreased slightly to $2.4 million in
1999 from $2.5 million in 1998. This decrease was primarily due to decreased
outside professional services rendered in connection with market research and
business development.
Interest expense increased to $18,000 in 1999 from $10,000 in 1998. This
increase was primarily due to borrowings under a term note in 1999.
As a result of the above factors, BioTransplant incurred a net loss for 1999
of $8.7 million compared to a net loss of $9.2 million for 1998.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenues decreased to $8.0 million in 1998 from $13.9 million in 1997. The
decrease in revenues was primarily due to $6.7 million in sponsored research and
license revenue from the Novartis
92
<PAGE>
agreements in 1998, compared to $11.4 million in sponsored research and license
revenue from Novartis during 1997. Additionally, interest income decreased to
$1.3 million in 1998 compared to $1.7 million in 1997. The increase in interest
income was due to lower average cash balances available for investment during
1998.
Research and development expenses increased to $14.7 million in 1998 from
$14.0 million in 1997. This increase was primarily due to additional external
research support combined with increases in research and development staff and
associated increases in supplies and support services.
General and administrative expenses decreased to $2.5 million in 1998 from
$3.0 million in 1997. This decrease was primarily due to decreased outside
professional services rendered in connection with market research and
development.
Interest expense decreased to $10,000 in 1998 from $59,000 in 1997. This
decrease was primarily due to decreasing balances on existing obligations under
capital leases.
As a result of the above factors, BioTransplant incurred a net loss for 1998
of $9.2 million compared to a net loss of $3.2 million for 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, BioTransplant's operations have been funded principally
through the net proceeds of an aggregate of $80.1 million from sales of equity
securities. BioTransplant has also received $50.9 million from research and
development and collaboration agreements with Novartis, $4.0 million from an
alliance agreement with MedImmune and $2.9 million in equipment financing. The
proceeds of the sales of equity securities, equipment financing and cash
generated from the corporate collaborations with Novartis and MedImmune have
been used to fund operating losses of approximately $64.5 million and the
investment of approximately $5.4 million in equipment and leasehold improvements
through September 30, 2000. During 1999, BioTransplant extended and increased
its term note with a bank from $500,000 to $1.0 million for certain equipment
and fixtures borrowing. There were $539,000 in borrowings outstanding under this
term note at September 30, 2000. BioTransplant had no significant commitments as
of September 30, 2000 for capital expenditures.
On February 11, 2000, BioTransplant issued and sold to a group of investors
an aggregate of 1,215,000 shares of its common stock, at a purchase price of
$8.00 per share, for net proceeds of approximately $9.0 million.
BioTransplant has entered into sponsored research and consulting agreements
with certain hospitals, academic institutions and consultants, requiring
periodic payments by BioTransplant. Aggregate minimum funding obligations under
these agreements, which include certain cancellation provisions, total
approximately $4.4 million, which includes approximately $4.1 million in 2000.
BioTransplant had cash, cash equivalents and short-term investments of
$19.4 million as of September 30, 2000 as compared to $21.4 million as of
December 31, 1999.
Assuming the merger is consummated, BioTransplant anticipates that its
existing cash, cash equivalents and short-term investments will be sufficient to
fund its operating and capital requirements as currently planned through the
middle of 2001. BioTransplant will need to raise substantial additional funds in
the near term, and may seek to raise these funds through additional financings,
including public or private equity offerings, collaborative arrangements with
corporate partners or a combination of any of the foregoing. There can be no
assurance that funds will be available on terms acceptable to BioTransplant, if
at all. If adequate funds are not available, BioTransplant may be required to
delay, scale back or eliminate certain of its product development programs or to
license to others the right to commercialize products or technologies that
BioTransplant would otherwise seek to develop and commercialize itself, any of
which would have a material and adverse effect on BioTransplant.
93
<PAGE>
Even if BioTransplant is able to raise the substantial additional funds
required to finance its operations, BioTransplant's cash requirements may vary
materially from those now planned. Factors that may affect this variability
include, without limitation:
- the progress of BioTransplant's research and development programs;
- the scope and results of preclinical and clinical testing;
- changes in existing and potential relationships with corporate
collaborators;
- the time and cost in obtaining regulatory approvals;
- the costs involved in obtaining and enforcing patents, proprietary rights
and any necessary licenses;
- the ability of BioTransplant to establish development and
commercialization capacities or relationships; and
- the costs of manufacturing.
BioTransplant expects to incur substantial additional costs, including costs
related to research and development activities, preclinical studies, clinical
trials, obtaining regulatory approvals, manufacturing and the expansion of its
facilities.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
BioTransplant owns financial instruments that are sensitive to market risks
as part of its investment portfolio. The investment portfolio is used to
preserve BioTransplant's capital until it is required to fund operations,
including BioTransplant's research and development activities. All of these
market-risk sensitive instruments are classified as held-to-maturity and are not
held for trading purposes. BioTransplant does not own derivative financial
instruments in its investment portfolio. The investment portfolio contains
interests that are subject to the risk of a decline in interest rates.
BioTransplant's investment portfolio includes investment-grade debt
instruments. These bonds are subject to interest rate risk and could decline in
value if interest rates fluctuate. Due to the short duration and conservative
nature of these instruments, BioTransplant does not believe that it has a
material exposure to interest rate risk.
94
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is each person who is presently a director or executive
officer of BioTransplant. Also included is each person who is presently a
director or executive officer of Eligix and who will become a director or
executive officer of BioTransplant upon consummation of the merger.
<TABLE>
<CAPTION>
NAME AGE POSITION AT BIOTRANSPLANT
---- -------- --------------------------------------
<S> <C> <C>
Elliot Lebowitz, Ph.D................. 60 President, Chief Executive Officer and
Director
Donald R. Conklin..................... 64 Director
William W. Crouse..................... 58 Director
James C. Foster, J.D.................. 50 Director
Daniel O. Hauser, Ph.D................ 63 Director
Michael S. Perry, D.V.M., Ph.D........ 41 Director
Walter C. Ogier*...................... 44 President, Chief Operating Officer and
Director
Arnold L. Oronsky, Ph.D.*............. 60 Director
Susan Racher*......................... 47 Director
James R. Fitzgerald, Jr.*............. 56 Executive Vice President, Finance and
Administration
James Hope, Ph.D...................... 49 Senior Vice President, Development
Mary White-Scharf, Ph.D............... 50 Vice President, Research
Richard V. Capasso, C.P.A............. 39 Vice President, Finance and Treasurer
Howard Grossberg, M.D................. 47 Vice President, Medical Affairs
David N. Cook, Ph.D.*................. 42 Senior Vice President, Development
Tara Clark*........................... 39 Vice President, Marketing
James Embree*......................... 51 Vice President, Manufacturing
Judith Snow*.......................... 43 Vice President, Quality Assurance
</TABLE>
------------------------
*Subject to the consummation of the merger.
ELLIOT LEBOWITZ, PH.D. has served as President and Chief Executive Officer
and as a member of the Board of Directors of BioTransplant since April 1991.
From 1985 to 1991, he served as Vice President for Research and Development at
C.R. Bard, Inc., a medical device company, directing internal and collaborative
research and development programs for Bard's Vascular Systems, Cardiosurgery and
Cardiopulmonary Divisions. From 1981 until 1985, Dr. Lebowitz served as Director
of Long Range Research and Development at DuPont Corporation, a diversified
health care company, developing immunopharmaceuticals. From 1977 until 1981, he
served as Division Manager of the Medical Products Division of New England
Nuclear Corporation, which developed, manufactured and sold radiopharmaceuticals
for in vivo diagnosis. Earlier in his career, Dr. Lebowitz served at Brookhaven
National Laboratories, a United States Department of Energy research facility,
where he developed Thallium-201, a radiopharmaceutical for the diagnosis of
coronary artery disease. Dr. Lebowitz was a founder of Diagnostic
Isotopes, Inc., a radiopharmaceutical company which was subsequently acquired by
Hoffmann-La Roche Inc., a pharmaceutical company. He was also a founder of
Procept, Inc., a biopharmaceutical company which focused on rational drug
design. He holds a B.A. from Columbia College and a Ph.D. from Columbia
University. Upon consummation of the merger, Walter C. Ogier, the President and
Chief Executive Officer of Eligix, will become President and Chief Operating
Officer of BioTransplant, reporting to Dr. Lebowitz as Chief Executive Officer.
DONALD R. CONKLIN has served as a director of BioTransplant since
January 1997. Mr. Conklin is currently retired. From February to December 1996,
he served as Chairman of Schering-Plough Health
95
<PAGE>
Care Products, a wholly-owned subsidiary of Schering-Plough Corporation, a
pharmaceutical company. From 1995 to February 1996, he served as President of
Schering-Plough Health Care, and from 1986 until September 1994, he served as
Executive Vice President and President of Schering-Plough Pharmaceuticals.
Mr. Conklin also serves on the board of directors of Alphacell Corporation and
Ventiv Corporation. He received his B.A. from Williams College and his M.B.A.
from Rutgers University. Mr. Conklin has indicated to BioTransplant that he does
not intend to serve as a director upon consummation of the merger.
WILLIAM W. CROUSE has served as a director of BioTransplant since
June 1995. Since 1994, Mr. Crouse has served as Vice Chairman of HealthCare
Ventures LLC, a venture capital firm. Mr. Crouse served as Worldwide President
of Ortho Diagnostic Systems, a medical device company, and Vice President of
Johnson & Johnson International, a pharmaceutical company, from 1987 to 1994.
Mr. Crouse has more than 30 years experience in the pharmaceutical industry. He
also serves as a director of Dendreon Corporation, The New York Blood Center and
Liberty Science Center and is a Trustee of Lehigh University. Mr. Crouse
received his B.S. in finance and economics from Lehigh University and his M.B.A.
from Pace University. Mr. Crouse has indicated to BioTransplant that he does not
intend to serve as a director upon consummation of the merger.
JAMES C. FOSTER, J.D. has served as a director of BioTransplant since
February 1992. Since 1992, he has served as President and Chief Executive
Officer of Charles River Laboratories, Inc., or CRL, a supplier of research
animals and animal-related products and services. Previously, he served in
various other capacities with CRL. Mr. Foster received his B.S. in psychology
from Lake Forest College, his J.D. from the Boston University School of Law and
his M.A. in Science and Management from the Massachusetts Institute of
Technology.
DANIEL O. HAUSER, PH.D. has served as a director of BioTransplant since
January 1994. Dr. Hauser is currently retired. From 1997 to 1998, he served as
the head of Preclinical Development & Project Management, Operations in the
United States for Novartis AG, a pharmaceutical corporation. From 1992 until
January 1997, he served as President of Sandoz Research Institute and as Senior
Vice President of Research and Development for Sandoz Pharmaceutical
Corporation, the predecessor of Novartis. From 1965 to 1992, he served in
various positions at the Pharma Division of Sandoz Pharma Ltd. (Switzerland),
including Senior Vice President from 1985 to 1992. Dr. Hauser received his M.S.
and Ph.D. in chemistry from the Swiss Federal Institute of Technology
(Switzerland) and was a Post-doctoral Research Fellow in the Department of
Chemistry at the Israel Institute of Technology (Haifa).
MICHAEL S. PERRY, D.V.M., PH.D. has served as a director of BioTransplant
since January 1999. Since October 2000, he has served as Vice President, Global
Research and Development of Baxter Healthcare, a hospital supply and medical
technology company. From 1998 until September 2000, he served as President and
Chief Executive Officer of Genetic Therapy, Inc. and since 1997, he has served
as President and Chief Executive Officer of SyStemix, Inc. Genetic Therapy and
SyStemix are biopharmaceutical corporations which are wholly-owned by Novartis.
During 1997, Dr. Perry served as Vice President, Drug Regulatory Affairs, North
America for Novartis. From 1995 to 1996, he served as Vice President, Drug
Registration and Regulatory Affairs (North America) for Sandoz Pharmaceutical
Corporation, the predecessor of Novartis. From 1994 to 1995, he served as Vice
President, Drug Registration and Regulatory Affairs (USA) for Sandoz. Dr. Perry
received his Ph.D. in pharmacology (cardiopulmonary) and his D.V.M. from the
Ontario Veterinary College, University of Guelph (Canada).
WALTER C. OGIER will become President and Chief Operating Officer and a
director of BioTransplant upon consummation of the merger. Mr. Ogier has served
as President and Chief Executive Officer and as a member of the board of
directors of Eligix since November 1997. From 1994 to 1997, he served as Vice
President, Marketing and, initially, Director of Marketing, at Aastrom
Biosciences, Inc., a cell
96
<PAGE>
therapy company based in Ann Arbor, Michigan where his principal
responsibilities included marketing, business development, public relations and
the implementation of clinical trials. From 1987 to 1994, Mr. Ogier held various
management positions with Baxter Healthcare Corporation's Immunotherapy and
Fenwal divisions, involving responsibility for North American and global
marketing of a portfolio of therapeutic products in transplantation and cancer,
atherosclerosis, and autoimmune disorders, including the development and
oversight of product development and distribution alliances and execution of
technology licenses. He has also served from 1986 to 1987 as a financial analyst
at Roger G. Ibbotson and Associates, a financial investment consulting company,
and from 1979 to 1985 as an industrial economist and research scientist at
Stanford Research Institute (SRI International), a management consulting and
contract research organization. He received his B.A. degree in chemistry from
Williams College and his M.B.A. degree from the Yale School of Management.
ARNOLD ORONSKY, PH.D. will become a director of BioTransplant upon
consummation of the merger. Dr. Oronsky has served as the Chairman of the board
of directors of Eligix since February 1997. Dr. Oronsky has been affiliated with
InterWest Partners since 1989, where he became a General Partner in 1994. From
1977 to 1994, he served in positions of increasing responsibility at the Lederle
Laboratories division of American Cyanamid Company, a pharmaceutical company,
most recently serving as Vice President for Discovery Research where he directed
a $90 million research budget and a staff of approximately 300 employees. Dr.
Oronsky has also served as a Research Fellow and an Assistant Professor at
Harvard Medical School. Dr. Oronsky currently serves as a director of Corixa
Corporation. Dr. Oronsky holds a B.S. degree from New York University and a
Ph.D. from Columbia University's College of Physicians and Surgeons.
SUSAN M. RACHER will become a director of BioTransplant upon consummation of
the merger. Ms. Racher has served as a member of the board of directors of
Eligix since 1999. Since 1998, Ms. Racher has served as Chief Financial Officer
of the Wallace H. Coulter Foundation, a charitable entity dedicated to
furthering Mr. Coulter's lifelong pursuit of the improvement of healthcare
through medical technology and research, and as a member of its executive
committee. From 1978 to 1997, Ms. Racher served in positions of increasing
responsibility with BankAmerica and its predecessor, Continental Bank. Most
recently she served as Senior Vice President and Manager of BankAmerica's
Florida Corporate Division, where she held responsibility for all commercial
banking and investment banking relationships in Florida. Ms. Racher received her
B.A. degree from Smith College and an M.B.A. in Finance and Accounting from the
University of Chicago Graduate School of Business.
JAMES R. FITZGERALD, JR. will become Executive Vice President, Finance and
Administration of BioTransplant upon consummation of the merger. Mr. Fitzgerald
has served as the Senior Vice President of Finance & Operations and Chief
Financial Officer of Eligix since January 2000. From 1996 to 2000, he served as
Vice President Finance, Treasurer and Chief Financial Officer of ArQule, Inc., a
chemistry and drug discovery company. From 1988 to 1996, Mr. Fitzgerald served
as Chief Financial Officer of Hush Holdings U.S., Inc., an entertainment
company. He previously served as Chief Financial Officer of MediVision, Inc., an
operator of outpatient surgery centers, from 1985 to 1987 and Amicon
Corporation, a manufacturer of separation sciences apparatus and specialty
polymer materials, from 1980 to 1985. Mr. Fitzgerald received a B.A. in
economics and an M.B.A. from Northeastern University and attended the Harvard
Business School Executive Program.
JAMES HOPE, PH.D. has served as Senior Vice President of Development of
BioTransplant since December 1995 and will become Chief Technology Officer upon
consummation of the merger. From August 1992 until December 1995, he served as
Vice President of Development of BioTransplant. From 1990 until 1992, he served
as Executive Director of Operations Technical Support of Serono
Laboratories, Inc., a pharmaceutical company, where he directed the transfer,
scale-up and validation of biopharmaceutical manufacturing processes. From 1986
until 1990, he served as the Director of Bioprocess Development and Production
at Invitron Corp., a contract manufacturer for the
97
<PAGE>
development and scale-up of mammalian, cell-based biopharmaceutical
manufacturing processes. Dr. Hope received a B.S. in microbiology and chemistry
from the University of Reading (U.K.) and a Ph.D. in biochemistry from the
University of London (U.K.).
MARY WHITE-SCHARF, PH.D. has served as Vice President, Research of
BioTransplant since December 1995 and will become Senior Vice President,
Research following the merger. From September 1991 until December 1995 she
served as Director of Monoclonal Antibody Development of BioTransplant where she
directed the BTI-322 program and BioTransplant's hybridoma discovery, scale-up,
antibody purification and antibody engineering. From 1989 to 1991, she served as
a Research Scientist at Repligen Corporation, a biotechnology company, where she
directed its efforts to generate a broadly neutralizing monoclonal antibody to
HIV-1. Dr. White-Scharf received her B.S. in biology from Southern Methodist
University, her M.A. in physiology from the University of Texas Medical Branch
and her Ph.D. in medical microbiology from Stanford University School of
Medicine.
RICHARD V. CAPASSO, C.P.A. has served as Vice President, Finance and
Treasurer of BioTransplant since May 1997. From December 1994 until May 1997 he
served as Director of Finance of BioTransplant and from December 1991 until
December 1994 he served as Controller of BioTransplant. From 1988 to 1991,
Mr. Capasso served as Manager of Financial Reporting and Controller at
Softbridge, Inc., a computer software development company. From 1984 to 1988, he
served as a member of the professional staff of the Enterprise Group of Arthur
Andersen LLP, an international public accounting firm. Mr. Capasso received his
B.S. from Northeastern University with a major in accounting, his M.B.A. from
Bentley College and received his C.P.A. in 1987.
HOWARD GROSSBERG, M.D. has served as Vice President, Medical Affairs of
BioTransplant since December 1999. From 1996 to 1999, he served as Vice
President for Medical and Clinical Affairs for V.I. Technologies, Inc., a
biopharmaceutical company involved in producing virally safe blood products and
other antiviral technologies. From 1995 to 1996, he was Chief Medical Officer at
Forest Laboratories, a pharmaceutical company, and from 1991 to 1995 he served
as Executive Director of General Drug Development at Ciba Geigy, a
pharmaceutical company, where he directed the International Project Team efforts
in signal transduction, aromatase inhibition and lung cancer chemotherapy. Prior
to his promotion to Executive Director, he served as Director of Oncology at
Ciba Geigy from 1990 to 1991. From 1986 to 1990, he was Associate Director of
Oncology at Schering Plough, a pharmaceutical company, where he was part of the
clinical development team responsible for the U.S. registration of
alpha-interferon and other biologic response modifiers. Dr. Grossberg received
his B.S. in chemistry from Union College (N.Y.) and received his M.D. from
S.U.N.Y. Downstate. He served as medical intern at the University of Michigan
Medical Center, performed a medical residency at Montefiore Hospital (N.Y.), and
was a fellow in hematology and oncology at N.Y.U. Dr. Grossberg is board
certified in internal medicine, hematology and oncology.
DAVID N. COOK, PH.D. will become Senior Vice President, Development of
BioTransplant upon consummation of the merger. Dr. Cook has served as Senior
Vice President, Research and Development of Eligix since October 1999. From 1993
to 1999, he served in a variety of positions at Cerus Corporation, a
biopharmaceutical company focused on developing pathogen inactivation for blood
products. From 1998 to 1999, he served as Vice President for Commercialization
with responsibilities in the areas of pathogen inactivation and cellular
immunotherapy. From 1994 to 1998, he served as Director of Red Cell Development,
and from 1993 to 1994 as a Senior Scientist. From 1990 to 1993, he was a
postdoctoral scientist at the Lawrence Berkely National Laboratory. Dr. Cook has
an A.B. in American Studies from Harvard University and a Ph.D. in chemistry
from the University of California, Berkeley.
TARA CLARK will become Vice President, Marketing of BioTransplant upon
consummation of the merger. Ms. Clark has served as Vice President, Marketing of
Eligix since September 1999. From 1988 to 1999, Ms. Clark held positions of
increasing responsibility within the Fenwal and Scientific Products
98
<PAGE>
Divisions of Baxter Healthcare Corporation, where she developed and managed
sales, marketing and training initiatives in North America for numerous major
product lines, including, most recently, serving as Director, Cellular Therapies
for the Fenwal Division. Previously, Ms. Clark served in various quality
assurance and microbiology research positions with Invitron, a biopharmaceutical
company, from 1986 to 1988, and McDonnell Douglas, an aeronautical, engineering
and manufacturing company, from 1984 to 1986. Ms. Clark received a B.S. degree
in microbiology from the University of Missouri-Columbia.
JAMES A. EMBREE will become Vice President, Manufacturing of BioTransplant
upon consummation of the merger. Mr. Embree has served as Vice President,
Manufacturing of Eligix since January 1998. From 1993 to 1998, Mr. Embree served
as Director of Manufacturing for SyStemix, a Novartis cell therapy company,
where he developed production and purification processes for several therapeutic
monoclonal antibodies. He previously held manufacturing and development
positions with Cytotherapeutics, a biotechnology company developing cell therapy
based-products for Parkinson Disease, pain management and diabetes, from 1991 to
1993, Immunogen, a biopharmaceutical company developing parenteral oncology
products targeted by monoclonal antibodies, from 1988 to 1991, Seragen, Inc., a
developer of therapeutic protein products, from 1985 to 1988, and New England
Nuclear, a research, diagnostic and pharmaceutical company, from 1978 to 1985.
Mr. Embree received a B.S. degree in microbiology from the University of
Massachusetts and an M.A. degree in bacterial genetics and molecular biology
from Northeastern University.
JUDITH SNOW will become Vice President, Quality Assurance of BioTransplant
upon consummation of the merger. Ms. Snow has served as Vice President, Quality
Assurance of Eligix since September 1998. From 1995 to 1998, Ms. Snow served as
Vice President of Quality, Regulatory and Clinical Affairs at UroMed Corp., a
urological medical device company, where she played a critical role in
developing the quality system and securing CE mark registration for the company.
From 1990 to 1995, she held quality assurance positions at Boston-based
Haemonetics, Inc., a manufacturer of blood and stem cell collection and
processing systems. Earlier in her career, she held quality assurance positions
at Coulter Electronics, Inc., a manufacturer of diagnostic equipment, from 1988
to 1989, and at Cordis Corporation, a manufacturer of cardiac pacemakers and
neurological shunts, from 1985 to 1988. Ms. Snow received a B.S. degree in
medical technology from Wesley College.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth certain
information with respect to the annual and long-term compensation for the last
three fiscal years of BioTransplant's Chief Executive Officer and its four other
most highly compensated executive officers at year end whose total annual salary
and bonus for 2000 exceeded $100,000, referred to collectively as the
"BioTransplant named executive officers." Dollar amounts in the "All Other
Compensation" column consist of matching contributions under BioTransplant's
401(K) plan. Dr. Greenstein has resigned as Senior Vice President, Research of
BioTransplant, effective January 2001, in order to assume the position of Chief
Executive Officer of Immerge BioTherapeutics AG, and its wholly-owned
subsidiary, Immerge BioTherapeutics, Inc., the operating entities of
BioTransplant's joint venture with Novartis. Dr. Greenstein will continue to
serve as an employee at BioTransplant but will no longer have the duties or
title of an officer of BioTransplant. Dr. Grossberg joined BioTransplant in
December 1999.
99
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------- SECURITIES
BONUS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($) OPTIONS (#) COMPENSATION ($)
--------------------------- -------- ---------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Elliot Lebowitz, Ph.D.................. 2000 $266,000 $40,000 64,500 $2,625
Chief Executive Officer 1999 252,956 -- 67,098 --
1998 252,956 -- 100,000 --
James Hope, Ph.D....................... 2000 206,000 20,000 22,000 2,625
Senior Vice President of Development 1999 195,038 5,000 23,000 --
1998 182,619 22,423 26,800 --
Julia L. Greenstein, Ph.D.............. 2000 227,000 33,000 24,500 2,625
Senior Vice President of Research 1999 187,567 -- 16,000 --
1998 200,723 19,372 40,700 --
Mary White-Scharf, Ph.D................ 2000 168,000 20,000 26,000 2,625
Vice President of Research 1999 155,424 -- 27,000 --
1998 146,107 $13,622 45,200 --
Howard Grossberg, M.D.................. 2000 221,000 50,400 10,500 2,625
Vice President of Medical Affairs 1999 6,800 -- 50,000 --
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR. The following table sets forth certain
information regarding options granted during the year ended December 31, 2000 by
BioTransplant to the BioTransplant named executive officers. Options granted in
2000 become exercisable in four equal annual installments, commencing twelve
months after the vesting commencement date, which is typically the date of
grant. Amounts in the last two columns represent hypothetical gains that could
be achieved for options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10% compounded
annually from the date options were granted to their expiration date. Actual
gains, if any, on stock option exercises will depend on the future performance
of the BioTransplant common stock on the date on which options are exercised.
100
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED (#) FISCAL YEAR (%) ($/SH) DATE 5% ($) 10% ($)
---- ----------- ---------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Elliot Lebowitz, Ph. D..... 4,500 1.4% $ 6.94 12/20/10 $ 19,634 $ 49,758
60,000 18.6 8.89 12/4/10 335,490 850,198
James Hope, Ph.D........... 20,000 6.2 14.25 9/11/10 179,235 454,217
2,000 0.6 6.94 12/20/10 8,727 22,115
Julia L. Greenstein,
Ph.D..................... 21,000 6.5 7.63 1/31/10 100,702 255,198
3,500 1.1 6.94 12/20/10 15,271 38,701
Mary White-Scharf, Ph.D.... 24,000 7.5 10.00 8/23/10 150,935 382,498
2,000 0.6 6.94 12/20/10 8,727 22,115
Howard Grossberg, M.D...... 8,000 2.5 7.00 12/26/10 35,218 89,250
2,500 0.8 6.94 12/20/10 10,908 27,643
</TABLE>
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION TABLE. The following table
sets forth information regarding options exercised by each BioTransplant named
executive officer during 2000 and exercisable and unexercisable stock options
held as of December 31, 2000 by each BioTransplant named executive officer. The
value realized upon the exercise of options represents the difference between
the option exercise price and the closing sale price of the BioTransplant common
stock on the date of exercise. The value of the unexercised in-the-money options
at year end has been calculated based on $8.69, which was the closing sales
price of the BioTransplant common stock on the Nasdaq National Market on
December 29, 2000, the last trading day of BioTransplant's 2000 fiscal year,
less the applicable option exercise price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)
SHARES ACQUIRED VALUE REALIZED --------------------------- ---------------------------
ON EXERCISE ($) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Elliot Lebowitz, Ph.D..... -- -- 282,138 179,928 $1,130,552 $526,119
James Hope, Ph.D.......... $12,000 $145,631 84,707 61,675 349,190 162,323
Julia L. Greenstein,
Ph.D.................... 6,000 96,354 96,832 64,298 356,685 223,817
Mary White-Scharf,
Ph.D.................... 11,151 147,329 97,234 79,398 342,014 228,139
Howard Grossberg, M.D..... -- -- 12,500 48,000 35,938 125,692
</TABLE>
SEVERANCE AGREEMENTS WITH EXECUTIVE OFFICERS
Under the terms of an agreement with Dr. Lebowitz, BioTransplant's President
and Chief Executive Officer, in the event of involuntary termination of
Dr. Lebowitz' employment, he is eligible to receive six months of base salary
from BioTransplant. Under the terms of agreements with Dr. Hope, Senior Vice
President of Development, Dr. Greenstein, Senior Vice President of Research and
Chief Scientific Officer, Dr. White-Scharf, Vice President of Research, Dr.
Grossberg, Vice President of Medical Affairs and Mr. Capasso, Vice President,
Finance and Treasurer, in the event of a
101
<PAGE>
termination of employment without cause, the terminated officer is eligible to
receive six months of base salary, which will be discontinued if the officer
secures other employment. Furthermore, if at the end of such six-month period
Dr. Hope is unable to secure other employment, then Dr. Hope and BioTransplant
have agreed to negotiate an additional severance payment of up to six months of
base salary.
COMPENSATION OF DIRECTORS
BioTransplant's non-employee directors who are not affiliated with Novartis
each receive $1,500, plus reasonable travel and out-of-pocket expenses, for each
meeting of the board of directors they attend.
The board of directors intends to make awards of stock options to directors
as compensation for service on the board of directors pursuant to
BioTransplant's 1997 stock incentive plan. Currently, the board of directors
grants each director, upon his or her initial election to the board of
directors, an option to purchase 15,000 shares of BioTransplant common stock at
an exercise price equal to the then fair market value. In addition, each
director is eligible to receive an option to purchase 6,000 shares of
BioTransplant common stock, at an exercise price equal to the then fair market
value, upon his or her reelection to the board of directors at each annual
meeting of stockholders.
CERTAIN TRANSACTIONS
In March 1991, BioTransplant entered into a supply agreement with Charles
River Laboratories. BioTransplant amended the agreement in 1998. Under the terms
of the agreement, as amended, CRL provides BioTransplant with miniature swine
and miniature swine organs for research and development purposes in exchange for
payments under a research and supply agreement. BioTransplant paid CRL $877,500,
$940,000 and $958,000 under this agreement in 1998, 1999 and 2000, respectively.
James C. Foster, President and Chief Executive Officer of CRL, is a director of
BioTransplant. BioTransplant expects to assign its rights in the field of
xenotransplantation under this agreement to its joint venture with Novartis.
From 1993 through October 2000, BioTransplant was party to two collaboration
agreements with Novartis to research, develop and commercialize
xenotransplantation products. During the collaboration, BioTransplant received
an aggregate of $33.5 million in research funding and $16.5 million in license
fees and milestone payments from Novartis. In September 2000, BioTransplant
entered into an arrangement with Novartis to combine their respective expertise
in the field of xenotransplantation into a newly-formed, independently-run
company named Immerge BioTherapeutics AG and Novartis and BioTransplant
terminated their prior collaborations in xenotransplantation. In return for
contributing its technology, BioTransplant will retain a 33% share of the joint
venture and will receive royalty payments from Novartis sales of
xenotransplantation products, if any. David Sachs, M.D., Chairman of
BioTransplant's scientific advisory board and the Director of the
Transplantation Biology Research Center at Massachusetts General Hospital;
Elliot Lebowitz, the Chief Executive Officer of BioTransplant; Corinne Savill,
Chief Operating Officer of an affiliate of Novartis; and Clive Morris, Head of
Patents, Pharma Consumer Health and Global Generics at Novartis, are all
directors of Immerge BioTherapeutics AG and of its subsidiary Immerge
BioTherapeutics, Inc. BioTransplant expects Immerge BioTherapeutics to begin
operations in January 2001.
Dr. Perry, a director of BioTransplant, was formerly President and Chief
Executive Officer of Genetic Therapy and SyStemix, affiliates of Novartis.
102
<PAGE>
INFORMATION CONCERNING ELIGIX
BUSINESS
Eligix is a biomedical company engaged in the research and development of
cellular therapies to enhance human immune response to cancers, autoimmune
disorders and solid organ transplants and to reduce the risk of infection and
hypersensitivity reactions in blood transfusions. Our technology is the result
of research at Coulter Corporation, in collaboration with physicians at Harvard
University's Dana-Farber Cancer Institute.
Our patented High Density Microparticles, or HDM, technology, in conjunction
with our portfolio of blood and immune cell-specific and tumor cell-specific
monoclonal antibodies is designed to enable the highly efficient selection
and/or immune activation of specific populations of human cells from blood and
bone marrow. We are pursuing research and development of HDM products for:
- the removal of malignant cells from stem cell transplants;
- the removal of immune rejection-causing cells from stem cell transplants
and immune cell infusions;
- the removal of potentially infectious cells from blood transfusions; and
- the selection and activation of disease-specific immune cells to enhance a
patient's immune response to disease.
Our lead product candidates, BCell-HDM and TCell-HDM, will target bone
marrow and stem cell transplant procedures. Sources estimate that there are
approximately 50,000 bone marrow and stem cell transplant procedures performed
annually worldwide. We believe these procedures represent a large and rapidly
growing market opportunity with cell processing costs of our competitors
approximating $8,000 per patient. We are targeting these products for the
purging of stem cell transplants and related blood products to reduce the risk
of relapse or graft-versus-host disease following bone marrow stem cell
transplantation or donor leukocyte infusion therapy for cancer and other
diseases, including autoimmune and genetic disorders. Both products are
currently being prepared for CE marking and, in the U.S., are poised to enter
pivotal trials. We expect to receive the CE mark for both products within twelve
months, permitting near-term introduction of the products into the European
market.
We are pursuing research and development of other product candidates,
including PanT-HDM, BrCa-HDM, Neu/RBC-HDM, ReacT-HDM, AcTCell-HDM, AcT-IV and
Leuko-HDM, that will target the bone marrow and stem cell transplant market as
well as solid organ transplants and blood collection procedures. Sources
estimate that there are approximately 30,000 solid organ transplants performed
annually in the United States and Western Europe and 40 million blood collection
procedures performed annually worldwide. We are also targeting what we believe
to be major long-term opportunities in ex vivo and in vivo immune therapies for
cancer, autoimmune disorders and infectious disease. These products are targeted
for the following:
- removal of potential relapse-causing cancer or autoimmune cells from
autologous bone marrow stem cell transplants;
- the removal of T cells and T cell subsets which cause graft-versus-host
disease in mismatched transplants;
- the removal of disease-causing cells and pathogens from blood
transfusions;
- the selective activation of immune response against cancers and infectious
diseases; and
- the removal of cells that interfere with the ability to achieve immune
system tolerization to prevent chronic immune rejection and resultant
organ failure in solid organ and tissue transplants.
103
<PAGE>
We believe that our focus on approaches to providing the patient with a
normal immune system to mount an effective attack against malignancies is likely
to improve patient outcomes and reduce disease relapse rates, while enhancing
overall cost effectiveness. We expect our technology to facilitate new
approaches in transplantation with minimal toxicity, including "mini"
transplants to eliminate the risks of myeloablative therapy, donor leukocyte
infusions following allogeneic transplants to enhance immune response against
cancer, and the enablement of successful transplants between tissue mismatched
donors and patients.
We intend to build value by product development and timely commercialization
to meet significant, unmet clinical needs representing high therapeutic value in
established areas of medicine, focusing on promising technologies to improve
human immune response. To advance such products, we have recruited and trained a
qualified technical and management team expertise in biochemistry, cell biology,
immunology, protein chemistry, microbiology, cell culture, protein purification,
analytical chemistry and mechanical engineering, including medical device as
well as pharmaceutical product development. Additional expertise is held in
marketing, manufacturing, clinical development, quality assurance, regulatory
affairs, finance, administration and business development. As of December 31,
2000, Eligix had 30 full-time employees, five of whom hold Ph.D.s, at its
facility in Medford, Massachusetts.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ELIGIX
OVERVIEW
Since commencement of operations in 1997, Eligix has been engaged primarily
in the research and development of its proprietary High Density Microparticles,
or HDM, technology for applications in cell selection and cellular therapy for
cancer and infectious diseases, to reduce the risk of infection and
hypersensitivity reactions in blood transfusions and to achieve immune tolerance
in transplanted organs and autoimmune disorders. The major sources of Eligix'
working capital have been the proceeds from sales of equity securities and debt
financings. Eligix has not generated any revenues from the sale of products to
date. Eligix will be required to conduct significant additional research,
development, testing and regulatory compliance activities that, together with
general and administrative expenses, are expected to result in significant and
increasing operating losses for at least the next several years.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Research and development expenses increased to $6.5 million during the nine
months ended September 30, 2000 from $5.5 million during the nine months ended
September 30, 1999, principally as a result of activities to complete
requirements for CE marking for its lead products and stock option-related
compensation expenses incurred during 2000. Marketing, general and
administrative expenses increased to $2.4 million for the nine months ended
September 30, 2000 from $2.0 million for the nine months ended September 30,
1999 due to professional services required with financing and business
collaboration activities during 2000, and as Eligix increased its executive and
marketing staff in preparation for initiating sales and marketing activity in
Europe upon obtaining CE marking for its first product.
Eligix has recorded stock option-based deferred compensation as of
September 30, 2000. Eligix anticipates recognizing related compensation expense
of approximately $500,000 during each of the next four years. The related
options will fully vest as a result of a change in control of Eligix at which
time any remaining deferred compensation balance will be expensed.
104
<PAGE>
Interest income decreased to $0.1 million during the nine months ended
September 30, 2000 compared to $0.2 million in the nine months ended
September 30, 1999. The decrease was due to lower average cash balances
available for investment during 2000.
Interest expense increased to $1.0 million during the nine months ended
September 30, 2000 from $0.1 million in the nine months ended September 30,
1999. This increase was primarily due to increased borrowings under a
convertible bridge financing agreement and amortization of the discount related
to the convertible bridge notes entered into in April and September 2000.
As a result of the above factors, Eligix incurred a net loss for the nine
months ended September 30, 2000 of $9.8 million compared to a net loss of
$7.3 million for the nine months ended September 30, 1999.
YEARS ENDED DECEMBER 31, 1999 AND 1998
Research and development expenses increased to $8.3 million in 1999 from
$3.9 million in 1998. This increase was primarily due to increases in research
and development staff and associated increases in supplies and support services
as Eligix accelerated development efforts of its BCell-HDM and TCell-HDM
products in preparation for initiating further clinical trials and preparing its
products and production systems to be compliant with CE marking requirements.
General and administrative expenses increased to $2.2 million in 1999 from
$1.6 million in 1998. This increase was primarily due to increased staffing and
professional services rendered in connection with financing and market research
and development.
Interest income increased to $0.3 million in 1999 compared to $0.2 million
in 1998. The increase was due to higher average cash balances available for
investment during 1999.
Interest expense increased to $0.2 million in 1999 from $0.04 million in
1998. This increase was primarily due to increased borrowings under a debt
financing agreement.
As a result of the above factors, Eligix incurred a net loss for 1999 of
$10.3 million compared to a net loss of $5.4 million for 1998.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Research and development expenses increased to $3.9 million in 1998 from
$1.9 million in 1997. This increase was primarily due to increases in research
and development staff and associated increases in supplies and support services
as it expanded HDM product development efforts, and late in the year, relocated
operations to its new headquarters, research and production facility in Medford,
Massachusetts. General and administrative expenses increased to $1.6 million in
1998 from $1.1 million in 1997. This increase was primarily due to increased
staffing and the relocation of Eligix to its Medford, Massachusetts facility.
Interest income increased to $0.2 million in 1998 compared to $0.1 million
in 1997. The increase was due to higher average cash balances available for
investment during 1998.
Interest expense increased to $40,000 in 1998 from $1,000 in 1997. This
increase was primarily due to increased borrowings under a lease financing
agreement.
As a result of the above factors, Eligix incurred a net loss for 1998 of
$5.4 million compared to a net loss of $2.9 million for 1997.
105
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, Eligix' operations have been funded principally through
the net proceeds of an aggregate of approximately $32.4 million from issuance of
debt and equity securities. The proceeds have been used to fund operating losses
of approximately $28.4 million from inception, December 27, 1996, through
September 30, 2000, and the investment of approximately $3.7 million in
equipment and leasehold improvements through September 30, 2000. At
September 30, 2000, there were $7.7 million in borrowings outstanding under
convertible subordinated notes, excluding discount, and approximately
$2.5 million outstanding under debt obligations. Eligix had no significant
commitments as of September 30, 2000 for capital expenditures.
Eligix anticipates that it will be required to raise additional debt and/or
equity capital to fund its operating and capital requirements as currently
planned through 2001. Beginning in January 2001, Eligix expects to borrow up to
$2.0 million from BioTransplant in the form of a promissory note to fund
operations through the anticipated closing date of the merger contemplated
hereby. The interest rate on the note will be the Fleet Bank prime rate. The
debt will be forgiven and the note cancelled concurrently with the closing of
the merger, provided that if the merger does not close on or before June 30,
2001, then the note will become immediately due and payable in full. Eligix will
also be required to raise additional debt and/or equity capital to fund
repayment of its convertible subordinated debt should holders of the notes
determine not to convert the notes to preferred stock of Eligix. Eligix' cash
requirements may vary materially from those now planned due to many factors,
including, but not limited to, the progress of Eligix' research and development
programs, the scope and results of preclinical and clinical testing, changes in
existing and potential relationships with corporate collaborators, the time and
cost in obtaining regulatory approvals, the costs involved in obtaining and
enforcing patents, proprietary rights and any necessary licenses, the ability of
Eligix to establish development and commercialization capabilities or
relationships, the costs of manufacturing and other factors.
Eligix expects to incur substantial additional costs, including costs
related to research and development activities, preclinical studies, clinical
trials, obtaining regulatory approvals, manufacturing, marketing and the
expansion of its facilities. Eligix will need to raise substantial additional
funds, through additional financings including public or private equity
offerings and/or collaborative arrangements with corporate partners. There can
be no assurance that funds will be available on terms acceptable to Eligix, if
at all. If adequate funds are not available, Eligix may be required to delay,
scale back or eliminate certain of its product development programs or to
license to others the right to commercialize products or technologies that
Eligix would otherwise seek to develop and commercialize itself, any of which
would have a material and adverse effect on Eligix.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Eligix owns financial instruments that are sensitive to market risks as part
of its investment portfolio. All of these market-risk sensitive instruments are
classified as cash and cash equivalents. Eligix does not own any derivative
financial instruments in its investment portfolio. The investment portfolio
contains instruments that are subject to the risk of a decline in interest
rates.
INTEREST RATE RISK: Eligix' investment portfolio includes cash and cash
equivalents. Due to the short duration and conservative nature of these
instruments, Eligix does not believe that it has a material exposure to interest
rate risk.
106
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
gives effect to the merger using the purchase method of accounting, after giving
effect to the pro forma adjustments described in the accompanying notes. The
unaudited pro forma condensed combined financial information should be read in
conjunction with the historical financial statements and related notes of
BioTransplant and Eligix, which appear elsewhere in this joint proxy
statement/prospectus.
Pursuant to the terms of the merger agreement, a wholly-owned subsidiary of
BioTransplant, BT/ EL Acquisition Co., will merge with and into Eligix and the
security holders of Eligix will be entitled to receive up to an aggregate of
5,610,000 shares of BioTransplant common stock, either in the merger or upon
exercise or conversion of Eligix options, warrants and notes assumed by
BioTransplant in the merger. All Eligix stockholders will have 10% of the
BioTransplant stock they would otherwise be entitled to receive deposited in an
escrow account that may be used to compensate BioTransplant if BioTransplant is
entitled to indemnification under the merger agreement. Any indemnification
escrow shares that, 15 months following the completion of the merger, have not
been used to indemnify BioTransplant and that are not subject to any unresolved
claims for indemnification by BioTransplant, will be distributed to the Eligix
stockholders. In addition, all Eligix stockholders will have an additional 10%
of their BioTransplant stock deposited in an escrow account to secure
achievement by Eligix of CE mark approval by the European Union of Eligix'
TCell-HDM product by December 31, 2001. If the European Union does not allow
Eligix to affix the CE mark, which denotes conformity to European standards for
safety, to its TCell-HDM product by December 31, 2001, the Eligix stockholders
will not receive any of the shares allocated to secure achievement of the
milestone.
Additionally, certain members of the Eligix management team will be entitled
to receive an aggregate of 990,000 shares of BioTransplant common stock under
the Eligix management equity incentive plan. These shares vest over a 365-day
period following the closing of the merger, with 33 1/3% of the shares vesting
90 days after closing of the merger, an additional 33 1/3% of the shares vesting
180 days after the closing of the merger, an additional 23 1/3% of the shares
vesting 270 days after the closing of the merger and the remaining 10% of the
shares vesting 365 days after the closing of the merger. If, within 365 days
after the closing of the merger, BioTransplant terminates a former Eligix
management member other than for cause, or a management member terminates his or
her employment for good reason, that management member's shares will vest
immediately in full upon termination. Otherwise, BioTransplant will have the
right to repurchase a terminated management member's unvested shares for $.01
per share. Of these shares, 99,000 will be held in escrow for 15 months
following the completion of the merger to compensate BioTransplant if it is
entitled to indemnification under the merger agreement and 99,000 shares will be
held in escrow to secure achievement by Eligix of CE mark approval by the
European Union of its TCell-HDM product by December 31, 2001. The value of the
990,000 shares will be treated as contingent compensation and will be expensed
over the 365-day vesting period.
The merger will be accounted for using the purchase method of accounting in
accordance with Accounting Principles Board (APB) No. 16. Accordingly, the total
purchase price will be allocated to the assets acquired and liabilities assumed
based upon their estimated fair values. The purchase price will be determined
using the average market value of BioTransplant common stock for the period from
two days before to two days after the announcement of the merger, which is
$8.3564 per share, to value the common shares deemed to be issued to the Eligix
security holders at the closing date, consisting of the shares issuable at the
closing date and the indemnity escrow shares, and adding the expenses of the
107
<PAGE>
merger. The estimate of the purchase price which has been used for the unaudited
pro forma condensed combined financial information is as follows, in thousands:
<TABLE>
<S> <C>
Common stock......................... $ 35,527
Fair value of BioTransplant's options
and warrants exchanged for Eligix'
options and warrants............... 5,164
Estimated merger expenses............ 3,700
----------
$ 44,391
==========
</TABLE>
The actual purchase price will be determined at closing and will reflect the
actual closing balance sheet of Eligix in accordance with APB No. 16. With the
assistance of valuation experts, the purchase price will be allocated to the
tangible and intangible assets acquired and liabilities based on their fair
values. Based upon preliminary appraisals, the purchase price allocation which
has been used for the unaudited pro forma condensed combined financial
information is as follows, in thousands:
<TABLE>
<S> <C>
Net tangible assets acquired......... $ 1,977
Intangible assets:
Assembled workforce................ 799
Acquired technology................ 19,959
In-process research and
development...................... 20,000
Deferred compensation related to
unvested options issued to Eligix
employees........................ 1,656
-------
$44,391
=======
</TABLE>
The final purchase price allocation will be determined in 2001, after the
closing, and will reflect the final purchase price calculation and the final
appraisals of the tangible and intangible assets acquired. In addition, to the
extent that the 10% escrowed shares relating to CE mark approval of the Eligix
TCell-HDM product are released to the former Eligix stockholders and the Eligix
management members under the Eligix management equity incentive plan, the
purchase price and contingent compensation will be increased by the value of
such shares on the date the relevant escrow release is satisfied.
With the assistance of our valuation advisors, all the intangible assets
that are part of the purchase of Eligix were identified and a preliminary
valuation was made. It was determined that the intangible assets included
assembled workforce, technology, which included core technology and patents
owned and licensed, in-process research and development and deferred
compensation.
Eligix has rights to certain technology that it licenses and on which it may
pay royalties and/or license fees. The royalties and license fees have been
negotiated at arms-length and they currently represent fair market royalty
rates. As such, it was determined that no favorable license right existed at
Eligix. The trademarks/names were not valued because it was concluded that their
value was not material. The preliminary valuation of intangibles included
$799,000 for the assembled workforce, $20.0 million for acquired technology,
$20.0 million for in-process research and development and $1.7 million for
deferred compensation. Intangible assets are expected to be amortized over five
to seven years. The fair value of the in-process research and development, which
relates to Eligix' current in-process development projects, will be recorded as
an expense in the period in which the merger is completed. Deferred compensation
was computed based on the intrinsic value of Eligix' unvested employee stock
options assumed by BioTransplant and will be expensed over the remaining vesting
period of the options of one to five years.
108
<PAGE>
The acquired in-process research and development, or IPR&D, consists of
development work to date on the projects described below. The technology
resulting from these development efforts offers no alternative use in the event
that they prove to be not feasible. If the technology failed to achieve FDA
approval and was proposed for an alternate indication, it would be subjected to
the risk associated with another series of clinical trials. The new indication
would also face regulatory risks associated with the FDA approval process.
Most remaining development spending associated with the projects concerns
not only their technical completion but also principally the cost of completing
clinical trials required for ultimate FDA approval. All of these remaining costs
would be incurred in full should the projects fail and need to return to the
laboratory for further development. The development effort for the acquired
IPR&D does not possess alternative future use for Eligix under the terms of SFAS
No. 2.
The valuation of the in-process research and development was determined
using the income method. Revenue and expense projections as well as technology
assumptions were prepared through 2014 based on information provided by Eligix
management. Revenue projections for each in-process development project were
identified as follows: (1) revenue derived from products relying on current
technology, if any, and (2) revenue derived from projects relying on a new
in-process research and development project. Expense projections including cost
of goods and operating expenses varied depending on the in-process development
project. The projected cash flows, adjusted based on probability of success,
were discounted using an 18% rate. The fair value of in-process research and
development was determined separately from all other acquired assets using the
income approach. The in-process development projects are not expected to reach
technological feasibility until the 2001-2004 timeframe. Management is
responsible for the assumptions used to determine the estimated fair value of
the in-process research and development.
The following table summarizes the nature, timing and estimated completion
cost for each Eligix IPR&D project, which is measured (1) for the United States
only for BCell-HDM, with the expectation of near-term receipt of CE mark for
BCell-HDM, recognized as acquired technology, and (2) for the earlier of CE mark
approval or FDA approval for TCell-HDM and PanT-HDM:
<TABLE>
<CAPTION>
ESTIMATED COST
DESCRIPTION OF PROJECT EXPECTED RELEASE DATE TO COMPLETE
---------------------- --------------------- --------------
<S> <C> <C>
TCell-HDM................................................... 2001 $4.0 million
PanT-HDM.................................................... 2003 $15.0 million
BCell-HDM................................................... 2004 $13.0 million
</TABLE>
Based on the timing of the closing of the transaction, the finalization of
the integration plans and other factors, the final purchase adjustments may
differ materially from those presented in the pro forma condensed combined
financial information. A final appraisal of the intangibles will be performed as
of the closing date and the allocation adjusted accordingly. The effect of these
adjustments on the results of operations will depend on the nature and amount of
the assets or liabilities adjusted.
The unaudited pro forma condensed combined financial information does not
purport to represent what the consolidated financial position or results of
operations actually would have been if the merger, in fact, had occurred on
September 30, 2000 or on January 1, 1999 or to project the consolidated
financial position or results of operations as of any future date or any future
period. BioTransplant is developing plans for integration of Eligix and has not
determined if there will be any cost savings. This information should be read in
conjunction with the historical consolidated financial statements of
BioTransplant and Eligix, including the related notes and other financial
information included in this joint proxy statement-prospectus.
109
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
PRO FORMA
--------------------------
BIOTRANSPLANT ELIGIX ADJUSTMENTS COMBINED
------------- -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 14,517 $ 2,877 $ (3,700)(B) $ 13,694
Short-term investments....................... 4,863 -- -- 4,863
Other receivable............................. 288 -- -- 288
Prepaid expenses and other current assets.... 225 156 -- 381
-------- -------- -------- ---------
Total current assets....................... 19,893 3,033 (3,700) 19,226
-------- -------- -------- ---------
Property and equipment, net.................. 1,316 2,850 -- 4,166
-------- -------- -------- ---------
Other Assets:
Assembled workforce.......................... -- -- 799(A) 799
Acquired technology.......................... -- -- 19,959(A) 19,959
Other........................................ -- 128 -- 128
-------- -------- -------- ---------
Total other assets......................... -- 128 20,758 20,886
-------- -------- -------- ---------
$ 21,209 $ 6,011 $ 17,058 $ 44,278
======== ======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of long-term debt............ $ 233 $ -- $ -- $ 233
Current portion of loans payable............. -- 972 -- 972
Convertible notes............................ -- 6,247 (6,247)(C) --
Accounts payable............................. 327 354 -- 681
Accrued expenses............................. 2,334 1,091 (200)(C) 3,225
Cash overdraft............................... -- 283 -- 283
-------- -------- -------- ---------
Total current liabilities.................. 2,894 8,947 (6,447) 5,394
-------- -------- -------- ---------
Long-term debt, net of current portion....... 305 -- -- 305
-------- -------- -------- ---------
Long-term portion of loans payable........... -- 1,534 -- 1,534
-------- -------- -------- ---------
Convertible preferred stock.................. -- 21,333 (21,333)(C) --
-------- -------- -------- ---------
Stockholders' Equity (Deficit):
Common stock................................. 117 -- 50 (D) 176
9 (E)
Additional paid-in capital................... 82,447 4,612 (4,612)(C) 130,525
7,437 (E)
40,641 (D)
Deferred compensation........................ -- (2,052) 2,052 (C) (9,102)
(7,446)(E)
(1,656)(A)
Deficit accumulated during the development (64,554) (28,363) (20,000)(A) (84,554)
stage...................................... 28,363 (C)
-------- -------- -------- ---------
Total stockholders' equity (deficit)....... 18,010 (25,803) 44,838 37,045
-------- -------- -------- ---------
Total liabilities and stockholders' equity $ 21,209 $ 6,011 $ 17,058 $ 44,278
(deficit)..................................
======== ======== ======== =========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combined Financial Information
110
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
PRO FORMA
----------------------
BIOTRANSPLANT ELIGIX ADJUSTMENTS COMBINED
------------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total Revenues.................................. $ 5,502 $ -- $ -- $ 5,502
-------- -------- --------- --------
Expenses:
Research and development...................... 10,970 6,471 -- 17,441
Marketing, general and administrative......... 1,893 2,424 -- 4,317
Interest...................................... 47 980 (628)(G) 399
Amortization of assembled workforce, acquired
technology and deferred compensation........ -- -- 2,873(F) 2,873
-------- -------- --------- --------
Total expenses.............................. 12,910 9,875 2,245 25,030
-------- -------- --------- --------
Other income.................................... -- 120 -- 120
-------- -------- --------- --------
Net Loss........................................ $ (7,408) $ (9,755) $ (2,245) $(19,408)
======== ======== ========= ========
Net loss per common share:
Basic and diluted........................... $ (0.65) $ (70.10) $ (1.18)
======== ======== ========
Common shares used in computing basic and
diluted net loss per share.................. 11,470 139 16,502
======== ======== ========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combined Financial Information.
111
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
----------------------
BIOTRANSPLANT ELIGIX ADJUSTMENTS COMBINED
------------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total Revenues................................... $ 9,471 $ -- $ -- $ 9,471
------- -------- --------- --------
Expenses:
Research and development....................... 15,680 8,257 -- 23,937
Marketing, general and administrative.......... 2,446 2,162 -- 4,608
Interest....................................... 18 222 -- 240
Amortization of assembled workforce, acquired
technology and deferred compensation......... -- -- 11,289(H) 11,289
------- --------
Total expenses............................... 18,144 10,641 11,289 40,074
------- -------- --------- --------
Other income..................................... -- 306 -- 306
------- -------- --------- --------
Net Loss......................................... $(8,673) $(10,335) $ (11,289) $(30,297)
======= ======== ========= ========
Basic and diluted net loss per common share.... $ (1.01) $(149.78) $ (2.38)
======= ======== ========
Common shares used for basic and diluted loss
computation.................................. 8,598 69 12,719
======= ======== ========
</TABLE>
See notes to Unaudited Pro Forma Condensed Combined Financial Information.
112
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined statements of operations for the
nine months ended September 30, 2000 and the year ended December 31, 1999 give
effect to the merger as if the transaction had occurred at the beginning of the
period presented. The unaudited pro forma condensed combined balance sheet of
September 30, 2000 gives effect to the merger as if it had occurred on
September 30, 2000. The unaudited pro forma condensed combined financial
information is based upon a preliminary calculation of the purchase price and a
preliminary purchase price allocation. The unaudited information will change
based upon the actual closing.
Below is a table of the estimated purchase price, in thousands:
<TABLE>
<CAPTION>
TOTAL
--------
<S> <C>
Estimated purchase price:
Common stock.............................................. $35,527
Fair value of BioTransplant's options and warrants
exchanged for Eligix' options and warrants.............. 5,164
Estimated merger-related fees and expenses................ 3,700
-------
Total estimated purchase price.......................... $44,391
=======
</TABLE>
Below is a table of the preliminary purchase price allocation, in thousands:
<TABLE>
<CAPTION>
TOTAL
--------
<S> <C>
Purchase price allocation:
Net tangible assets acquired.............................. $ 1,977
Assembled workforce....................................... 799
Acquired technology....................................... 19,959
In-process research and development....................... 20,000
Deferred compensation related to unvested options issued
to Eligix employees..................................... 1,656
-------
Total................................................... $44,391
=======
</TABLE>
113
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(CONTINUED)
NOTE 2. PRO FORMA ADJUSTMENTS
Adjustments to record the purchase of Eligix on the September 30, 2000
unaudited pro forma condensed combined balance sheet, in thousands:
<TABLE>
<S> <C> <C>
(A) To record assembled workforce............................... $ 799
To record acquired technology............................... 19,959
To record deferred compensation related to unvested options
issued to Eligix employees.................................. 1,656
To record write-off of in-process research and
development................................................. 20,000
(B) To record payment of merger related expenses................ $(3,700)
(C) To eliminate convertible notes and related accrued interest,
convertible preferred stock and equity accounts of Eligix
(D) To record the issuance of shares of BioTransplant common
stock for Eligix:
Common stock at $0.01 par value............................. $ 50
Additional paid-in capital.................................. 40,641
(E) To record the issuance of 891,000 management incentive
shares
Deferred compensation....................................... $(7,446)
Common stock at $0.01 par value............................. 9
Additional paid-in capital.................................. 7,437
</TABLE>
Adjustments to record amortization of assembled workforce, acquired
technology and deferred compensation in the unaudited pro forma condensed
combined statements of operation for the nine months ended September 30, 2000,
in thousands:
<TABLE>
<S> <C> <C>
(F) Amortization of assembled workforce......................... $ 120
Amortization of acquired technology......................... 2,138
Amortization of deferred compensation....................... 615
-------
Total....................................................... $ 2,873
=======
(G) To eliminate interest expense related to Eligix convertible
notes
</TABLE>
Adjustments to record amortization of assembled workforce, acquired
technology and deferred compensation in the unaudited pro forma condensed
combined statements of operation for the year ended December 31, 1999, in
thousands:
<TABLE>
<S> <C> <C>
(H) Amortization of assembled workforce......................... $ 160
Amortization of acquired technology......................... 2,851
Amortization of deferred compensation....................... 8,278
-------
Total....................................................... $11,289
=======
</TABLE>
As required by Article 11 of Regulation S-X, the unaudited pro forma
condensed combined statement of operations excludes material non-recurring
charges which result directly from the
114
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(CONTINUED)
NOTE 2. PRO FORMA ADJUSTMENTS (CONTINUED)
merger and which will be recorded within twelve months following the merger.
The following schedule shows the effect of the write-off of in-process
research and development of $20,000,000.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Pro forma combined net loss................ $(39,408) $(50,297)
Pro forma combined basic and diluted net
loss per common share.................... $ (2.39) $ (3.95)
</TABLE>
NOTE 3. PRO FORMA NET LOSS PER SHARE
The unaudited basic and diluted net loss per share is based on the weighted
average number of BioTransplant common shares outstanding prior to the merger
plus the number of shares of BioTransplant common stock issued upon the closing
of the merger to existing security holders. Shares issuable under the Eligix
management equity incentive plan are included on a weighted average basis
calculated based on the respective vesting periods. Shares related to the
indemnity escrow have been included on a weighted average basis from the date of
expected issuance. Shares related to CE mark approval have not been included.
115
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND
MANAGEMENT OF BIOTRANSPLANT
The following table sets forth information as to the number of shares of
BioTransplant common stock beneficially owned as of December 31, 2000 by:
- each person that beneficially owns more than 5% of the outstanding shares
of BioTransplant common stock;
- each director of BioTransplant;
- BioTransplant's Chief Executive Officer;
- the four other named executive officers of BioTransplant; and
- all BioTransplant executive officers and directors as a group.
Except as indicated by the notes to the following table, the holders listed
below will have sole voting power and investment power over the shares
beneficially held by them. Beneficial ownership is determined according to the
rules of the Securities and Exchange Commission. The table below includes shares
subject to options and warrants which will be exercisable within 60 days
following December 31, 2000. All percentages assume that the options and
warrants of the particular person or group in question, and no others, have been
exercised.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
---------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT
------------------------ --------- ---------
<S> <C> <C>
5% BENEFICIAL HOLDERS
Rho Management Trust II(1) ................................. 750,288 6.3%
c/o Rho Management Company, Inc.
767 Fifth Avenue
New York, New York 10153
Funds managed by Hambrecht & Quist Capital Management, 740,451 6.3
Inc.(2) ..................................................
50 Rowes Wharf
Boston, Massachusetts 02110
S Squared Technology Corporation ........................... 713,400 6.0
515 Madison Avenue
Suite 4200
New York, NY 10022
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Elliot Lebowitz, Ph.D.(3)................................... 372,537 3.1
Donald R. Conklin(4)........................................ 14,857 *
William W. Crouse(5)........................................ 216,528 1.8
James C. Foster, J.D.(6).................................... 23,731 *
Daniel O. Hauser(7)......................................... 13,250 *
Michael S. Perry, D.V.M., Ph.D.............................. 7,500 *
James Hope, Ph.D.(8)........................................ 85,007 *
Julia L. Greenstein, Ph.D.(9)............................... 110,732 *
Mary White-Scharf, Ph.D.(10)................................ 108,985 *
Howard Grossberg, M.D.(11).................................. 12,500 *
All directors and executive officers as a group 897,289 8.4
(11 individuals)(12)......................................
</TABLE>
------------------------
* Beneficial ownership does not exceed 1% of the outstanding shares of
BioTransplant common stock.
116
<PAGE>
(1) Includes 38,466 shares of common stock which Rho Management Trust II has the
right to acquire within 60 days of December 31, 2000 upon the exercise of
warrants. Jan Philipp F. Reemtsma, Joshua Ruch and Fero Ventures Limited may
be deemed to beneficially own the shares held by Rho Management Trust II and
retain voting and dispositive rights for such shares.
(2) Includes 429,898 shares of common stock held by Hambrecht & Quist Health
Care Investors, including 10,210 shares which H&Q Health has the right to
acquire within 60 days of December 31, 2000 upon the exercise of warrants,
and 310,553 shares of common stock held by Hambrecht & Quist Life Science
Investors, including 17,722 shares which H&Q Life has the right to acquire
within 60 days of December 31, 2000 upon the exercise of warrants.
Hambrecht & Quist Capital Management Inc. serves as the investment advisor
to H&Q Health and H&Q Life. The respective general partners of H&Q Health
and H&Q Life exercise sole voting and investment power with respect to the
shares held by each fund.
(3) Includes 298,463 shares of common stock which Dr. Lebowitz has the right to
acquire within 60 days of December 31, 2000 upon the exercise of stock
options.
(4) Includes 11,875 shares of common stock which Mr. Conklin has the right to
acquire within 60 days of December 31, 2000 upon the exercise of stock
options.
(5) Includes the following shares of record:
- 78,877 shares which HCV II, L.P. has the right to acquire within
60 days of December 31, 2000, upon the exercise of warrants;
- 99,705 shares which HCV III, L.P. has the right to acquire within
60 days of December 31, 2000 upon the exercise of warrants;
- 29,571 shares which HCV IV, L.P. has the right to acquire upon the
exercise of warrants; and
- 7,750 shares of common stock which Mr. Crouse has the right to acquire
within 60 days of December 31, 2000 upon the exercise of stock options.
Mr. Crouse is a general partner of HealthCare Partners II, L.P., HealthCare
Partners III, L.P. and HealthCare Partners IV, L.P., the general partners,
respectively, of HCV II, L.P., HCV III, L.P. and HCV IV, L.P. Mr. Crouse,
together with the other general partners of HCV II, HCV III and HCV IV,
respectively, shares voting and investment control with respect to the
shares owned by HCV II, HCV III and HCV IV. The same individuals serve as
general partners of HealthCare Partners II, L.P., HealthCare Partners III,
L.P. and HealthCare Partners IV, L.P.
(6) Includes 2,856 shares of common stock owned by Charles River
Laboratories, Inc. Mr. Foster, a director of BioTransplant, is the President
and Chief Executive Officer of Charles River Laboratories and may be deemed
to beneficially own the shares of Charles River Laboratories, although he
disclaims beneficial ownership. Also includes 7,750 shares of common stock
which Mr. Foster has the right to acquire within 60 days of December 31,
2000 upon the exercise of stock options.
(7) Includes 12,625 shares of common stock which Dr. Hauser has the right to
acquire within 60 days of December 31, 2000 upon the exercise of stock
options.
(8) Includes 84,707 shares of common stock which Dr. Hope has the right to
acquire within 60 days of December 31, 2000 upon exercise of stock options.
Includes 300 shares of common stock owned by Dr. Hope's minor children.
(9) Dr. Greenstein has resigned as Senior Vice President, Research of
BioTransplant, effective January 1, 2001, in order to assume the position of
Chief Executive Officer of Immerge BioTherapeutics AG and Immerge
BioTherapeutics, Inc., the operating entities of BioTransplant's
117
<PAGE>
joint venture with Novartis. Dr. Greenstein will continue to serve as an
employee at BioTransplant but will no longer have the duties or title of an
officer of BioTransplant.
(10) Includes 97,234 shares of common stock which Dr. White-Scharf has the right
to acquire within 60 days of December 31, 2000 upon the exercise of stock
options. Also includes 600 shares of common stock owned by Dr White-Scharf's
minor children.
(11) Represents 12,500 shares of common stock which Dr. Grossberg has the right
to acquire within 60 days of December 31, 2000 upon the exercise of stock
options.
(12) Includes 778,432 shares of BioTransplant common stock which all directors
and executive officers as a group may acquire upon the exercise of
outstanding stock options and warrants exercisable within 60 days of
December 31, 2000.
118
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
AND MANAGEMENT OF ELIGIX
The following table sets forth certain information as to the number of
shares of Eligix stock beneficially owned as of December 31, 2000 by:
- each person that beneficially owns more than 5% of the outstanding shares
of Eligix common stock or Eligix preferred stock;
- each director of Eligix;
- Eligix' Chief Executive Officer;
- the five other most highly compensated Eligix executive officers who
received annual compensation in excess of $100,000 during 2000; and
- all Eligix executive officers and directors as a group.
Except as indicated by the notes to the following table, the holders listed
below will have sole voting power and investment power with respect to the
shares beneficially owned by them. The number of shares of Eligix common stock
listed in the table below does not include the shares of Eligix common stock
issuable upon conversion of Eligix preferred stock. All percentages assume that
the options, warrants and notes of the particular person or group in question,
and no others, have been exercised or converted. Unless indicated otherwise, the
address for each person is to the care of Eligix, 200 Boston Avenue, Medford,
Massachusetts 02155.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-------------------------------------------------------
PERCENT OF
PERCENT OF AGGREGATE
NAME OF BENEFICIAL OWNER CLASS OF STOCK SHARES CLASS VOTING POWER
------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
5% BENEFICIAL HOLDERS
Brinson Venture Capital Fund(1)................ Common 93,194 27.1% *
Preferred 1,767,680 7.9 7.8%
Entities affiliated with Advanced Technology
Ventures L.P.(2)............................. Common 232,058 48.0 *
Preferred 3,677,845 16.0 15.8
Entities affiliated with InterWest
Partners(3).................................. Common 300,451 54.5 1.1
Preferred 6,626,685 28.2 27.9
Beckman Coulter, Inc. (f.k.a. Coulter
Corporation)................................. Common -- -- --
Preferred 2,450,000 11.1 11.0
The Wallace H. Coulter Foundation(4)........... Common 266,799 51.5 *
Preferred 5,459,161 23.4 23.2
Joseph R. Coulter, III(5)...................... Common 107,713 30.0 *
Preferred 1,848,228 8.2 8.1
</TABLE>
119
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-------------------------------------------------------
PERCENT OF
PERCENT OF AGGREGATE
NAME OF BENEFICIAL OWNER CLASS OF STOCK SHARES CLASS VOTING POWER
------------------------ -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Walter C. Ogier(6)............................. Common 990,000 79.8% 3.5%
James R. Fitzgerald, Jr........................ Common 195,000 43.7 *
David N. Cook, Ph.D.(6)........................ Common 389,000 60.8 1.4
James Embree(6)................................ Common 399,916 61.4 1.4
Judith Snow(6)................................. Common 352,500 58.4 1.3
Tara Clark(6).................................. Common 231,583 48.0 *
Laura Coulter-Jones(7)......................... Common 122,301 32.7 *
Preferred 2,098,549 9.3 9.2
Robert Momsen(3)............................... Common 300,451 54.5 1.1
Preferred 6,626,685 28.2 27.9
Arnold L. Oronsky, Ph.D.(3).................... Common 300,451 54.5 1.1
Preferred 6,626,685 28.2 27.9
Susan Racher(4)................................ Common 266,799 51.5 *
Preferred 5,459,161 23.4 23.2
Pieter Schiller(2)............................. Common 232,058 48.0 *
Preferred 3,677,845 16.0 15.8
All executive officers and directors as a group
(11 individuals)(8).......................... Common 3,479,608 93.2 11.2
Preferred 17,862,240 44.7 44.4
</TABLE>
------------------------
* Beneficial ownership does not exceed 1% of the outstanding Eligix common
stock.
(1) Represents shares held by Brinson MAP Venture Capital Fund III and Brinson
Venture Capital Fund III, L.P. Includes 93,194 shares of Eligix common stock
which Brinson MAP Venture Capital Fund III and Brinson Venture Capital Fund
III, L.P. have the right to acquire within 60 days of December 31, 2000 upon
exercise of warrants. Includes 35,822 shares of Eligix Series C-1 preferred
stock which Brinson MAP Venture Capital Fund III and Brinson Venture Capital
Fund III, L.P. has the right to acquire within 60 days of December 31, 2000
upon conversion of convertible notes.
(2) Represents shares held by Advanced Technology Ventures V, L.P. and ATV
Entrepreneurs V, L.P. Pieter Schiller is a general partner of these entities
and may be deemed to exercise voting and investment control with respect to
the shares held by Advanced Technology Ventures V, L.P. and ATV
Entrepreneurs V, L.P. Mr. Schiller disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest therein. Includes
232,058 shares of Eligix common stock which Advanced Technology Ventures V,
L.P. and ATV Entrepreneurs V, L.P. have the right to acquire within 60 days
of December 31, 2000 upon exercise of warrants. Includes 77,886 shares of
Eligix Series C-1 preferred stock which Advanced Technology Ventures V, L.P.
and ATV Entrepreneurs V, L.P. has the right to acquire within 60 days of
December 31, 2000 upon conversion of convertible notes.
(3) Represents shares held by InterWest Partners V, L.P., InterWest Investors V,
L.P., InterWest Partners VI, L.P. and InterWest Investors VI, L.P. Arnold L.
Oronsky and Robert Momsen are general partners of InterWest Management
Partners V, L.P., the sole general partner of InterWest Partners V, L.P. and
InterWest Investors V, L.P. Dr. Oronsky and Mr. Momsen also serve as
Managing Directors of InterWest Management Partners VI, L.L.C., the sole
general partner of InterWest Partners VI, L.P. and InterWest Investors VI,
L.P. Dr. Oronsky and Mr. Momsen, together with the other general partners of
InterWest Partners V, L.P., InterWest Investors, V, L.P., InterWest Partners
VI, L.P., and InterWest Investors VI, L.P., respectively, share voting and
120
<PAGE>
investment control with respect to the shares owned by InterWest Partners V,
L.P., InterWest Investors V, L.P., InterWest Partners VI, L.P. and InterWest
Investors VI, L.P. Dr. Oronsky and Mr. Momsen disclaim beneficial ownership
of the shares held by InterWest Partners V, L.P., InterWest Investors V,
L.P., InterWest Partners VI, L.P. and InterWest Investors VI, L.P. except to
the extent of their pecuniary interest therein. Includes an aggregate of
300,451 shares of Eligix common stock which InterWest Investors V, L.P.,
InterWest Partners V, L.P., InterWest Investors VI, L.P. and InterWest
Partners VI, L.P. have the right to acquire within 60 days of December 31,
2000 upon exercise of warrants. Also includes an aggregate of 129,408 shares
of Eligix Series C-1 preferred stock which InterWest Investors V, L.P.,
InterWest Partners V, L.P., InterWest Investors VI, L.P. and InterWest
Partners VI, L.P. have the right to acquire within 60 days of December 31,
2000 upon conversion of convertible notes.
(4) Includes 266,799 shares of Eligix common stock which the Wallace H. Coulter
Foundation has the right to acquire within 60 days of December 31, 2000 upon
exercise of warrants. Also includes 109,215 shares of Eligix Series C-1
preferred stock which the Wallace H. Coulter Foundation has the right to
acquire within 60 days of December 31, 2000 upon conversion of convertible
notes. Susan Racher is the Chief Financial Officer of the Wallace H. Coulter
Foundation and may be deemed to exercise voting and investment control with
respect to shares held by the Foundation. Ms. Racher disclaims beneficial
ownership of these shares.
(5) Represents shares held by the JRC Investment Limited Partnership, the Joseph
R. Coulter, Jr. Trust, and the Joseph R. Coulter, Jr. Trust, Laura
Coulter-Jones and Joseph Coulter, III Trustees. Includes 107,713 shares of
Eligix common stock which Joseph R. Coulter, III has the right to acquire
within 60 days of December 31, 2000 upon exercise of warrants. Also includes
38,478 shares of Series C-1 preferred stock which Joseph R. Coulter, III has
the right to acquire within 60 days of December 31, 2000 upon conversion of
convertible notes.
(6) The share amounts for each of the individuals listed below includes the
number of shares of Eligix common stock following their respective names
which each individual has the right to acquire within 60 days of
December 31, 2000 upon the exercise or conversion of stock options, warrants
or notes:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
------------------------------------------------------------ ----------------
<S> <C>
Walter C. Ogier............................................. 990,000
David N. Cook, Ph.D......................................... 389,000
James Embree................................................ 399,916
Judith Snow................................................. 352,000
Tara Clark.................................................. 231,583
</TABLE>
1,614,000 of the above shares are immediately exercisable. However, the
shares issuable upon exercise of these options vest over a five-year period
with any unvested shares being subject to repurchase by Eligix. These shares
vest in full and the repurchase right terminates upon consummation of the
merger.
(7) Represents shares held by Laura Coulter-Jones directly, by the LGC
Investment Limited Partnership and as trustee for the Joseph R. Coulter, Jr.
Trust, and the Joseph R. Coulter, Jr. Trust, Laura Coulter-Jones and Joseph
Coulter, III Trustees. Includes 122,301 shares of Eligix common stock which
Ms. Coulter-Jones, the LGC Investment Limited Partnership, the Joseph R.
Coulter, Jr. Trust, and the Joseph R. Coulter, Jr. Trust, Laura
Coulter-Jones and Joseph Coulter, III Trustees have the right to acquire
within 60 days of December 31, 2000 upon exercise of warrants. Includes
43,690 shares of Eligix Series C-1 preferred stock which Ms. Coulter-Jones,
the LGC Investment Limited Partnership, the Joseph R. Coulter, Jr. Trust,
and the Joseph R. Coulter, Jr. Trust, Laura Coulter-Jones and Joseph
Coulter, III Trustees have the right to acquire within 60 days of
December 31, 2000 upon conversion of convertible notes.
(8) Includes an aggregate of 3,644,281 shares of Eligix common stock which all
executive officers and directors have the right to acquire within 60 days of
December 31, 2000, upon exercise of all outstanding options, notes and
warrants.
121
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND
MANAGEMENT OF BIOTRANSPLANT FOLLOWING THE MERGER
The following table sets forth certain pro forma information as of
December 31, 2000 as to the number of shares of BioTransplant common stock that
will be beneficially owned, assuming consummation of the merger on March 15,
2001, by:
- each person that will beneficially own more than 5% of the outstanding
shares of the combined company;
- each individual who will be a director of the combined company;
- the Chief Executive Officer of the combined company and the four other
most highly compensated executive officers of the combined company based
on fiscal year 2000 compensation; and
- the combined company's executive officers and directors as a group.
Except as indicated by the notes to the following table, the holders listed
below will have sole voting power and investment power over the shares
beneficially held by them. The table below includes shares subject to options
and warrants which will be exercisable within 60 days following December 31,
2000 and assumes that options held by officers and directors of Eligix, that by
their terms accelerate in full upon the closing of the merger, have accelerated.
All percentages assume the issuance of 5,891,457 shares of BioTransplant common
stock, which represents shares issued (1) to Eligix stockholders in connection
with the merger, (2) to Eligix management members pursuant to the Eligix
management equity incentive plan and (3) to holders of Eligix warrants and
notes, which are expected to be exercised or converted prior to the consummation
of the merger. All percentages assume that the BioTransplant options and
warrants of the particular person or group in question, and no others, have been
exercised.
<TABLE>
<CAPTION>
PRO FORMA BENEFICIAL
OWNERSHIP
------------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT
------------------------ --------- --------
<S> <C> <C>
5% BENEFICIAL OWNERS
Entities affiliated with InterWest Partners V, L.P.(1)...... 1,203,913 6.8%
c/o Eligix, Inc.
200 Boston Avenue
Medford, Massachusetts 02155
The Wallace H. Coulter Foundation(2)........................ 1,001,898 5.7
c/o Eligix, Inc.
200 Boston Avenue
Medford, Massachusetts 02155
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Elliot Lebowitz, Ph.D.(3)................................... 372,537 2.1
James C. Foster, J.D.(4).................................... 23,731 *
Daniel O. Hauser(5)......................................... 13,250 *
Walter C. Ogier(6).......................................... 277,615 1.6
Arnold L. Oronsky, Ph.D.(1)................................. 1,203,913 6.8
Michael S. Perry, D.V.M., Ph.D.............................. 7,500 *
Susan Racher(2)............................................. 1,001,898 5.7
James Hope, Ph.D.(7)........................................ 85,007 *
James R. Fitzgerald, Jr.(8)................................. 86,490 *
Howard Grossberg M.D.(9).................................... 12,500 *
All directors and executive officers as a group (15 3,815,331 21.2
individuals)(10)..........................................
</TABLE>
------------------------
* Beneficial ownership does not exceed 1% of the outstanding shares of
BioTransplant common stock.
122
<PAGE>
(1) Represents shares held by InterWest Partners V, L.P., InterWest Investors V,
L.P., InterWest Partners VI, L.P. and InterWest Investors VI, L.P. Arnold L.
Oronsky is general partner of InterWest Management Partners V, L.P., the
sole general partner of InterWest Partners V, L.P. and InterWest Investors
V, L.P. Dr. Oronsky also serves as Managing Director of InterWest Management
Partners VI, L.L.C., the sole general partner of InterWest Partners VI, L.P.
and InterWest Investors VI, L.P. Dr. Oronsky, together with the other
general partners of InterWest Partners V, L.P., InterWest Investors V, L.P.,
InterWest Partners VI, L.P. and InterWest Investors VI, L.P., respectively,
shares voting and investment control with respect to the shares owned by
InterWest Partners V, L.P., InterWest Investors V, L.P., InterWest Partners
VI, L.P. and InterWest Investors VI, L.P. Dr. Oronsky disclaims beneficial
ownership of the shares held by InterWest Partners V, L.P., InterWest
Investors V, L.P., InterWest Partners VI, L.P. and InterWest Investors VI,
L.P. except to the extent of his pecuniary interest therein.
(2) Susan Racher is the Chief Financial Officer of the Wallace H. Coulter
Foundation and may be deemed to exercise voting and investment control with
respect to shares held by the Foundation. Ms. Racher disclaims beneficial
ownership of these shares.
(3) Includes 298,463 shares of common stock which Dr. Lebowitz has the right to
acquire within 60 days of December 31, 2000 upon the exercise of stock
options.
(4) Includes 2,856 shares of common stock owned by Charles River
Laboratories, Inc. Mr. Foster, a director of BioTransplant, is the President
and Chief Executive Officer of Charles River Laboratories and may be deemed
to beneficially own the shares of Charles River Laboratories, although he
disclaims beneficial ownership. Also includes 7,750 shares of common stock
which Mr. Foster has the right to acquire within 60 days of December 31,
2000 upon the exercise of stock options.
(5) Includes 12,625 shares of common stock which Dr. Hauser has the right to
acquire within 60 days of December 31, 2000 upon the exercise of stock
options.
(6) Includes 115,320 shares of common stock which Mr. Ogier has the right to
acquire within 60 days of December 31, 2000 upon exercise of stock options.
(7) Includes 84,707 shares of common stock which Dr. Hope has the right to
acquire within 60 days of December 31, 2000 upon exercise of stock options.
Includes 300 shares of common stock owned by Dr. Hope's minor children.
(8) Includes 86,490 shares of common stock which Mr. Fitzgerald has the right to
acquire within 60 days of December 31, 2000 upon exercise of stock options.
(9) Represents 12,500 shares of common stock which Dr. Grossberg has the right
to acquire within 60 days of December 31, 2000 upon the exercise of stock
options.
(10) Includes 648,954 shares of BioTransplant common stock which all directors
and executive officers as a group may acquire upon the exercise of
outstanding stock options and warrants exercisable within 60 days of
December 31, 2000.
123
<PAGE>
DESCRIPTION OF BIOTRANSPLANT CAPITAL STOCK
THIS SECTION SUMMARIZES THE TERMS OF BIOTRANSPLANT'S CAPITAL STOCK. BECAUSE
THIS SUMMARY DOES NOT ADDRESS ALL OF THE INFORMATION THAT MAY BE IMPORTANT TO
YOU, YOU SHOULD READ THE MORE DETAILED PROVISIONS OF BIOTRANSPLANT'S CERTIFICATE
OF INCORPORATION AND BYLAWS.
GENERAL
As of the date of this joint proxy statement/prospectus, BioTransplant is
authorized to issue up to 50,000,000 shares of BioTransplant common stock, par
value $.01 per share, and 2,000,000 shares of preferred stock, par value $.01
per share. The issued and outstanding shares of BioTransplant common stock are,
and the shares that BioTransplant will issue in connection with the merger will
be, when authorized, approved, issued and delivered subject to the terms of the
merger agreement, fully paid and nonassessable. As of December 31, 2000,
11,796,120 shares of BioTransplant common stock were issued and outstanding,
held by approximately 90 stockholders of record, and no shares of BioTransplant
preferred stock issued and outstanding.
BIOTRANSPLANT COMMON STOCK
Each holder of BioTransplant common stock is entitled to one vote per share
of BioTransplant common stock held of record by the holder. Holders of
BioTransplant common stock have no preemptive, redemption or conversion rights.
The holders of BioTransplant common stock are only entitled to receive dividends
when and as declared by the BioTransplant board out of funds legally available
for payments of dividends. Upon BioTransplant's liquidation, dissolution or
winding up, the holders of BioTransplant common stock may share ratably in
BioTransplant's net assets after payment of liquidating distributions to holders
of BioTransplant preferred stock, if any. The registrar and transfer agent for
the BioTransplant common stock is The American Stock Transfer and Trust Company.
BIOTRANSPLANT PREFERRED STOCK
The BioTransplant board has the power, without further vote of stockholders,
to authorize the issuance of up to 2,000,000 shares of BioTransplant preferred
stock and to fix and determine the terms, limitations and relative rights and
preferences of any shares of BioTransplant preferred stock. This power includes
the authority to establish voting, dividend, redemption, conversion, liquidation
and other rights of any such shares. Dividend, conversion, exchange and
redemption provisions to the extent that some or all of these features may be
present when shares of BioTransplant preferred stock are issued, could have an
adverse effect on the availability of earnings for distribution to the holders
of BioTransplant common stock or for other corporate purposes.
DELAWARE LAW AND BYLAW PROVISIONS
BioTransplant is subject to the provisions of Section 203 of the Delaware
General Corporation Law. Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the person becomes an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. In general, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within the prior three years did own, 15% or more of the
corporation's voting stock.
BioTransplant's bylaws provide that special meetings of the stockholders may
be called by the board of directors, the chairman of the board, the president,
the secretary or the record holders of at least 20% of the shares of stock of
BioTransplant issued and outstanding and entitled to vote at such meeting. This
provision could have the effect of delaying until the next stockholder meeting
actions which are favored by a significant percentage of our stockholders.
124
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
GENERAL
BioTransplant and Eligix are corporations organized under the laws of
Delaware and are therefore subject to the Delaware General Corporation Law.
However, there are differences in the charters and bylaws of BioTransplant and
Eligix.
CAPITALIZATION
BIOTRANSPLANT. BioTransplant is authorized to issue 50,000,000 shares of
common stock and 2,000,000 shares of preferred stock. On December 31, 2000,
11,796,120 shares of BioTransplant common stock were issued and outstanding and
no shares of preferred stock were issued and outstanding. BioTransplant's board
has the authority, without stockholder approval, to issue shares of authorized
preferred stock from time to time in one or more series and to fix the rights
and preferences, including voting rights, of each series of preferred stock,
which rights and preferences may be superior to that of BioTransplant common
stock.
ELIGIX. Eligix' capitalization as of December 31, 2000 is as follows:
<TABLE>
<CAPTION>
CLASS AND SERIES OF STOCK AUTHORIZED ISSUED AND OUTSTANDING
------------------------- ---------- ----------------------
<S> <C> <C>
Common....................................... 66,000,000 251,219
Series A..................................... 11,100,000 10,911,332
Series B..................................... 12,500,000 11,214,755
Series C-1................................... 10,000,000 0
Series C-2................................... 11,100,000 0
Series C-3................................... 12,500,000 0
</TABLE>
VOTING RIGHTS
BIOTRANSPLANT. Each holder of BioTransplant common stock is entitled to one
vote for each share and may not cumulate votes for the election of directors.
ELIGIX. Each holder of Eligix common stock is entitled to one vote for each
share and may not cumulate votes for the election of directors. Each holder of
Eligix Series A preferred stock, Series B preferred stock, Series C-1 preferred
stock, Series C-2 preferred stock and Series C-3 preferred stock is entitled to
the number of votes equal to the whole number of shares of common stock into
which the preferred share is convertible. For so long as 2,000,000 shares of
preferred stock remain outstanding, 66 2/3% of such preferred shares must
approve the following actions:
- any amendment to the certificate of incorporation or bylaws that alters
the voting powers, preferences or other special rights of the preferred
shares;
- any increase or decrease (other than by redemption or conversion) in the
authorized number of shares of common or preferred stock;
- any authorization of, or any increase in the authorized amount of, any
class of shares or series of equity securities ranking on a parity with or
senior to the preferred stock in right of redemption, liquidation
preference, voting or dividends;
- any redemption, repurchase, payment of dividends or other distributions
with respect to the common stock;
- any agreement by Eligix or its stockholders regarding an asset transfer or
acquisition;
- any increase or decrease in the authorized number of members of the Eligix
board;
125
<PAGE>
- any action that results in the payment or declaration of any dividend on
any shares of common stock or preferred stock; or
- any voluntary dissolution or liquidation of Eligix.
NUMBER AND CLASSIFICATION OF DIRECTORS
BIOTRANSPLANT. The BioTransplant bylaws provide that the BioTransplant
board shall consist of three members or such other number as shall be fixed from
time to time by the board, with each director serving a one-year term. The
number of directors of BioTransplant currently designated is seven, with one
seat vacant.
ELIGIX. The Eligix bylaws provide that the Eligix board shall consist of
not less than three and not more than seven members, the number of directors to
be determined from time to time by resolution of the board, with each director
serving a one-year term. The number of directors of Eligix currently designated
is six. The Eligix certificate of incorporation provides that any increase or
decrease in the number of authorized members of the board must be approved by a
vote of stockholders holding 66 2/3% of the outstanding shares of preferred
stock.
REMOVAL OF DIRECTORS
BIOTRANSPLANT. Any director or the entire board may be removed from office,
with or without cause, at any time by affirmative vote of the holders of a
majority of the outstanding shares then entitled to vote at an election of
directors, or by written consent of the stockholders pursuant to Delaware law.
ELIGIX. Any director or the entire board may be removed from office at any
time with cause by the affirmative vote of the holders of a majority of the
voting power of all the outstanding shares then entitled to vote at an election
of directors, or without cause by the affirmative vote of the holders of at
least 75% of the outstanding shares then entitled to vote at an election of
directors.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
BIOTRANSPLANT. Vacancies occurring in the board may be filled by a vote of
the stockholders or by a vote of the board. In the event vacancies are filled by
the board, such vacancies may be filled by vote of a majority of the directors
then in office, whether or not less than a quorum.
ELIGIX. Vacancies occurring in the board resulting from a resignation or an
increase in the number of authorized directors may be filled by a majority of
the directors then in office, although less than a quorum, and each director so
elected shall hold office for the unexpired portion of the term of the director
whose vacancy was filled and until the director's successor shall have been duly
elected.
CHARTER AMENDMENTS
BIOTRANSPLANT. The BioTransplant charter provides that any amendment to
BioTransplant's charter must have board approval of a resolution recommending
that such amendment be adopted and approval of a majority of the outstanding
stock entitled to vote on such an amendment.
ELIGIX. The Eligix charter provides that any amendment to Eligix' charter
must have board approval of a resolution recommending that such amendment be
adopted and approval of a majority of the outstanding stock entitled to vote on
such an amendment. In addition, 66 2/3% of the holders of preferred must approve
any amendment to the charter that:
- alters the power, preferences, restrictions or privileges of the preferred
shares;
- increases or decreases the authorized number of preferred or common
shares; or
126
<PAGE>
- authorizes or increases any class of shares of equity ranking on parity
with or senior to the preferred shares in right of redemption, liquidation
preference, voting or dividends.
AMENDMENTS TO BYLAWS
BIOTRANSPLANT. The BioTransplant bylaws provide that the stockholders may
amend, adopt or repeal the bylaws by the affirmative vote of a majority of the
shares outstanding and entitled to vote or by a vote of the board.
ELIGIX. The Eligix bylaws provide that the stockholders may amend, adopt or
repeal the bylaws by an affirmative vote of at least 75% of the voting power of
the shares outstanding and entitled to vote. The Eligix bylaws provide that the
provisions relating to indemnification may not be replaced or amended in a
manner that would adversely affect the right or protection of any person in
respect of any act or omission occurring prior to the amendment or repeal. The
Eligix bylaws also provide that the board may amend the bylaws to the extent
permitted in the Eligix certificate of incorporation. The Eligix certificate of
incorporation authorizes the board of directors to amend, supplement or repeal
the bylaws. Any bylaw or bylaws adopted by the board of directors may, however,
be further amended or repealed by an affirmative vote of at least a majority of
the voting power of shares outstanding and entitled to vote.
ACTION BY WRITTEN CONSENT
BIOTRANSPLANT. BioTransplant's bylaws provide that any action required or
permitted to be taken by stockholders may be taken by written consent.
ELIGIX. Eligix' bylaws provide that any action required or permitted to be
taken by stockholders may be taken by written consent.
NOTICE OF STOCKHOLDER ACTIONS
BIOTRANSPLANT. BioTransplant's bylaws require written or telephonic notice
of the hour, date and place of each annual or special meeting of the
stockholders. In the case of a special meeting, stockholders must be informed of
the purposes for which the meeting is called. If a stockholder will attend the
meeting in person or by proxy, or provides a written waiver of the right to
receive notice, notice of such meeting is not necessary. The waiver of notice
need not specify the business to be transacted at, nor the purpose of, any
meeting of the stockholders. In order for a stockholder owning less than 5% of
the outstanding capital stock of BioTransplant to bring business before an
annual meeting, the stockholder must give written notice to the Secretary of
BioTransplant at least 60 days, but not more than 90 days, before the annual
meeting. However, if notice of the meeting is given less than 70 days prior to
the meeting date, then stockholders must give notice no later than ten days
after the day on which public announcement of the meeting date is first made.
Included in the notice to the Secretary must be:
- a brief description of the business the stockholder wants to bring before
the meeting and the reasons for conducting such business at the annual
meeting;
- the name and address of the stockholder proposing the action;
- the class and number of shares of BioTransplant beneficially owned by the
stockholder;
- any material interest of the stockholder in the business such stockholder
is bringing before the meeting; and
- other information required to be disclosed under the Securities and
Exchange Commission's regulations relating to proxy statements.
127
<PAGE>
ELIGIX. Eligix' bylaws require written notice of the hour, date and place
of each meeting of the stockholders. If the stockholder will attend the meeting
in person or by proxy, or provides written waiver of the right to receive
notice, notice of such meeting is not necessary, except when the stockholder
attends the meeting to object to the transaction of any business on the grounds
the meeting was not lawfully called or convened. Eligix' bylaws provide that for
stockholders to bring business before an annual meeting, the stockholders must
give written notice to the Secretary of Eligix at least 60 days, but not more
than 90 days, before the first anniversary of the preceding year's annual
meeting. However, if public announcement is given less than 70 days prior to the
meeting date, then stockholders must give notice no later than ten days after
the day on which public announcement of the meeting date is first made. Included
in the notice to the Secretary must be:
- a brief description of the business the stockholder wants to bring before
the meeting and the reasons for conducting such business at the annual
meeting;
- the name and address of the stockholder proposing the action;
- the class and number of shares of Eligix beneficially owned by the
stockholder;
- any material interest of the stockholder in the business such stockholder
is bringing before the meeting; and
- other information required to be disclosed under the Securities and
Exchange Commission's regulations relating to proxy statements.
RIGHT TO CALL SPECIAL MEETING OF STOCKHOLDERS
BIOTRANSPLANT. BioTransplant's charter and bylaws provide that a special
meeting of the stockholders may be called by:
- the board;
- the chairman of the board;
- the president;
- the secretary; or
- holders of 20% of the outstanding stock of BioTransplant entitled to vote
at such meeting.
The place, date and hour of any such special meeting shall be designated in
the notice, or waiver of notice, to be sent to stockholders.
ELIGIX. Eligix' bylaws provide that a special meeting of the stockholders
may be called, for any purpose, by:
- the board of directors, pursuant to a resolution adopted by a majority of
the authorized directors;
- the chairman of the board; or
- the president.
If a special meeting is called by any person other than the board, such
person shall inform the chairman of the board, the president, any vice president
or the secretary by mail, telegraph or facsimile, of the time of the meeting and
the business to be transacted at such meeting. Only business outlined in such
notice may be conducted at the special meeting of the stockholders. The special
meeting must be held no later than 60 days, but no earlier than 35 days, after
receipt of the request.
128
<PAGE>
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The Delaware General Corporation Law provides that a corporation's charter
may include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damage for breach of fiduciary duty
as a director. However, no such provision can eliminate or limit the liability
of a director for:
- any breach of the director's duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
- willful or negligent violation of the laws governing the payment of
dividends or the purchase or redemption of stock; or
- any transaction from which the director devised an improper personal
benefit.
BIOTRANSPLANT. BioTransplant's charter and bylaws provide that a director
will not be liable to BioTransplant or its stockholders for monetary damages for
a breach of his or her fiduciary duty as a director, subject to the exceptions
in the Delaware General Corporation Law cited above.
ELIGIX. Eligix' charter provides that a director will not be liable to
Eligix or its stockholders for monetary damages resulting from a breach of his
or her fiduciary duty as a director, subject to the exceptions in the Delaware
General Corporation Law cited above.
DIVIDENDS
BIOTRANSPLANT. BioTransplant's charter provides that BioTransplant's board
may declare and pay dividends upon shares of BioTransplant common stock, but
only out of funds available for the payment of dividends as provided by law, and
subject to any preferential dividend rights of any outstanding preferred stock.
The board is given discretion to establish dividend rights for any and all
classes of preferred stock.
ELIGIX. Eligix' charter provides that Eligix' board may declare and pay
dividends upon shares of Eligix common stock, but only out of funds available
for the payment of dividends as provided by law, and subject to any preferential
dividend rights of any outstanding preferred stock. In respect to dividend
rights of preferred stock, the Eligix' charter provides that the Series C-1,
Series C-2 and Series C-3 Preferred are entitled to receive, when the board
declares and pays cash dividends, and prior to the payment of any dividends with
respect to common or Series A or Series B preferred, cash dividend payments in
the following amounts:
- Series C-1 will receive $0.36 per share on an annual basis;
- Series C-2 will receive $0.10664 per share on an annual basis; and
- Series C-3 will receive $0.12 per share on an annual basis.
Any dividend payment made to the Series C-1, Series C-2 and Series C-3
preferred stockholders may only be paid out of funds available for the payment
of dividends as provided by law. In the event cash dividends are paid on any
share of Series A preferred, Series B preferred or common stock, an additional
dividend shall be paid to all outstanding shares of Series C-1, Series C-2 and
Series C-3 preferred, as if the holder had exercised the right to convert the
Series C-1, Series C-2 and Series C-3 into common stock prior to the declaration
of the dividend.
Only after full and adequate payment of the cash dividend to the Series C-1
preferred, Series C-2 preferred and Series C-3 preferred stockholders, are the
holders of Series A and Series B preferred
129
<PAGE>
stock entitled to receive any cash dividend declared and paid by the board of
directors. Assuming funds available for the payment of dividends as provided by
law,
- Series A will receive $0.10664 per share on an annual basis; and
- Series B will receive $0.12 per share on an annual basis.
Only after full and adequate payment of the cash dividends to the Series A
and Series B Preferred stockholders, are the holders of the common stock
entitled to receive any cash dividends declared and paid by the board. Any
dividend payment made to the common stockholders may only be paid out of funds
available for the payment of dividends as provided by law.
In the event cash dividends are paid on any share of common stock, an
additional dividend shall be paid to all outstanding Series A and Series B
preferred as if the holder had exercised the right to convert the Series A or
Series B preferred into common stock prior to the declaration of the dividend.
CONVERSION
BIOTRANSPLANT. Holders of BioTransplant common stock have no right to
convert their shares into any other shares of capital stock of BioTransplant or
any other securities.
ELIGIX. Holders of Eligix common stock have no right to convert their
shares into any other shares of capital stock of Eligix or any other securities.
Holders of Eligix Series A, Series B, Series C-1, Series C-2 and Series C-3
preferred stock have the right to convert their preferred stock into Eligix
common stock, at the option of the holder, at any time after the date of
issuance of the shares.
Holders of Series A preferred stock have the right to convert their shares
into a number of shares of common stock determined by dividing $1.3333 by the
then current conversion price, as calculated based on the provisions of the
charter, which is currently $1.3333 per share. Shares of Series A preferred
stock automatically convert into common stock:
- upon the request of 66 2/3% of the then outstanding Series A, Series B,
Series C-1, Series C-2 and Series C-3 preferred stock; and
- upon the closing of a public offering of shares of common stock at a price
of at least $5.00 per share resulting in gross proceeds to Eligix of at
least $10,000,000.
Holders of Series B preferred stock have the right to convert their shares
into a number of shares of common stock determined by dividing $1.50 by the then
current conversion price, as calculated based on the provisions of the charter,
which is currently $1.50 per share. Shares of Series B preferred stock
automatically convert into common stock:
- upon the request of 66 2/3% of the then outstanding Series A, Series B,
Series C-1, Series C-2 and Series C-3 preferred stock; and
- upon the closing of a public offering of shares of common stock at a price
of at least $5.00 per share resulting in gross proceeds to Eligix of at
least $10,000,000.
Holders of Series C-1 preferred stock have the right to convert their shares
into a number of shares of common stock determined by dividing $4.50 by the then
current conversion price, as calculated based on the provisions of the charter,
which is currently $4.50 per share. Shares of Series C-1 preferred stock
automatically convert into common stock:
- upon the request of 66 2/3% of the then outstanding Series A, Series B,
Series C-1, Series C-2 and Series C-3 preferred stock; and
- upon the closing of a public offering of shares of common stock at a price
of at least $5.00 per share resulting in gross proceeds to Eligix of at
least $10,000,000.
130
<PAGE>
Holders of Series C-2 preferred stock have the right to convert their shares
into a number of shares of common stock determined by dividing $1.3333 by the
then current conversion price, as calculated based on the provisions of the
charter, which is currently $1.3333 per share. Shares of Series C-2 preferred
stock automatically convert into common stock:
- upon the request of 66 2/3% of the then outstanding Series A, Series B,
Series C-1, Series C-2 and Series C-3 preferred stock; and
- upon the closing of a public offering of shares of common stock at a price
of at least $5.00 per share resulting in gross proceeds to Eligix of at
least $10,000,000.
Holders of Series C-3 preferred stock have the right to convert their shares
into a number of shares of common stock determined by dividing $1.50 by the then
current conversion price, as calculated based on the provisions of the charter,
which is currently $1.50 per share. Shares of Series C-3 preferred stock
automatically convert into common stock:
- upon the request of 66 2/3% of the then outstanding Series A, Series B,
Series C-1, Series C-2 and Series C-3 preferred stock; and
- upon the closing of a public offering of shares of common stock at a price
of at least $5.00 per share resulting in gross proceeds to Eligix of at
least $10,000,000.
LIQUIDATION
BIOTRANSPLANT. BioTransplant's charter provides that upon dissolution or
liquidation of BioTransplant, whether voluntary or involuntary, holders of
BioTransplant common stock will be entitled to receive all assets of
BioTransplant available for distribution to its stockholders, subject to any
preferential rights of any then outstanding preferred stock.
ELIGIX. Eligix' charter provides that upon dissolution or liquidation of
Eligix, whether voluntary or involuntary, holders of Eligix common stock will be
entitled to receive all assets of Eligix available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
preferred stock. Eligix charter further provides that upon any liquidation,
dissolution or winding up of Eligix, no distribution shall be made:
- to the holders of stock ranking junior to the Series C-1, Series C-2 and
Series C-3 preferred stock until the holders of the Series C-1,
Series C-2 and Series C-3 preferred stock have received $4.50, $1.3333 and
$1.50 per share, respectively, plus all declared and unpaid dividends on
such shares of Series C-1, Series C-2 and Series C-3 preferred stock for
each share of Series C-1, Series C-2 and Series C-3 preferred stock held
respectively by them; or
- to the holders of stock ranking junior to the Series A and Series B
preferred stock until the holders of the Series A and Series B preferred
stock have received $1.3333 and $1.50 per share, respectively, plus all
declared and unpaid dividends on such shares of Series A and Series B
preferred stock for each share of Series A and Series B preferred stock
held respectively by them.
RIGHTS IN AN ACQUISITION EVENT
BIOTRANSPLANT. The holders of BioTransplant common and preferred stock have
no rights comparable to those of Eligix stockholders.
ELIGIX. Eligix' charter provides that if Eligix enters into any
reorganization, merger, consolidation or sale, lease or other disposition of all
or substantially all of its assets in which the shares of Eligix common stock
are changed for or changed into other stock or securities, cash and/or any other
131
<PAGE>
property, then each holder of preferred stock shall thereafter be entitled to
receive upon such event the liquidation preference described above.
APPRAISAL RIGHTS
BIOTRANSPLANT. BioTransplant is a Delaware corporation. Under the Delaware
General Corporation Law, dissenters' rights of appraisal are available to a
stockholder of a corporation only in connection with certain mergers or
consolidations involving that corporation. Appraisal rights are not available
under the Delaware General Corporation Law if the corporation's stock is 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. as the BioTransplant common stock
is; or
- held of record by more than 2,000 stockholders;
provided that appraisal rights will be available if the merger or consolidation
requires stockholders to exchange their shares of BioTransplant common stock for
anything other than:
- shares of the surviving corporation;
- shares of another corporation that will be listed on a national securities
exchange, designated as a national market system security on an
interdealer quotation system by the NASD or held of record by more than
2000 stockholders; or
- cash in lieu of fractional shares.
Additionally, no appraisal rights are available if the corporation is the
surviving corporation, and no vote of its stockholders is required for the
merger.
ELIGIX. Eligix is also a Delaware corporation and dissenters' rights of
appraisal are available for shares of Eligix common and preferred stock in
connection with certain mergers or consolidations involving Eligix.
132
<PAGE>
APPROVAL OF AMENDMENT TO ELIGIX'
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
On December 8, 2000, the Eligix board of directors adopted, subject to
stockholder approval, an amendment to Eligix' certificate of incorporation
adjusting the manner of determining the value of property to be distributed to
the preferred stockholders in a liquidation event, such as a merger. The
certificate of incorporation currently states that, in the event of a
liquidation, where the distribution made to preferred stockholders is in the
form of securities traded on a securities exchange, the Nasdaq National Market
or the over-the-counter market, the value of such securities will be the average
of the closing sale prices of those securities on the exchange over the
thirty-day period ending three days prior to the date established for the
DISTRIBUTION of the securities. If the amendment is approved, the certificate of
incorporation will provide that the value of the securities to be distributed in
the liquidation event will be the average of the closing prices of the
securities on the exchange over the thirty-day period ending three days prior to
the date of SIGNING AN AGREEMENT relating to an acquisition or asset transfer.
Thus, approval of the amendment to the certificate of incorporation fixes
the exact number of shares of BioTransplant common stock that an Eligix
preferred stockholder will receive in satisfaction of the preferred liquidation
preference. Fluctuation in the BioTransplant common stock price prior to the
closing of the merger would not alter the number of shares of BioTransplant
common stock issuable to an Eligix preferred stockholder. Approval of the
amendment to the certificate of incorporation is a condition to closing the
merger.
Additionally, the amendment clarifies that upon a liquidation, distribution
or winding up of Eligix, if the assets to be distributed are insufficient to
satisfy all preferred stockholders, then the assets shall first be distributed
to the holders of the Series C preferred stock in proportion to the full amounts
to which they would be entitled. If, after payment to the Series C preferred
stockholders, the remaining assets are insufficient to satisfy the Series A and
Series B preferred stockholders, such assets will be distributed to the
Series A and Series B stockholders in proportion to the full amounts to which
they would be entitled. This amendment is a technical amendment designed to
clarify that the existing liquidation preference of the Series C preferred stock
would remain with respect to a liquidation in which there were insufficient
assets to be distributed to preferred stockholders.
The board of directors of Eligix believes that the approval of the amendment
to the certificate of incorporation is advisable and in the best interests of
Eligix and its stockholders and therefore recommends a vote "FOR" the proposal.
STOCKHOLDER PROPOSALS
In order to be included on the proxy card and included in the proxy
statement for the 2001 BioTransplant annual meeting of stockholders, pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, stockholder proposals must
have been received by BioTransplant at its offices, Building 75, Third Avenue,
Charlestown Navy Yard, Charlestown, Massachusetts 02129 by December 29, 2000.
If a BioTransplant stockholder wishes to present a proposal before the 2001
annual meeting of stockholders, pursuant to Rule 14a-4 under the Exchange Act,
the stockholder must give written notice to the Secretary of BioTransplant at
the address noted above. The Secretary must receive this notice at least
45 days prior to the anniversary of the mailing of the proxy materials for the
2000 annual meeting of stockholders. If a stockholder fails to provide timely
notice of a proposal to be presented at the 2001 annual meeting of stockholders,
the proxies designated by our board of directors will have discretionary
authority to vote on only such proposal.
133
<PAGE>
LEGAL MATTERS
The validity of the shares of BioTransplant common stock to be issued in
connection with the merger will be passed upon for BioTransplant by Hale and
Dorr LLP, Boston, Massachusetts. Certain legal matters with respect to the
federal income tax consequences of the merger will be passed upon for
BioTransplant by Hale and Dorr LLP, Boston, Massachusetts and for Eligix by
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts.
EXPERTS
The consolidated financial statements of BioTransplant as of December 31,
1998 and 1999 and for each of the three years in the period ended December 31,
1999 included in this joint proxy statement/ prospectus have been audited by
Arthur Andersen, LLP, independent public accountants, and have been so included
in reliance on their report given on the authority of said firm as experts in
auditing and accounting.
The financial statements of Eligix as of December 31, 1998 and 1999 and for
each of the two years in the period ended December 31, 1999 included in this
joint proxy statement/prospectus have been so included in reliance on the report
(which contains an explanatory paragraph relating to Eligix' ability to continue
as a going concern as described in Note A to the financial statements) of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
134
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
BioTransplant files annual, quarterly and special reports, and other
information with the SEC. You may read and copy any reports, statements or other
information we file at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at "http://www.sec.gov."
BioTransplant filed with the SEC a registration statement on Form S-4 under
the Securities Act of 1933 to register with the SEC the BioTransplant common
stock issuable pursuant to the merger agreement. This joint proxy
statement/prospectus does not contain all the information you can find in the
registration statement or the exhibits and schedules to the registration
statement. For further information with respect to BioTransplant, Eligix and the
BioTransplant common stock, please refer to the registration statement,
including the exhibits and schedules. You can obtain the additional information
in the registration statement by contacting BioTransplant at the following
address and telephone number:
BIOTRANSPLANT INCORPORATED
BUILDING 75, 3RD AVENUE
CHARLESTOWN NAVY YARD
CHARLESTOWN, MA 02129
ATTN: RICHARD V. CAPASSO
TELEPHONE: (617) 241-5200
Statements contained in this joint proxy statement/prospectus about the
contents of any contract or other document are not necessarily complete, and we
refer you, in each case, to the copy of such contract or other document filed as
an exhibit to the registration statement.
To obtain timely delivery of requested documents prior to the special
meeting of BioTransplant stockholders or the special meeting of Eligix
stockholders, you must request them no later than , 2001, which is
five business days prior to the date of such meetings.
135
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS OF BIOTRANSPLANT INCORPORATED
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999
and September 30, 2000 (unaudited)........................ F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999, for the nine months
ended September 30, 1999 and 2000 (unaudited) and for the
period from inception (March 20, 1990) through
September 30, 2000 (unaudited)............................ F-4
Consolidated Statements of Stockholders' Equity (Deficit)
since inception (March 20, 1990).......................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999, for the nine months
ended September 30, 1999 and 2000 (unaudited) and for the
period from inception (March 20, 1990) through
September 30, 2000 (unaudited)............................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
FINANCIAL STATEMENTS OF ELIGIX, INC.
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Accountants........................... F-19
Balance Sheets as of December 31, 1998 and 1999 and
September 30, 2000 (unaudited)............................ F-20
Statements of Operations for the years ended December 31,
1998 and 1999, for the nine months ended September 30,
1999 and 2000 (unaudited) and for the period from
inception (December 27, 1996) to September 30, 2000
(unaudited)............................................... F-21
Statements of Convertible Preferred Stock and Stockholders'
Deficit for the period from inception (December 27, 1996)
to September 30, 2000..................................... F-22
Statements of Cash Flows for the years ended December 31,
1998 and 1999, for the nine months ended September 30,
1999 and 2000 (unaudited) and for the period from
inception (December 27, 1996) to September 30, 2000
(unaudited)............................................... F-23
Notes to Financial Statements............................... F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To BioTransplant Incorporated:
We have audited the accompanying consolidated balance sheets of
BioTransplant Incorporated (a Delaware corporation in the development stage) and
subsidiary as of December 31, 1998 and 1999 and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
BioTransplant Incorporated and subsidiary as of December 31, 1998 and 1999, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 11, 2000
F-2
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1998 1999 2000
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $ 13,168,496 $ 17,648,789 $ 14,517,476
Short-term investments............................ 6,842,963 3,718,033 4,863,052
Other receivables................................. -- 400,500 287,247
Prepaid expenses and other current assets......... 1,212,294 169,733 225,046
------------ ------------ ------------
Total current assets............................ 21,223,753 21,937,055 19,892,821
------------ ------------ ------------
Property and equipment, at cost:
Equipment under capital leases.................... 45,000 -- --
Laboratory equipment.............................. 3,521,985 3,707,833 3,726,821
Leasehold improvements............................ 696,016 795,017 795,017
Office equipment.................................. 615,616 792,605 874,452
------------ ------------ ------------
4,878,617 5,295,455 5,396,290
Less--Accumulated depreciation.................... 3,420,592 3,813,455 4,080,129
------------ ------------ ------------
1,458,025 1,482,000 1,316,161
------------ ------------ ------------
Other assets........................................ 1,541 -- --
------------ ------------ ------------
$ 22,683,319 $ 23,419,055 $ 21,208,982
============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long term debt................. $ -- $ 233,333 $ 233,333
Current obligation under capital leases........... 10,042 -- --
Accounts payable.................................. 227,356 433,067 326,566
Accrued expenses.................................. 2,112,658 2,516,173 2,333,780
Deferred revenue.................................. 3,375,000 4,125,000 --
------------ ------------ ------------
Total current liabilities....................... 5,725,056 7,307,573 2,893,679
------------ ------------ ------------
Long-term debt, net of current portion.............. -- 466,667 305,303
------------ ------------ ------------
Commitments (Notes 9 and 10)
Stockholders' equity:
Preferred stock, $.01 par value--
Authorized--2,000,000 shares
Issued and outstanding--no shares............... -- -- --
Common stock, $.01 par value--
Authorized--25,000,000 shares at December 31,
1998 and 1999 and 50,000,000 at September 30,
2000
Issued and outstanding--8,581,463 shares and
10,300,890 shares at December 31, 1998 and 1999
and 11,717,430 shares at September 30, 2000..... 85,815 103,010 117,058
Additional paid-in capital.......................... 65,345,228 72,688,036 82,446,820
Deficit accumulated during the development stage.... (48,472,780) (57,146,231) (64,553,878)
------------ ------------ ------------
Total stockholders' equity...................... 16,958,263 15,644,815 18,010,000
------------ ------------ ------------
$ 22,683,319 $ 23,419,055 $ 21,208,982
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30 CUMULATIVE
--------------------------------------- ------------------------- SINCE
1997 1998 1999 1999 2000 INCEPTION
----------- ----------- ----------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License fees............ $ 5,000,000 $ 1,000,000 $ 3,500,000 $ 2,500,000 $ -- $ 18,500,000
Research and
development........... 7,125,000 5,688,500 5,188,475 3,711,619 4,453,880 36,705,855
Interest income......... 1,731,258 1,317,780 782,182 559,695 1,048,358 6,701,197
----------- ----------- ----------- ----------- ----------- ------------
Total revenues........ 13,856,258 8,006,280 9,470,657 6,771,314 5,502,238 61,907,052
----------- ----------- ----------- ----------- ----------- ------------
Expenses:
Research and
development........... 13,987,982 14,729,825 15,680,281 11,432,747 10,970,524 103,912,082
General and
administrative........ 2,962,644 2,477,460 2,445,912 1,797,677 1,892,708 20,724,703
Interest................ 58,886 9,602 17,914 1,815 46,653 1,824,145
----------- ----------- ----------- ----------- ----------- ------------
Total expenses........ 17,009,512 17,216,887 18,144,107 13,232,239 12,909,885 126,460,930
----------- ----------- ----------- ----------- ----------- ------------
Net loss.............. $(3,153,254) $(9,210,607) $(8,673,450) $(6,460,925) $(7,407,647) $(64,553,878)
=========== =========== =========== =========== =========== ============
Net loss per common share:
Basic and diluted....... $ (0.37) $ (1.07) $ (1.01) $ (0.75) $ (0.65)
=========== =========== =========== =========== ===========
Weighted average common
shares outstanding:
Basic and diluted....... 8,568,709 8,578,941 8,598,085 8,583,351 11,470,249
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED TOTAL
---------------------- ADDITIONAL DURING THE STOCKHOLDERS'
NUMBER $.01 PAID-IN DEVELOPMENT EQUITY
OF SHARES PAR VALUE CAPITAL STAGE (DEFICIT)
---------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Inception, March 20, 1990........................ -- $ -- $ -- $ -- $ --
Net loss....................................... -- -- -- (142,353) (142,353)
---------- -------- ----------- ------------ -----------
Balance, December 31, 1990....................... -- -- -- (142,353) (142,353)
Sale of common stock........................... 102,572 1,026 3,077 -- 4,103
Issuance of warrants........................... -- -- 22,000 -- 22,000
Net loss....................................... -- -- -- (2,637,206) (2,637,206)
---------- -------- ----------- ------------ -----------
Balance, December 31, 1991....................... 102,572 1,026 25,077 (2,779,559) (2,753,456)
Net loss....................................... -- -- -- (6,188,344) (6,188,344)
---------- -------- ----------- ------------ -----------
Balance, December 31, 1992....................... 102,572 1,026 25,077 (8,967,903) (8,941,800)
Issuance of warrants........................... -- -- 476,800 -- 476,800
Exercise of stock options...................... 63 1 46 -- 47
Deferred compensation on stock options......... -- -- 105,546 -- 105,546
Net loss....................................... -- -- -- (7,748,627) (7,748,627)
---------- -------- ----------- ------------ -----------
Balance, December 31, 1993....................... 102,635 1,027 607,469 (16,716,530) (16,108,034)
Exercise of stock options...................... 17,406 174 1,448 -- 1,622
Restricted stock sold to Directors............. 1,250 12 8,738 -- 8,750
Issuance of warrants........................... -- -- 165,937 -- 165,937
Deferred compensation on stock options......... -- -- 170,225 -- 170,225
Net loss....................................... -- -- -- (11,268,042) (11,268,042)
---------- -------- ----------- ------------ -----------
Balance, December 31, 1994....................... 121,291 1,213 953,817 (27,984,572) (27,029,542)
Issuance of warrants........................... -- -- 99,000 -- 99,000
Exercise of stock options...................... 5,303 53 7,301 -- 7,354
Deferred compensation on stock options......... -- -- 170,225 -- 170,225
Net loss....................................... -- -- -- (2,087,239) (2,087,239)
---------- -------- ----------- ------------ -----------
Balance, December 31, 1995....................... 126,594 1,266 1,230,343 (30,071,811) (28,840,202)
Conversion of preferred stock into common
stock........................................ 4,770,430 47,704 36,154,586 -- 36,202,290
Issuance of common stock in initial public
offering, net of issuance costs of
$2,681,920................................... 3,220,000 32,200 27,875,880 -- 27,908,080
Issuance of common stock pursuant to
antidilution rights.......................... 431,724 4,317 (4,317) -- --
Exercise of stock options...................... 10,154 102 28,546 -- 28,648
Net loss....................................... -- -- -- (6,037,108) (6,037,108)
---------- -------- ----------- ------------ -----------
Balance, December 31, 1996....................... 8,558,902 85,589 65,285,038 (36,108,919) 29,261,708
Exercise of stock options...................... 15,238 153 45,407 -- 45,560
Restricted stock sold to directors............. 1,250 12 38 -- 50
Net loss....................................... -- -- -- (3,153,254) (3,153,254)
---------- -------- ----------- ------------ -----------
Balance, December 31, 1997....................... 8,575,390 85,754 65,330,483 (39,262,173) 26,154,064
Exercise of stock options...................... 6,073 61 14,745 -- 14,806
Net loss....................................... -- -- -- (9,210,607) (9,210,607)
---------- -------- ----------- ------------ -----------
Balance, December 31, 1998....................... 8,581,463 85,815 65,345,228 (48,472,780) 16,958,263
Exercise of stock options...................... 11,265 113 24,803 -- 24,916
Restricted stock sold to directors............. 1,875 19 4,433 -- 4,452
Issuance of common stock in private placement,
net of issuance costs of $517,215............ 1,706,287 17,063 7,313,571 -- 7,330,634
Net loss....................................... -- -- -- (8,673,450) (8,673,450)
---------- -------- ----------- ------------ -----------
Balance, December 31, 1999....................... 10,300,890 103,010 72,688,035 (57,146,230) 15,644,815
Exercise of stock options (unaudited).......... 201,540 1,898 776,638 -- 778,536
Issuance of common stock in private placement,
net of issuance costs of $725,703
(unaudited).................................. 1,215,000 12,150 8,982,147 -- 8,994,297
Net loss (unaudited)........................... -- -- -- (7,407,648) (7,407,648)
---------- -------- ----------- ------------ -----------
Balance, September 30, 2000 (unaudited).......... 11,717,430 $117,058 $82,446,820 $(64,553,878) $18,010,000
========== ======== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER SEPTEMBER 30, CUMULATIVE
--------------------------------------- ------------------------- SINCE
1997 1998 1999 1999 2000 INCEPTION
----------- ----------- ----------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................... $(3,153,254) $(9,210,607) $(8,673,450) $(6,460,925) $(7,407,647) $(64,553,878)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities--
Depreciation and amortization............ 581,641 358,052 392,865 292,584 311,672 4,188,816
Noncash expenses related to options and
warrants............................... 33,188 33,186 1,541 -- -- 465,477
Changes in current assets and
liabilities-........................... 1,186,787
Accounts receivable.................... -- -- (400,500) -- (298,585) (287,247)
Prepaid expenses and other current
assets............................... (150,984) 26,206 1,042,561 759,721 356,525 (225,046)
Accounts payable....................... 163,532 (62,179) 205,711 (62,299) (106,501) 326,566
Accrued expenses....................... 869,252 (69,558) 403,514 715,604 (182,392) 2,333,780
Deferred revenue....................... 3,125,000 (750,000) 750,000 3,226,856 (4,125,000) --
----------- ----------- ----------- ----------- ----------- ------------
Net cash provided by (used in)
operating activities............... 1,468,375 (9,674,900) (6,277,758) (1,528,459) (11,451,928) (56,564,745)
----------- ----------- ----------- ----------- ----------- ------------
Cash flows from investing activities:
Purchases of property and equipment........ (300,893) (812,828) (416,839) (294,442) (145,834) (4,881,782)
Disposals of property and equipment, net... -- -- -- -- -- 28,040
Purchases of investments................... (19,050,026) (8,887,022) (4,086,657) (404,136) (6,461,733) (76,686,130)
Proceeds from investments.................. 21,484,458 22,921,877 7,211,587 7,247,099 5,316,713 71,823,076
----------- ----------- ----------- ----------- ----------- ------------
Net cash provided by (used in) investing
activities............................. 2,133,539 13,222,027 2,708,091 6,548,521 (1,290,854) (9,716,796)
----------- ----------- ----------- ----------- ----------- ------------
Cash flows from financing activities:
Proceeds from convertible notes payable to
stockholders............................. -- -- -- -- -- 9,400,00
Payments of obligations under capital
leases................................... (427,252) (177,666) (10,042) (8,980) -- (2,194,210)
Proceeds from sale / leaseback of
equipment................................ -- -- -- -- -- 771,968
Net proceeds from equipment leases......... -- -- -- -- -- 1,422,240
Payments of long-term debt................. -- -- -- -- (161,364) (161,364)
Proceeds from long-term debt............... -- -- 700,000 700,000 -- 700,000
Net proceeds from sale of redeemable
convertible preferred stock.............. -- -- -- -- -- 25,661,526
Net proceeds from sale of common stock..... 45,610 14,806 7,360,002 7,975 9,772,833 45,198,857
----------- ----------- ----------- ----------- ----------- ------------
Net cash provided by (used in) financing
activities............................. (381,642) (162,860) 8,049,960 (698,995) 9,611,469 80,799,017
----------- ----------- ----------- ----------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents................................ 3,220,272 3,384,267 4,480,293 (5,719,057) (3,131,313) 14,517,476
Cash and cash equivalents, beginning of
period..................................... 6,563,957 9,784,229 13,168,496 13,168,496 17,648,789 --
----------- ----------- ----------- ----------- ----------- ------------
Cash and cash equivalents, end of period..... $ 9,784,229 $13,168,496 $17,648,789 $18,887,553 $14,517,476 $ 14,517,476
=========== =========== =========== =========== =========== ============
Supplemental disclosure of cash flow
information:
Equipment acquired under capital leases.... $ -- $ -- $ -- $ -- $ -- $ 2,210,270
=========== =========== =========== =========== =========== ============
Conversion of convertible notes payable to
stockholders and accrued interest into
redeemable convertible preferred stock... $ -- $ -- $ -- $ -- $ -- $ 9,905,710
=========== =========== =========== =========== =========== ============
Conversion of preferred stock into common
stock.................................... $ -- $ -- $ -- $ -- $ -- $ 36,202,290
=========== =========== =========== =========== =========== ============
Issuance of warrants....................... $ -- $ -- $ -- $ -- $ -- $ 741,737
=========== =========== =========== =========== =========== ============
Interest paid during the period............ $ 53,542 $ 6,975 $ 16,159 $ 1,745 $ 43,504 $ 1,453,559
=========== =========== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS
BioTransplant Incorporated ("BioTransplant" or the "Company") was
incorporated on March 20, 1990. The Company is developing pharmaceutical
products and systems to enable the body's immune system to better tolerate the
transplantation of foreign cells, tissues and organs. Based on BioTransplant's
proprietary technology, both alone and in collaboration with others,
BioTransplant is seeking to develop a portfolio of products designed to improve
therapies associated with organ and bone marrow transplantation as well as to
improve the treatment of cancer, autoimmune disease and blood disorders.
The Company is in the development stage and is devoting substantially all of
its efforts toward product research and development and raising capital. The
Company is subject to a number of risks similar to those of other development
stage companies, including risks relating to: its dependence on key individuals
and collaborative research partners, competition from substitute products and
larger companies, its ability to develop and market commercially usable products
and obtain regulatory approval for its products under development, and its
ability to obtain the substantial additional financing necessary to adequately
fund the development of its products.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of certain accounting policies described below and elsewhere in the notes to
consolidated financial statements.
(A) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All material intercompany accounts
and transactions have been eliminated in consolidation.
(B) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(C) CASH AND CASH EQUIVALENTS AND INVESTMENTS
Cash and cash equivalents include short-term, highly liquid investments with
original maturities of less than three months from the date of purchase.
Short-term investments consist primarily of corporate notes with maturities of
less than one year. In accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", the Company's investments are classified as held-to-maturity and
are stated at amortized cost, which approximates market value. At December 31,
1998 and 1999 and September 30, 2000, the weighted average maturity of all
investments was two months, two months and three months, respectively.
F-7
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company held the following cash equivalents and short-term investments
at December 31, 1998 and 1999 and September 30, 2000:
<TABLE>
<CAPTION>
DECEMBER 30,
------------------------- SEPTEMBER 30,
1998 1999 2000
----------- ----------- -------------
<S> <C> <C> <C>
Cash and cash equivalents:............ $13,168,496 $17,648,789 $14,517,476
----------- ----------- -----------
Short-term investments:
Corporate bonds....................... 6,842,963 -- 2,399,662
Commercial paper...................... -- 3,718,033 2,463,390
----------- ----------- -----------
6,842,963 3,718,033 4,863,052
----------- ----------- -----------
Total cash, cash equivalents and
investments......................... $20,011,459 $21,366,822 $19,380,528
=========== =========== ===========
</TABLE>
There were no realized gains or losses in the years ended December 31, 1997,
1998 and 1999 or in the nine months ended September 30, 1999 and 2000.
(D) DEPRECIATION AND AMORTIZATION
The Company provides for depreciation using the straight-line method by
charges to operations in amounts estimated to allocate the cost of these assets
over a five-year life. Amortization of equipment under capital lease and
leasehold improvements is computed using the straight-line method over the
shorter of the estimated useful life of the asset or the lease term.
(E) REVENUE RECOGNITION
Substantially all of the Company's license and research and development
revenues are derived from three collaborative research arrangements (see
Note 7). Annual research and development payments are recognized on a
straight-line basis over the period of the contract, which approximates when
work is performed and costs are incurred. License fee revenue represents
technology transfer fees received for rights to certain technology of the
Company. License fees are recognized as revenue when all obligations as defined
in the individual arrangements are fulfilled by the Company and there is no risk
of refund. Deferred revenue represents amounts received in advance for research
and development. Research and development expenses in the accompanying
consolidated statements of operations include funded and unfunded expenses.
Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition", was
issued in December 1999. SAB 101 will require companies to recognize certain
upfront non-refundable fees and milestone payments over the life of the related
alliance when such fees are received in conjunction with alliances which have
multiple elements. The Company is required to adopt this new accounting
principle through a cumulative charge to the statement of operations, in
accordance with Accounting Principles Board Opinion (APB) No. 20, "Accounting
Changes", no later than October 1, 2000. The Company does not expect adoption of
this statement to have a significant impact on its financial statements.
F-8
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) INTERIM FINANCIAL INFORMATION
The financial information as of September 30, 2000 and for the nine months
ended September 30, 1999 and 2000 is unaudited but includes all adjustments,
consisting of only normal recurring adjustments, that in the opinion of
management are necessary for a fair presentation of the Company's financial
position, operating results, and cash flows for such periods. Operating results
for the nine-month period ended September 30, 2000 are not necessarily
indicative of results to be expected for the full year of 2000 or any future
period.
(G) NET LOSS PER COMMON SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share"
("SFAS 128"), effective December 15, 1997. SFAS 128 establishes standards for
computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. Diluted weighted average
shares is the same as basic weighted average shares since the inclusion of
shares issuable pursuant to the exercise of stock options and warrants is
antidilutive.
Calculations of basic and diluted net loss per common share are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net loss................................ $(3,153,254) $(9,210,607) $(8,673,450) $(6,460,925) $(7,407,647)
=========== =========== =========== =========== ===========
Weighted average common shares
outstanding--basic and diluted........ 8,568,709 8,578,941 8,598,085 8,583,351 11,470,249
=========== =========== =========== =========== ===========
Basic and diluted net loss per common
share................................. $ (.37) $ (1.07) $ (1.01) $ (0.75) $ (0.65)
=========== =========== =========== =========== ===========
Antidilutive securities not included--
Common stock options.................. 164,270 48,266 296,396 230,226 848,369
=========== =========== =========== =========== ===========
Common stock warrants................. 216,338 133,007 151,998 136,247 299,535
=========== =========== =========== =========== ===========
</TABLE>
(H) COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. This statement is
effective for fiscal years beginning after December 15, 1997. The Company
adopted this statement for the year ended December 31, 1998 with no impact on
the Company's financial statements as there are no material differences between
the Company's reported income and comprehensive income for all periods
presented.
(I) SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires
F-9
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
that enterprises report selected information about operating segments in interim
financial reports issued to stockholders. The Company adopted this statement for
the year ended December 31, 1998. In accordance with SFAS 131, the Company
believes that it operates in one operating segment.
(J) PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The FASB has issued SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits." SFAS No. 132 is effective for years beginning
after December 15, 1998. The Company adopted this statement for the year ended
December 31, 1999. Adoption of this statement did not have a material impact on
the Company's financial statements.
(3) TERM NOTE
In September 1997, the Company entered into a term note with a bank, whereby
the Company may borrow up to $500,000 for certain equipment and fixtures during
a specified drawdown period, after which time the outstanding balance will
become payable in 36 equal monthly principal installments plus interest. During
1999, the Company extended the drawdown period and increased its availability to
$1.0 million under the same conditions as this term note. Borrowings under the
term note bear annual floating interest at the bank's Prime Rate (8.5% at
December 31, 1999) during the drawdown period with an option to convert during
the repayment period to an annual fixed rate at the three-month London Interbank
Offered Rate ("LIBOR") (6.12% at December 31, 1999) plus 2.25%. Borrowings under
the term note are secured by equipment and fixtures purchased using the proceeds
of the note. There were $700,000 and $539,000 in borrowings outstanding under
this term note at December 31, 1999 and September 30, 2000, respectively.
(4) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 1998 and 1999 and
September 30, 2000:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1998 1999 2000
---------- ---------- -------------
<S> <C> <C> <C>
Consulting and contract research......... $ 947,331 $1,067,988 $ 971,915
Payroll and payroll related.............. 52,284 309,209 295,146
Professional fees........................ 484,078 538,646 533,786
Other.................................... 628,965 600,330 532,933
---------- ---------- ----------
$2,112,658 $2,516,173 $2,333,780
========== ========== ==========
</TABLE>
F-10
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (CONTINUED)
(5) COMMON STOCK
As of December 31, 1998 and 1999 and September 30, 2000, the Company has
reserved the following shares of common stock for future issuance:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1998 1999 2000
--------- --------- -------------
<S> <C> <C> <C>
1991 Stock Option Plan..................... 696,386 688,364 558,640
1994 Directors' Equity Plan................ 49,375 99,375 48,875
1997 Stock Option Plan..................... 750,000 1,496,757 1,431,066
Outstanding warrants....................... 367,191 425,147 522,347
--------- --------- ---------
1,862,952 2,709,643 2,560,928
========= ========= =========
</TABLE>
(6) OPTIONS AND WARRANTS
(A) COMMON STOCK PLANS
In May 1997, the stockholders approved the 1997 Stock Incentive Plan (the
"1997 Plan") which was intended to supplement the Company's Amended 1991 Stock
Incentive Plan (the "1991 Plan"), under which it may grant incentive stock
options, nonqualified stock options and stock appreciation rights. In May 1999,
the stockholders approved an amendment to increase the number of shares of
common stock reserved for issuance under the 1997 Plan to 1,500,000 from
750,000. These options generally vest ratably over a four-to-five-year period.
In May 1999, the stockholders approved an amendment to the Company's 1994
Directors' Equity Plan (the "Directors' Plan"). The amendment increased from
50,000 to 100,000 the number of shares of common stock reserved for issuance
under the Directors' Plan. The Directors' Plan terminated on June 27, 2000. The
board of directors intends to make future awards of stock options to directors
as compensation for service on the board of directors pursuant to
BioTransplant's 1997 stock incentive plan. The Directors' Plan automatically
granted an option to each eligible outside director of the Company for the
purchase of 3,125 shares of common stock at the then fair market value upon such
eligible outside directors' election to the Board of Directors. In addition,
each eligible outside director concurrently received an award to purchase 625
shares of restricted common stock at $.04 per share. In 1999, the Company
recorded compensation expense of $4,378 related to the issuance of 1,875 shares
of restricted common stock under the Directors' Plan. Under the Directors' Plan,
common stock options and restricted common stock awards vest ratably over
five-and four-year periods, respectively. At December 31, 1999, 1,125 restricted
common shares were unvested.
F-11
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (CONTINUED)
(6) OPTIONS AND WARRANTS (CONTINUED)
The following table summarizes the employee and director stock option
activity under the plans discussed above:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding, December 31, 1996..................... 668,302 $5.02
Granted.......................................... 404,964 6.63
Exercised........................................ (15,238) 2.46
Canceled......................................... (43,603) 6.36
--------- -----
Outstanding, December 31, 1997..................... 1,014,425 $5.65
Granted.......................................... 493,290 2.79
Exercised........................................ (6,073) 2.43
Canceled......................................... (129,188) 6.98
--------- -----
Outstanding, December 31, 1998..................... 1,372,454 $4.51
Granted.......................................... 329,745 4.46
Exercised........................................ (11,265) 2.21
Canceled......................................... (69,326) 4.61
--------- -----
Outstanding, December 31, 1999..................... 1,621,608 $4.53
--------- -----
Exercisable, December 31, 1997..................... 311,338 $4.06
========= =====
Exercisable, December 31, 1998..................... 472,608 $4.70
========= =====
Exercisable, December 31, 1999..................... 747,266 $4.70
========= =====
</TABLE>
The following tables summarize certain information about options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RANGE OF REMAINING CONTRACTUAL WEIGHTED AVERAGE
EXERCISE PRICES OPTIONS OUTSTANDING LIFE IN YEARS EXERCISE PRICE
--------------------- ------------------- --------------------- -----------------
<S> <C> <C> <C>
$0.04 - 3.13 622,794 7.62 $2.37
3.19 - 6.50 675,137 7.23 5.44
6.63 - 10.50 323,677 7.89 6.79
------------- --------- ---- -----
$0.04 - 10.50 1,621,608 7.51 $4.53
============= ========= ==== =====
</TABLE>
F-12
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (CONTINUED)
(6) OPTIONS AND WARRANTS (CONTINUED)
The following tables summarize certain information about options exercisable
at December 31, 1999:
<TABLE>
<CAPTION>
RANGE OF EXERCISE PRICES OPTIONS EXERCISABLE WEIGHTED AVERAGE EXERCISE PRICE
------------------------ ------------------------ -------------------------------
<S> <C> <C>
$0.04 - 3.13 236,554 $2.53
3.19 - 6.50 369,869 5.28
6.63 - 10.50 140,843 6.84
------------- ------- -----
$0.04 - 10.50 747,266 $4.70
============= ======= =====
</TABLE>
SFAS No. 123, "Accounting for Stock-Based Compensation", requires the
measurement of the fair value of stock options or warrants granted to employees
be included in the statement of operations or disclosed in the notes to
financial statements. The Company accounts for stock-based compensation for
employees under Accounting Principles Board Opinion No. 25 and follows the
disclosure-only alternative under SFAS 123. The Company has computed the pro
forma disclosures required under SFAS 123 for options granted in 1997, 1998 and
1999 using the Black-Scholes option pricing model prescribed by SFAS 123. The
assumptions used for the years ended December 31, 1997, 1998 and 1999 are as
follows: risk-free interest rates of 5.53%, 4.73% and 6.72%; expected common
stock volatility factors of 68%, 85% and 87%; and a weighted-average expected
life of the stock options of seven years. The Company does not currently pay any
dividends, and it does not expect to pay cash dividends in the foreseeable
future; therefore, dividend yields for 1997, 1998 and 1999 are assumed to be 0%.
The weighted average fair value of options granted in 1997, 1998 and 1999 was
$4.61, $2.18, and $3.57, respectively.
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of highly
subjective assumptions, including expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The total fair value of the options granted during the years ended
December 31, 1997, 1998 and 1999 was computed as approximately $1,867,000,
$1,074,000 and $1,177,000, respectively. Of these amounts, approximately
$642,000, $913,000 and $1,096,000 would be charged to operations for the years
ended December 31, 1997, 1998 and 1999, respectively. The remaining amount would
be amortized over the related vesting periods. The resulting pro forma
compensation expense may not be representative of the amount to be expected in
future years, as pro forma compensation expense may vary, based upon the number
of options granted and the assumptions used in valuing these options.
The pro forma net loss and pro forma net loss per common share presented
below have been computed assuming no tax benefit. The effect of a tax benefit
has not been considered since a substantial portion of the stock options granted
are incentive stock options and the Company does not
F-13
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (CONTINUED)
(6) OPTIONS AND WARRANTS (CONTINUED)
anticipate a future deduction associated with the exercise of these stock
options. The pro forma effect of SFAS 123 for the years ended December 31, 1997,
1998 and 1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ------------ -----------
<S> <C> <C> <C>
Net loss
As reported......................................... $(3,153,254) $ (9,210,607) $(8,673,450)
Pro forma........................................... (3,795,662) (10,123,353) (9,769,704)
Basic and diluted net loss per common share
As reported......................................... $ (.37) $ (1.07) $ (1.01)
Pro forma........................................... (.44) (1.18) (1.14)
</TABLE>
(B) WARRANTS
In connection with certain financing and facility leasing transactions that
occurred in 1993, 1994 and 1995, the Company issued warrants to purchase 369,944
shares of common stock at prices ranging from $.04 to $49.80. In December 1999,
the Company issued warrants to purchase 71,391 shares of common stock at a price
of $5.63 per share in connection with a private placement of the Company's
common stock. In February 2000, the Company issued additional warrants to
purchase 97,200 shares of common stock at a price of $10.00 per share in
connection with a private placement of the Company's common stock. As of
September 30, 2000, all warrants are fully vested. The following table
summarizes certain information about warrants outstanding at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RANGE OF REMAINING CONTRACTUAL WEIGHTED AVERAGE
EXERCISE PRICES WARRANTS OUTSTANDING LIFE IN YEARS EXERCISE PRICE
--------------------- -------------------- --------------------- -----------------
<S> <C> <C> <C>
$ 0.04 - 5.63 412,866 4.45 $2.93
$10.80 - 49.80 12,281 1.85 16.17
-------------- ------- ---- -----
$ 0.04 - 49.80 425,147 4.37 $3.32
============== ======= ==== =====
</TABLE>
(7) COLLABORATIVE RESEARCH AGREEMENTS
(A) NOVARTIS
In April 1993, as amended and restated in September 1995, the Company
entered into a five-year collaboration agreement with Novartis to develop and
commercialize xenotransplantation technology utilizing gene transduction.
Pursuant to this agreement, all committed research funding of $20.0 million and
all committed license fees of $10.0 million had been received as of
December 31, 1997. In October 1997, the Company and Novartis expanded their
relationship in xenotransplantation by entering into a collaboration and license
agreement for the development and commercialization of xenotransplantation
products utilizing the Company's proprietary mixed bone marrow chimerism
technology. Under this agreement, Novartis committed up to $36.0 million in
research funding, license fees and milestone payments, assuming the agreement
continued for its full term. As of September 30, 2000, $13.5 million of research
funding, $4.0 million of license fees and $2.5 million of milestone payments had
been received.
F-14
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (CONTINUED)
(7) COLLABORATIVE RESEARCH AGREEMENTS (CONTINUED)
In September 2000, the Company entered into an arrangement with Novartis to
combine their respective expertise in the field of xenotransplantation into a
newly-formed, independently-run company named Immerge BioTherapeutics AG
("Immerge"). Immerge is expected to begin operations in January 2001. In return
for contributing its technology and an aggregate of $30 million in funding over
three years beginning January 1, 2001, Novartis will retain a 67% ownership
share of Immerge and retains the exclusive world-wide, royalty-bearing rights to
development and commercialization of any xenotransplantation products resulting
from Immerge's research. In return for contributing its technology,
BioTransplant will retain a 33% share of Immerge and will receive royalty
payments from Novartis sales of xenotransplantation products, if any. The
formation of Immerge supersedes the 1993 and 1997 Novartis agreements as amended
and restated.
In addition to these agreements, Novartis purchased $5.0 million of the
Company's Series B convertible preferred stock in 1992, which converted into
532,125 shares of common stock upon the Company's initial public offering in
1996.
(B) MEDIMMUNE, INC.
In October 1995, the Company and MedImmune, Inc. ("MedImmune") formed a
collaborative agreement for the development and commercialization of products to
treat and prevent organ transplant rejection. The collaboration is based upon
the development of products derived from BTI-322, MEDI-500 and future
generations of products derived from these two molecules (including MEDI-507,
the humanized version of BTI-322). Pursuant to the collaboration, the Company
granted MedImmune an exclusive worldwide license to develop and commercialize
BTI-322 and any products based on BTI-322, other than the use of BTI-322 in kits
or systems for xenotransplantation or allotransplantation. MedImmune paid the
Company a $2.0 million license fee at the time of formation of the
collaboration, and agreed to fund and assume responsibility for clinical testing
and commercialization of any resulting products. As of December 31, 1999,
MedImmune has provided $2.0 million in non-refundable research support and has
agreed to make milestone payments that could total up to an additional
$11.0 million, all of which is repayable from royalties on BTI-322/MEDI-507 or
MEDI-500, as well as pay royalties on any sales of BTI-322/MEDI-507, MEDI-500
and future generations of products, if any. The Company has not received any
milestone payments to date.
(8) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". At December 31, 1999 the Company had net
operating loss carryforwards for income tax purposes of approximately
$51,959,000. The Company also has available tax credit carryforwards of
$2,000,000 at December 31, 1999 to reduce future federal income taxes, if any.
The net operating loss carryforwards and tax credit carryforwards expire
commencing in the year 2006, and are subject to review and possible adjustment
by the Internal Revenue Service. Net operating loss carryforwards and tax credit
carryforwards may be limited in the event of certain changes in the ownership
interests of significant stockholders.
F-15
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (CONTINUED)
(8) INCOME TAXES (CONTINUED)
The components of the deferred tax asset as of December 31, 1998 and 1999
are approximately as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Operating loss carryforwards....................... $17,592,000 $19,350,000
Tax credit carryforwards........................... 2,000,000 2,000,000
Start-up costs..................................... 50,000 --
Other temporary differences........................ 1,681,000 1,550,000
----------- -----------
21,323,000 22,900,000
Less--Valuation allowance.......................... 21,323,000 22,900,000
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
Because of the history of operating losses, a valuation allowance has been
provided for the entire deferred tax asset since it is uncertain if the Company
will realize the benefit of the deferred tax asset.
(9) COMMITMENTS
(A) RESEARCH AND LICENSE AGREEMENTS
The Company has entered into several research and license agreements with a
hospital whereby the Company obtained the rights to the hospital's research
pertaining to the transplantation of organs and tissues and other related
technologies. The Company also obtained an exclusive license to commercially
develop, manufacture, use and distribute worldwide any products developed
pursuant to the agreements, in exchange for research funding and royalties on
any future sales. These agreements have initial terms of one to ten years;
however, either party may terminate the agreements at various times, as defined,
with written notice.
The Company has entered into research and license agreements with
universities whereby the Company funds research and development. The Company
also obtained exclusive worldwide licenses for certain patents, patent rights
and research information and rights to develop, manufacture, use and sell any
product developed pursuant to the licensed technology in exchange for royalties
on any future sales, as defined.
The Company has entered into a miniature swine transfer and maintenance
agreement with a breeding laboratory and was granted exclusive, worldwide rights
to the miniature swine. Pursuant to this agreement, the Company has agreed to
pay specified maintenance costs, as defined in the agreement.
Commitments as of December 31, 1999 pursuant to these research and license
agreements are as follows:
<TABLE>
<CAPTION>
TOTAL
----------
<S> <C>
Year Ending December 31,
2000...................................................... $4,112,000
2001...................................................... 150,000
2002...................................................... 150,000
----------
$4,412,000
==========
</TABLE>
F-16
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (CONTINUED)
(9) COMMITMENTS (CONTINUED)
(B) OPERATING LEASE COMMITMENTS
The Company leases its facility under an operating lease that expires in
2009. In addition, the Company is responsible for the real estate taxes and
operating expenses related to this facility. Minimum annual rental payments,
excluding taxes and operating costs, under this lease agreement as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000........................................................ 1,025,000
2001........................................................ 1,025,000
2002........................................................ 1,025,000
2003........................................................ 1,025,000
2004........................................................ 1,025,000
Thereafter.................................................. 5,125,000
-----------
$10,250,000
===========
</TABLE>
Rental expense, which includes facility lease, ground lease and real estate
tax costs, for the years ended December 31, 1997, 1998 and 1999 and the periods
ended September 30, 1999 and 2000, was approximately $1,196,000, $1,219,000,
$1,192,000, $894,000 and $889,000 respectively.
(10) INVESTMENT IN STEM CELL SCIENCES PTY. LTD.
In April 1994, the Company entered into a shareholders' agreement and a
research and license agreement (the "Agreements") with Stem Cell Sciences
Pty. Ltd. ("Stem Cell"). Under the Agreements, the Company paid $1,000,000 for
30% of the outstanding shares of Stem Cell, an exclusive license to certain
technology and other intellectual property and support of certain research in
the field of animal genetic engineering. The Company recorded the $1,000,000
payment as research and development expense during the year ended December 31,
1994.
The Company recorded $924,000 and $676,000 as research and development
expense during the years ended December 31, 1996 and 1997, respectively, to
maintain its pro rata ownership in Stem Cell.
In December 1997, the Company paid $700,000 in research support to maintain
its pro rata ownership of Stem Cell for 1998, which was recorded as research and
development expense on a straight-line basis over the year ended December 31,
1998. During 1998, the Company exercised its final option to maintain its pro
rata ownership in Stem Cell for an additional commitment of $825,000 in research
support which was recognized as research and development expense on a
straight-line basis over the year ended December 31, 1999. The Company paid
$175,000 of this amount in December 1998 and paid the remaining amount during
1999.
(11) EMPLOYMENT RETIREMENT/SAVINGS PLAN
The Company maintains an employee retirement/savings plan (the "Plan") which
permits participants to make tax deferred contributions by salary reduction
pursuant to section 401(k) of the Internal Revenue Code. All active employees,
21 years of age or older, who have completed a calendar quarter of service are
eligible to participate in the Plan. The Company pays all administrative costs
of the Plan. During 2000, the Company began making matching contributions into
the plan.
F-17
<PAGE>
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (CONTINUED)
(12) RECENT ACCOUNTING PRONOUNCEMENTS
(A) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). The statement is effective for the year ended December 31, 2000.
SFAS 133 establishes accounting and reporting standards for derivative
instruments including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. The
Company does not expect that the adoption of this statement will have a material
impact on the Company's financial statements.
(B) CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation"--An Interpretation of APB
Opinion No. 25. The interpretation clarifies the application of APB Opinion
No. 25 in specified events, as defined. The interpretation is effective July 1,
2000 but covers certain events occurring during the period after December 15,
1998, but before the effective date. To the extent that events covered by this
interpretation occur during the period after December 31, 1998, but before the
effective date, the effects of applying this interpretation would be recognized
on a prospective basis from the effective date. Accordingly, upon initial
application of the final interpretation, (i) no adjustments would be made to the
financial statements for periods before the effective date and (ii) no expense
would be recognized for any additional compensation cost measured that is
attributable to periods before the effective date. The Company does not expect
the adoption of this statement to have a material impact on the Company's
financial statements.
(13) RELATED PARTY TRANSACTIONS
In March 1991, the Company entered into a supply agreement with Charles
River Laboratories (CRL), which was amended in 1998. Under the terms of the
amended agreement, CRL provides the Company with miniature swine and miniature
swine organs for research and development purposes in exchange for payments of
the costs of maintaining the miniature swine herd. Upon commencement of
commercial sales of miniature swine organs, the Company and CRL may enter into a
definitive supply agreement for the ongoing supply of miniature swine. In the
years ended December 31, 1998 and 1999, the Company paid CRL approximately
$878,000 and $940,000, respectively, under this agreement. James C. Foster,
President and Chief Executive Officer of CRL, is a director of the Company.
(14) SUBSEQUENT EVENT (UNAUDITED)
On December 11, 2000, the Company announced that it will acquire
Eligix, Inc. through a reverse triangular merger. Upon consummation of the
merger, Eligix will become a wholly-owned subsidiary of the Company. Under the
terms of the merger, the Company will issue up to 5,610,000 shares of common
stock in exchange for the fully diluted common stock of Eligix and 990,000
shares of common stock to members of Eligix management. The Company will record
the merger as a purchase of Eligix. The merger is expected to close in the first
quarter of 2001, subject to shareholder approval.
F-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Eligix, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in convertible preferred stock and stockholders' deficit
and cash flows present fairly, in all material respects, the financial position
of Eligix, Inc. (a development stage enterprise) at December 31, 1999 and 1998,
and the results of its operations and its cash flows for the years ended
December 31, 1999 and 1998 in conformity with accounting principles generally
accepted in the United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has suffered recurring losses from operations
since inception and requires additional financing. These circumstances raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note A. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 10, 2000, except for the information in
Note N and Note O, as to which
the date is January 5, 2001
F-19
<PAGE>
ELIGIX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1998 1999 2000
----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $12,878,598 $ 3,269,306 $ 2,877,172
Prepaid and other current assets................... 141,093 162,638 155,875
----------- ------------ ------------
Total current assets............................. 13,019,691 3,431,944 3,033,047
Other assets......................................... 117,700 131,700 128,000
Property and equipment, net (Note C)................. 1,536,432 3,197,382 2,850,310
----------- ------------ ------------
Total assets..................................... $14,673,823 $ 6,761,026 $ 6,011,357
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................... $ 763,507 $ 400,303 $ 354,216
Accrued expenses................................... 708,686 479,359 1,091,298
Cash overdraft..................................... -- 190,363 282,697
Current portion of loans payable................... 101,533 831,756 971,804
Convertible notes.................................. -- -- 6,246,656
----------- ------------ ------------
Total current liabilities........................ 1,573,726 1,901,781 8,946,671
Long-term portion of loans payable................... 217,263 2,121,800 1,533,939
Prepaid stock subscription........................... 300,000 -- --
Convertible preferred stock, $.001 par value:
Series A convertible preferred stock:
11,100,000 shares authorized; 10,911,332 shares
issued and outstanding as of December 31, 1998
and 1999, and September 30, 2000 (unaudited);
liquidation value of $14,512,072............... 4,555,581 4,555,581 4,555,581
Series B convertible preferred stock:
12,500,000 shares authorized; 10,866,422 shares
issued and outstanding at December 31, 1998;
11,214,755 shares issued and outstanding at
December 31, 1999 and September 30, 2000
(unaudited); liquidation value of
$16,822,133.................................... 16,299,634 16,777,679 16,777,679
Commitments and contingencies (Note D)
Stockholders' deficit:
Common stock, $.001 par value: 66,000,000 shares
authorized; 55,600, 131,825 and 196,969 shares
issued and outstanding at December 31, 1998 and
1999 and September 30, 2000 (unaudited).......... 56 132 197
Additional paid-in capital......................... 784 12,142 4,612,063
Deferred compensation.............................. -- -- (2,051,511)
Deficit accumulated during development stage....... (8,273,221) (18,608,089) (28,363,262)
----------- ------------ ------------
Total stockholders' deficit...................... (8,272,381) (18,595,815) (25,802,513)
----------- ------------ ------------
Total liabilities and stockholders' deficit...... $14,673,823 $ 6,761,026 $ 6,011,357
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
ELIGIX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
FROM INCEPTION
NINE MONTHS ENDED (DECEMBER 27,
DECEMBER 31, SEPTEMBER 30, 1996) TO
-------------------------- ------------------------- SEPTEMBER 30,
1998 1999 1999 2000 2000
----------- ------------ ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Marketing, general and
administrative expenses.... $ 1,648,663 $ 2,161,841 $ 1,952,551 $ 2,424,393 $ 7,325,818
Research and development
expenses................... 3,925,165 8,257,023 5,464,209 6,470,977 20,574,908
----------- ------------ ----------- ----------- ------------
Loss from operations......... (5,573,828) (10,418,864) (7,416,760) (8,895,370) (27,900,726)
Interest income.............. 220,219 305,510 239,183 120,265 783,854
Interest expense............. (44,030) (221,514) (100,851) (980,068) (1,246,390)
----------- ------------ ----------- ----------- ------------
Net loss..................... $(5,397,639) $(10,334,868) $(7,278,428) $(9,755,173) $(28,363,262)
=========== ============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
ELIGIX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (DECEMBER 27, 1996) TO SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------- ------------------------ ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ---------- ---------- ----------- -------- -------- ------------
Balance at December 27, 1996......
Issuance of Series A convertible
preferred stock
for technology.................. 7,500,000 $ 7,500 $ (7,500)
Issuance of Series A convertible
preferred stock................. 3,336,332 4,448,331
Issuance of Series A convertible
preferred stock for office space
and services.................... 75,000 99,750
Net loss..........................
---------- ---------- ---------- ----------- ------- ---- ----------
Balance at December 31, 1997...... 10,911,332 4,555,581 (7,500)
Issuance of Series B convertible
preferred stock................. 9,500,468 $14,250,702
Conversion of promissory notes and
accrued interest into Series B
convertible preferred stock..... 1,352,621 2,028,932
Issuance of Series B convertible
preferred stock for services.... 13,333 20,000
Issuance of common stock.......... 55,600 $ 56 8,284
Net loss..........................
---------- ---------- ---------- ----------- ------- ---- ----------
Balance at December 31, 1998...... 10,911,332 4,555,581 10,866,422 16,299,634 55,600 56 784
Issuance of Series B convertible
preferred stock, net of issuance
costs of $44,454................ 348,333 478,045
Issuance of common stock.......... 76,225 76 11,358
Net loss..........................
---------- ---------- ---------- ----------- ------- ---- ----------
Balance at December 31, 1999...... 10,911,332 4,555,581 11,214,755 16,777,679 131,825 132 12,142
Issuance of common stock
(unaudited)..................... 65,144 65 9,705
Issuance of warrants with
convertible notes (unaudited)... 1,654,484
Deferred stock-based compensation
(unaudited)..................... 2,258,240
Amortization of deferred
compensation (unaudited)........
Other stock-based compensation
(unaudited)..................... 677,492
Net loss (unaudited)..............
---------- ---------- ---------- ----------- ------- ---- ----------
Balance at September 30, 2000
(unaudited)..................... 10,911,332 $4,555,581 11,214,755 $16,777,679 196,969 $197 $4,612,063
========== ========== ========== =========== ======= ==== ==========
<CAPTION>
<S> <C> <C> <C>
DEFICIT
ACCUMULATED
DURING TOTAL
DEFERRED DEVELOPMENT STOCKHOLDERS'
COMPENSATION STAGE DEFICIT
------------- ------------ ------------
Balance at December 27, 1996......
Issuance of Series A convertible
preferred stock
for technology.................. $ (7,500)
Issuance of Series A convertible
preferred stock.................
Issuance of Series A convertible
preferred stock for office space
and services....................
Net loss.......................... $(2,875,582) (2,875,582)
----------- ------------ ------------
Balance at December 31, 1997...... (2,875,582) (2,883,082)
Issuance of Series B convertible
preferred stock.................
Conversion of promissory notes and
accrued interest into Series B
convertible preferred stock.....
Issuance of Series B convertible
preferred stock for services....
Issuance of common stock.......... 8,340
Net loss.......................... (5,397,639) (5,397,639)
----------- ------------ ------------
Balance at December 31, 1998...... (8,273,221) (8,272,381)
Issuance of Series B convertible
preferred stock, net of issuance
costs of $44,454................
Issuance of common stock.......... 11,434
Net loss.......................... (10,334,868) (10,334,868)
----------- ------------ ------------
Balance at December 31, 1999...... (18,608,089) (18,595,815)
Issuance of common stock
(unaudited)..................... 9,770
Issuance of warrants with
convertible notes (unaudited)... 1,654,484
Deferred stock-based compensation
(unaudited)..................... $(2,258,240) --
Amortization of deferred
compensation (unaudited)........ 206,729 206,729
Other stock-based compensation
(unaudited)..................... 677,492
Net loss (unaudited).............. (9,755,173) (9,755,173)
----------- ------------ ------------
Balance at September 30, 2000
(unaudited)..................... $(2,051,511) $(28,363,262) $(25,802,513)
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
ELIGIX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
FROM INCEPTION
NINE MONTHS ENDED (DECEMBER 27,
DECEMBER 31, SEPTEMBER 30, 1996) TO
-------------------------- ----------------------------- SEPTEMBER 30,
1998 1999 1999 2000 2000
----------- ------------ ------------- ------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(5,397,639) $(10,334,868) $ (7,278,428) $ (9,755,173) $(28,363,262)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 54,529 360,949 246,367 329,691 759,791
Noncash charges.............................. 28,312 -- -- -- 119,750
Stock compensation expense................... -- -- -- 884,221 884,221
Amortization of debt discount................ -- -- -- 427,945 427,945
Loss on disposal of fixed assets............. -- -- -- 74,000 74,000
Changes in operating assets and liabilities:
Prepaid and other current assets........... (87,719) (21,545) 24,762 6,763 (147,685)
Other assets............................... (113,700) (14,000) (14,000) 3,700 (128,000)
Accounts payable........................... 490,742 (363,204) (425,959) (46,087) 354,216
Accrued expenses........................... 501,238 (229,327) (109,401) 611,939 1,091,298
----------- ------------ ------------- ------------- ------------
Net cash used by operating activities............ (4,524,237) (10,601,995) (7,556,659) (7,463,001) (24,927,726)
----------- ------------ ------------- ------------- ------------
Cash flows from investing activities:
Purchase of property and equipment........... (1,376,288) (2,021,899) (1,730,168) (56,619) (3,665,096)
----------- ------------ ------------- ------------- ------------
Net cash used by investing activities............ (1,376,288) (2,021,899) (1,730,168) (56,619) (3,665,096)
----------- ------------ ------------- ------------- ------------
Cash flows from financing activities:
Payments on notes payable...................... (52,000) (481,871) (326,988) (715,753) (1,254,890)
Proceeds from notes payable.................... 268,000 3,116,631 2,848,691 267,940 3,762,370
Cash overdraft................................. -- 190,363 -- 92,334 282,697
Prepaid stock subscription..................... 300,000 -- -- -- 300,000
Proceeds from issuance of convertible
promissory notes............................. 2,000,000 -- -- 7,473,195 9,473,195
Proceeds from issuance of Series B convertible
preferred stock.............................. 14,250,702 178,045 178,045 -- 14,428,747
Proceeds from issuance of Series A convertible
preferred stock.............................. -- -- -- -- 4,448,331
Proceeds from issuance of common stock......... 8,340 11,434 2,151 9,770 29,544
----------- ------------ ------------- ------------- ------------
Net cash provided by financing activities........ 16,775,042 3,014,602 2,701,899 7,127,486 31,469,994
----------- ------------ ------------- ------------- ------------
Net increase (decrease) in cash and cash
equivalents.................................... 10,874,517 (9,609,292) (6,584,928) (392,134) 2,877,172
Cash and cash equivalents at beginning of
period......................................... 2,004,081 12,878,598 12,878,598 3,269,306 --
----------- ------------ ------------- ------------- ------------
Cash and cash equivalents at end of period....... $12,878,598 $ 3,269,306 $ 6,293,670 $ 2,877,172 $ 2,877,172
=========== ============ ============= ============= ============
Supplemental disclosure of cash flow information:
Interest paid.................................. $ 15,098 $ 221,514 $ 97,868 $ 280,317 $ 516,929
Noncash transactions:
Conversion of convertible promissory notes (see
Note I)
Issuance of Series A convertible preferred
stock for use of research facility (see
Note M)
Issuance of Series A convertible preferred
stock for technology (see Note F)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
ELIGIX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED
A. NATURE OF BUSINESS
Eligix, Inc. (the "Company") was incorporated in the State of Delaware on
December 27, 1996. The Company is focused on the development and
commercialization of enabling and novel cell therapies for the treatment of
cancer and immune disorders. The Company is a development stage enterprise as
defined in Statement of Financial Accounting Standards No. 7, and is devoting
substantially all of its efforts to conducting research and development and
raising capital to fund operations.
The Company's financial statements have been presented on the basis of a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has incurred losses
since inception and has a retained deficit which has been primarily funded by
issuing equity securities as well as debt securities and lease financing.
Management intends to issue additional debt and equity securities to existing
and third-party investors to finance the commercialization of existing
technologies.
Because of its continuing losses from operations, the Company will be
required to obtain additional capital in the short term to satisfy its ongoing
capital needs and to continue its operations. Although management continues to
pursue additional funding arrangements and/or strategic partnering, no assurance
can be given that such financing will in fact be available to the Company. If
the Company is unable to obtain financing on acceptable terms in order to
maintain operations through the next fiscal year, it could be forced to curtail
or discontinue its operations. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements have been prepared under the accrual method of
accounting in conformity with generally accepted accounting principles. The
interim financial data as of September 30, 2000 and for the nine months ended
September 30, 1999 and 2000 are unaudited. However, in the opinion of the
Company, the interim data include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in banks, money market funds and
certificates of deposit with original maturities of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred. When assets are retired or
disposed of, the assets and related accumulated depreciation are eliminated from
the accounts and any resulting gain or loss is reflected in operations.
F-24
<PAGE>
ELIGIX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For financial reporting purposes, depreciation is calculated using the
straight-line method over the estimated useful lives of the assets, which are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Computer equipment and software...... 3 years
Furniture and fixtures............... 5 years
Lab equipment........................ 10 years
Leasehold improvements............... Shorter of the life of the lease or
the estimated useful life
</TABLE>
CONCENTRATION OF CREDIT RISK
The Company's significant concentrations of credit risk consist principally
of cash and cash equivalents. The Company maintains cash and cash equivalents
with major financial institutions.
UNCERTAINTIES
The Company is subject to risks common to companies in the biotechnology
industry, including but not limited to, development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology, healthcare cost containment initiatives,
uncertainty of market acceptance of products, product liability and compliance
with government regulations, including those of the U.S. Department of Health
and Human Services and the U.S. Food and Drug Administration.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents and loans payable
approximate fair value given the short-term nature of the instruments.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and the tax basis of assets and liabilities
using current statutory tax rates. A valuation allowance against deferred tax
assets is recorded if, based on available evidence, it is more likely than not
that some or all of the deferred tax assets will not be realized.
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 reported amounts of assets and contingent
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
F-25
<PAGE>
ELIGIX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATION OF PRIOR YEAR BALANCES
Certain reclassifications have been made to prior year financial statements
to conform to the current presentation.
C. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1998 and
1999:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Equipment............................................ $ 325,394 $ 988,202
Computer and equipment............................... 123,546 285,232
Furniture and fixtures............................... 10,558 280,067
Construction in progress............................. 1,146,085 --
Leasehold improvements............................... -- 2,073,980
---------- ----------
Total property and equipment....................... 1,605,583 3,627,481
Less: accumulated depreciation....................... (69,151) (430,099)
---------- ----------
Property and equipment, net.......................... $1,536,432 $3,197,382
========== ==========
</TABLE>
D. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
Effective October 1, 1998, the Company entered into a five-year operating
lease for its office facility in Medford, Massachusetts. The Company has entered
into operating leases for office and lab equipment. Total rent expense was
$291,240 and $641,107 for the years ended December 31, 1998 and 1999,
respectively.
At December 31, 1999, the Company has commitments under these long-term
leases requiring annual payments as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
----------
<S> <C>
2000........................................................ $ 793,465
2001........................................................ 770,616
2002........................................................ 753,826
2003........................................................ 564,261
2004........................................................ 2,759
Thereafter.................................................. --
----------
Total payments.............................................. $2,884,927
==========
</TABLE>
The Company leases a portion of its Medford, Massachusetts office facility
to a third party. The third party does not have a formal sublease agreement with
the Company and pays rent on a monthly
F-26
<PAGE>
ELIGIX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED
D. COMMITMENTS AND CONTINGENCIES (CONTINUED)
basis at $17,150 per month. The Company recorded $197,676 of sublease income for
the year ended December 31, 1999 as a reduction of rent expense.
E. INCOME TAXES
The Company's deferred income taxes as of December 31, 1998 and 1999 were as
follows:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Deferred income tax assets:
Net operating losses............................... $3,327,708 $5,115,140
Tax credit carryforwards........................... 130,821 426,474
Capitalized research and development............... -- 2,336,052
Other.............................................. (23,313) (25,276)
---------- ----------
Total deferred tax assets.......................... 3,436,216 7,852,390
Valuation allowance................................ (3,436,216) (7,852,390)
---------- ----------
Net deferred tax assets............................ $ -- $ --
========== ==========
</TABLE>
At December 31, 1999, the Company has federal and state net operating loss
carryforwards of $12,760,000 and $12,741,000, respectively, which expire at
various dates between 2002 and 2019. The Company also has available research and
experimental credit carryforwards to offset future federal income taxes of
approximately $499,400 which expire at various dates through 2019. Under
Section 382 of the Internal Revenue Code, changes in the Company's ownership
could limit the amount of loss and credit carryforwards which can be utilized by
the Company.
Management of the Company has evaluated the positive and negative evidence
bearing upon the realizability of its deferred tax assets, which are comprised
principally of net operating loss carryforwards and capitalized research and
development costs. Due to the uncertainty of the Company's ability to use the
net operating losses in the future, management has recorded a full valuation
allowance.
F. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
COMMON STOCK
The Company has authorized 66,000,000 shares of common stock, $.001 par
value. Dividend and liquidation rights of common stock are subordinated to those
of all series of preferred stock.
CONVERTIBLE PREFERRED STOCK
The Company has authorized 57,500,000 shares of preferred stock of which
11,100,000 are designated as Series A convertible preferred stock and 12,500,000
are designated as Series B convertible preferred stock. The convertible
preferred stock is classified in the balance sheet as mezzanine financing due to
liquidation rights which are not within control of the Company.
F-27
<PAGE>
ELIGIX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED
F. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
The holders of Series A and Series B convertible preferred stock have the
following rights:
CONVERSION
Each share of Series A and Series B convertible preferred stock is
convertible at the option of the holder into one share of common stock,
subject to antidilution and other adjustments. The shares will automatically
convert upon the closing of a public offering of the Company's common stock
in which the per share price is at least $5.00 and the gross proceeds to the
Company are at least $10,000,000.
DIVIDENDS
The holders of Series A and Series B convertible preferred shares shall
be entitled to receive, when and as declared by the Board of Directors,
noncumulative dividends in preference to any dividend on the common stock at
the rate of 8% of the original issue price of $1.3333 and $1.50,
respectively, per annum. The holders of Series A and Series B convertible
preferred shares shall also be entitled to receive any cash dividend
declared on common stock equal to the amount they would be entitled to if
such preferred stock had been converted into common stock.
VOTING
Series A and Series B convertible preferred stockholders are entitled to
a number of votes equal to the number of shares of common stock into which
the preferred shares are convertible.
LIQUIDATION
In the event of liquidation, dissolution or winding up of the Company,
the holders of Series A and Series B convertible preferred stock shall be
entitled to receive, in preference to the holders of the common stock, an
amount equal to $1.3333 per share and $1.50 per share, respectively, plus
any declared but unpaid dividends. If upon any liquidation, distribution, or
winding up, the assets of the Company shall be insufficient to make payment
in full to all holders of Series Preferred, then such assets shall be
distributed among the holders of Series Preferred at the time outstanding,
ratably in proportion to the full amounts to which they would otherwise be
respectively entitled.
In connection with its formation, the Company issued 7,500,000 shares of its
Series A convertible preferred stock to Coulter Corporation in exchange for
rights to certain dense particle technology. This transaction was accounted for
as a transfer among entities under common control, and, accordingly, such assets
were recorded at their historical basis of $0.
WARRANTS
During 1997, the Company issued warrants in connection with a loan and
security agreement, which, at December 31, 1999, allow the holders to purchase
31,250 shares of Series B convertible preferred stock. The warrants are
exercisable, in whole or in part, at any time from the date of grant,
September 4, 1997, through the later of ten years after the date of grant or
five years after the closing
F-28
<PAGE>
ELIGIX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED
F. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
of the Company's initial public offering of its common stock. The estimated fair
value of warrant was insignificant.
In connection with a loan agreement entered into during June 1999, the
Company issued a warrant to purchase 80,000 shares of common stock at a price of
$1.50 per share. The warrant is exercisable, in whole or in part, at any time
from the date of grant, June 1999, through June 2004. The estimated fair value
of the warrant was insignificant.
G. EQUITY INCENTIVE PLAN
In June 1997, the Board of Directors (the "Board") established the 1997
Equity Incentive Plan (the "Incentive Plan"). The Incentive Plan provides for
the issuance of incentive stock options to employees and nonstatutory options to
employees, directors and consultants of the Company. The Company initially
reserved 5,000,000 shares of common stock for issuance under the Incentive Plan.
As of December 31, 1999, 635,675 shares of common stock were available for
future awards. In February 2000, the Company increased the number of shares of
common stock reserved for issuance under the Incentive Plan from 5,000,000
shares to 8,000,000 shares.
All options granted under the Incentive Plan are subject to terms and
conditions, as determined by the Board, including exercise price, vesting and
expiration period. The Board shall establish the exercise price and vesting
period at the time each option is granted and specify this information in the
applicable option agreement. Incentive stock options are granted at an exercise
price equal to at least 100% of the fair value of the Company's common stock at
the date of grant. Nonstatutory stock options are granted at an exercise price
equal to at least 85% of the fair value of the Company's common stock on the
date of grant. Options issued to employees generally vest over five years.
Options issued to consultants vest over the period determined by the Board at
the grant date. Options expire ten years from the date of grant.
F-29
<PAGE>
ELIGIX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED
G. EQUITY INCENTIVE PLAN (CONTINUED)
The following is a summary of the Incentive Plan activity as of
December 31, 1999 and for the years ended December 31, 1999, 1998 and 1997 and
for the period from inception (December 27, 1996) to December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OPTIONS OF SHARES PRICE
------- --------- --------
<S> <C> <C>
Outstanding at December 27, 1996
Granted................................................ 1,686,100 $0.15
Exercised.............................................. -- --
Canceled............................................... (175,000) 0.15
--------- -----
Outstanding at December 31, 1997......................... 1,511,100 0.15
Granted................................................ 976,600 0.15
Exercised.............................................. (55,600) 0.15
Canceled............................................... (600) 0.15
--------- -----
Outstanding at December 31, 1998......................... 2,431,500 0.15
Granted................................................ 2,626,000 0.15
Exercised.............................................. (76,225) 0.15
Canceled............................................... (748,775) 0.15
--------- -----
Outstanding at December 31, 1999......................... 4,232,500 $0.15
========= =====
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
OUTSTANDING AT REMAINING EXERCISE EXERCISABLE AT EXERCISE
EXERCISE PRICE DECEMBER 31, 1999 CONTRACTUAL LIFE PRICE DECEMBER 31, 1999 PRICE
-------------- ----------------- ---------------- -------- ----------------- --------
<C> <C> <S> <C> <C> <C>
0.15....$..... 4,232,500 8.8 years $0.15 989,930 $0.15
</TABLE>
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), requires that companies either recognize
compensation expense for grants, to employees of stock, stock options, and other
equity instruments based on fair value, or provide pro forma disclosure of net
income or loss in the notes to the financial statements. The Company has adopted
the disclosure provisions of SFAS 123 and recognizes compensation costs using
the intrinsic value based method described in Accounting Principles Board
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees" and related
pronouncements. For stock options granted to non-employees, the Company
recognizes compensation costs in accordance with the requirements of SFAS 123
and related pronouncements. The Company recorded compensation expense of
approximately $358,000 during the nine months ended September 30, 2000 for stock
options granted to non-employees.
F-30
<PAGE>
ELIGIX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED
G. EQUITY INCENTIVE PLAN (CONTINUED)
The estimated weighted average fair value of stock options granted to
employees in 1998 and 1999 was $0.05 per share, respectively, determined using
the minimum value method assuming an interest rate of 5.18% for 1998 and 5.84%
for 1999, an expected life of 7 years, and no dividends. The pro forma effect of
accounting for options granted to employees since inception using the fair value
method on the 1998 and 1999 net loss was to increase the net loss to $5,407,493
in 1998 and $10,357,790 in 1999.
In May 2000, the Company granted to employees approximately 2.7 million
options to purchase common stock with an exercise price of $0.01 per share. The
options were immediately exercisable in full but the underlying stock is subject
to certain repurchase rights and certain restrictions on transfer for a period
of five years. The repurchase rights and restrictions lapse upon consummation of
a change of control of the Company or upon the closing of an equity financing of
the Company in which proceeds of at least $5 million are received by the
Company. The Company recorded compensation expense of approximately $106,000 for
the nine months ended September 30, 2000 relating to these options based on the
difference between the exercise price and the fair value of the common stock at
the grant date (fair value of the common stock as subsequently determined for
financial reporting purposes).
In September 2000, the Company extended the exercise period through
December 31, 2000 for approximately 213,000 fully vested common stock options
held by recently terminated employees. The Company recorded compensation expense
of approximately $312,000 related to this extension for the nine months ended
September 30, 2000.
In September 2000, the Company cancelled an employee common stock option
grant of 450,000 shares with an exercise price of $0.15 per shares and issued
the employee a grant to purchase 450,000 shares of common stock at an exercise
price of $0.01. The options vest over a period of 5 years and fully vest based
on a change of control. The Company recorded compensation expense of
approximately $101,000 for the nine months ended September 30, 2000 related to
this cancellation and reissuance.
H. DEBT
In September 1997, the Company entered into a loan and security agreement
which allows the Company to borrow up to $750,000. The minimum funding amount is
$100,000 with a maximum of five loans. Loans under the agreement bear interest
at a fixed rate equal to the yield to maturity for the U.S. Treasury note having
a term equivalent with the loan's term on the date of funding plus 300 basis
points. The loans are collateralized by certain equipment.
In June 1999, the Company entered into a loan and security agreement which
allows the Company to borrow up to $2,700,000. The minimum funding amount is
$35,000. Each note will have a fixed term of 42 months. Loans under the
agreement bear interest at a fixed rate equal to the prime rate on the date of
commencement plus the average interest rate of a similar term U.S. Treasury note
for the week preceding the date of commencement. The loans are collateralized by
certain equipment.
The weighted average interest rate on loans outstanding at December 31, 1999
is 11.84%
F-31
<PAGE>
ELIGIX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED
H. DEBT (CONTINUED)
Long-term debt consists of the following:
<TABLE>
<S> <C>
Loans payable............................................... $2,953,556
Less: current portion....................................... 831,756
----------
Long-term portion of loans payable.......................... $2,121,800
==========
</TABLE>
Future minimum payments of long-term loans as of December 31, 1999 are as
follows:
<TABLE>
<S> <C>
2000........................................................ $1,098,068
2001........................................................ 1,185,148
2002........................................................ 1,091,940
2003........................................................ 240,833
Thereafter.................................................. --
----------
Total minimum payments...................................... 3,615,989
Less: interest.............................................. 662,433
----------
Loans payable............................................... $2,953,556
==========
</TABLE>
I. CONVERTIBLE PROMISSORY NOTES
On June 5, 1998, the Company issued $2,000,000 of convertible promissory
notes (the "Notes") bearing 6% interest per annum due on or prior to
December 5, 1998. Per the terms of the Notes agreement, principal and interest
were automatically convertible into shares of the Company's Series B convertible
preferred stock or other similar equity securities upon the closing of a
financing on or prior to December 5, 1998. The Company received financing from
the issuance of Series B convertible preferred stock at $1.50 per share on
September 3, 1998. Accordingly, the principal and accrued interest of $2,028,932
was converted into 1,352,621 shares of the Series B convertible preferred stock.
J. AGREEMENTS
Effective December 31, 1998, the Company entered into a collaborative
research agreement ("research agreement") with Johns Hopkins University ("JHU").
The research agreement has a term of two and one-half years. The Company may
terminate the research agreement for any reason upon giving JHU sixty days
notice. In connection with the research agreement, the Company issued options to
purchase the Company's common stock to two JHU scientists (see Note G).
The Company entered into a license agreement with JHU for the licensing of
certain patent rights and inventions effective December 31, 1998. The license
agreement requires the Company to pay a $5,000 non-refundable annual maintenance
fee. JHU is also entitled to receive royalty payments based on a percentage of
the net sales of products and services developed using JHU's licensed patent
rights and innovations. The Company may terminate the license agreement for any
reason upon giving JHU sixty days notice. In May 1999, the Company issued JHU
250,000 options to purchase the Company's
F-32
<PAGE>
ELIGIX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED
J. AGREEMENTS (CONTINUED)
common stock related to the license agreement. The options have a term of ten
years and vest based on the achievement of certain milestones.
K. EMPLOYEE BENEFIT PLANS
The Company maintains the Eligix, Inc. 401(k) Plan (the "Plan") to provide
retirement benefits for its employees. As allowed under Section 401(k) of the
Internal Revenue Code, the Plan provides tax-deferred salary deductions for
eligible employees. Eligible employees may contribute from 1% to 15% of their
annual compensation to the Plan, limited to a maximum amount as set by the
Internal Revenue Service. To date, the Company has not made any contributions to
the Plan.
On May 25, 2000, the board of directors adopted a management equity
incentive plan. The board subsequently amended and restated the plan on
December 8, 2000. Pursuant to the amended plan, the Company's management team
will receive an aggregate of 15% of the total consideration received in the
event of a merger or similar business transaction involving the Company.
L. RELATED PARTIES
Prior to 1999, the Company leased office space from two stockholders,
Coulter Corporation ("Coulter") and Massachusetts Biotechnology Research
Institute ("MBRI"). Rent expense of $65,426 was incurred during the year ended
December 31, 1998 for the use of the Coulter facility. Rent expense of $139,650
was incurred during the year ended December 31, 1998 for the use of the MBRI
facility.
The Company also reimburses Coulter and MBRI for supplies and lab equipment
expenditures made on behalf of the Company. Total reimbursed costs to Coulter
were approximately $152,000 and $78,500 for the year ended December 31, 1998 and
1999, respectively. Total reimbursed costs to MBRI were $315,664 and $9,174 for
the year ended December 31, 1998 and 1999, respectively.
The Company leases lab equipment under operating leases with Coulter Leasing
Corporation. Total payments were $18,012 and $38,335 for the year ended
December 31, 1998 and 1999, respectively.
M. SUPPLEMENTAL CASH FLOW INFORMATION
In 1997, the Company issued 75,000 shares of Series A convertible preferred
stock to the Massachusetts Biotechnology Research Institute in exchange for use
of their biotechnology research facility. As a result of this transaction, the
Company recorded additional paid-in capital of $99,675 and a corresponding
amount to rent expense.
N. BRIDGE FINANCING
On April 6, 2000, the Company entered into a bridge financing agreement
("Agreement") with certain existing investors ("Investors") pursuant to which
the Company may issue and sell to the Investors 8% subordinated convertible
notes ("Notes") having an aggregate principal amount of up to $15,000,000 and
warrants to purchase up to an aggregate of 4,250,000 shares of common stock,
$0.001 par value per share of the Company. In the event that the Company closes
a private placement of equity securities (the "Private Financing Securities")
resulting in at least $15 million in gross proceeds to the Company prior to
December 31, 2000 (the "Private Financing"), then the Notes shall
F-33
<PAGE>
ELIGIX, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED
N. BRIDGE FINANCING (CONTINUED)
automatically be converted without any action on part of the holder thereof into
that number of shares of the Private Financing Securities determined by dividing
the outstanding principal amount by the per share purchase price in effect in
the Private Financing. At the election of the holders, the Notes are convertible
into Series C-1 convertible preferred stock at a price per share equal to $1.50.
On April 6, 2000, the Company sold approximately $4.8 million of the Notes
and issued warrants to purchase approximately 480,000 shares of common stock at
an exercise price per share of $0.15. Approximately $457,000 of the proceeds
from the Notes has been allocated to the warrants based on the warrants'
relative fair value. The resulting debt discount will be accreted to interest
expense over one year, the expected life of the debt.
On September 7, 2000, the Company sold approximately $2.7 million of Notes
and issued warrants to purchase approximately 838,000 shares of common stock at
an exercise price per share of $0.15. Approximately $1,198,000 of the proceeds
from the Notes has been allocated to the warrants based on the warrants'
relative fair value. The resulting debt discount will be accreted to interest
expense over six months, the expected life of the debt.
On September 7, 2000, the Company filed revised articles of incorporation to
authorize 10,000,000 shares of Series C-1 convertible preferred stock,
11,100,000 shares of Series C-2 convertible preferred stock and 12,500,000
shares of Series C-3 convertible preferred stock. Each share of Series A and B
convertible preferred stock held by certain investors of the Company who have
elected to participate in the Company's convertible note financings is, at the
election of such holder, convertible into one share of Series C-2 convertible
preferred stock, in the case of Series A, and C-3 convertible preferred stock,
in the case of Series B. The liquidation preferences for Series C-1, C-2 and C-3
are $4.50, $1.3333 and $1.50, respectively. Each share of Series C-1, C-2 and
C-3 convertible preferred stock is convertible at the option of the holder into
one share of common stock, subject to antidilution and other adjustments.
O. PROPOSED MERGER
On December 11, 2000, the Company announced that it had entered into a
definitive agreement to be acquired by BioTransplant Incorporated
("BioTransplant"). Under the terms of the proposed transaction, BioTransplant
will issue up to 6,600,000 shares of common stock for all of the Company's fully
diluted shares. Of the 6,600,000 shares, 990,000 shares will be issued to
management of the Company as a result of the management equity incentive plan
adopted by the board of directors on May 25, 2000, as amended and restated on
December 8, 2000. Based on BioTransplant's trading price on December 11, 2000 of
$8.375, the transaction is valued at approximately $55,275,000. The transaction
is intended to be accounted for as a purchase and is subject to approval by
stockholders of Eligix and BioTransplant and other customary conditions. The
transaction is expected to close in the first quarter of fiscal year 2001.
If either BioTransplant or Eligix terminates the merger agreement pursuant
to reasons contained in the agreement, all obligations of the parties under the
merger agreement terminate and there will be no liability, except that if the
merger agreement is terminated by either party as a result of the other party's
failure to perform or comply in all material respects with the agreements and
covenants under the merger agreement, the non-terminating party will pay the
terminating party $2,000,000.
F-34
<PAGE>
ANNEX A
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
BIOTRANSPLANT INCORPORATED
BT/EL ACQUISITION CO.
AND
ELIGIX, INC.
DECEMBER 8, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I THE MERGER................................................................ A-1
1.1 The Merger.................................................. A-1
1.2 The Closing................................................. A-1
1.3 Actions at the Closing...................................... A-1
1.4 Additional Action........................................... A-2
1.5 Conversion of Shares........................................ A-2
1.6 Dissenting Shares........................................... A-5
1.7 Exchange of Shares.......................................... A-5
1.8 Fractional Shares........................................... A-6
1.9 Options, Warrants and Notes................................. A-6
1.10 Escrow...................................................... A-9
1.11 Certificate of Incorporation and By-laws.................... A-9
1.12 No Further Rights........................................... A-10
1.13 Closing of Transfer Books................................... A-10
1.14 Satisfaction of Company's Management Incentive Liability.... A-10
1.15 Priority on Issuance of Buyer Common Stock.................. A-10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................ A-11
2.1 Organization, Qualification and Corporate Power............. A-11
2.2 Capitalization.............................................. A-12
2.3 Authorization of Transaction................................ A-13
2.4 Noncontravention............................................ A-13
2.5 Subsidiaries................................................ A-14
2.6 Financial Statements........................................ A-14
2.7 Absence of Certain Changes.................................. A-14
2.8 Undisclosed Liabilities..................................... A-14
2.9 Tax Matters................................................. A-15
2.10 Assets...................................................... A-16
2.11 Owned Real Property......................................... A-16
2.12 Real Property Leases........................................ A-16
2.13 Preclinical Testing and Clinical Trials..................... A-17
2.14 Intellectual Property....................................... A-17
2.15 Contracts................................................... A-19
2.16 Powers of Attorney.......................................... A-20
2.17 Insurance................................................... A-20
2.18 Litigation.................................................. A-20
2.19 Employees................................................... A-20
2.20 Employee Benefits........................................... A-21
2.21 Environmental Matters....................................... A-23
2.22 Legal Compliance............................................ A-24
2.23 Permits..................................................... A-25
2.24 Certain Business Relationships With Affiliates.............. A-25
2.25 Brokers' Fees............................................... A-25
2.26 Books and Records........................................... A-25
2.27 Disclosure.................................................. A-25
2.28 Information Supplied........................................ A-25
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE TRANSITORY
SUBSIDIARY........................................................................ A-26
3.1 Organization, Qualification and Corporate Power............. A-26
3.2 Capitalization.............................................. A-26
3.3 Authorization of Transaction................................ A-27
3.4 Noncontravention............................................ A-27
3.5 Reports and Financial Statements............................ A-28
3.6 Absence of Certain Changes.................................. A-28
3.7 Tax Matters................................................. A-29
3.8 Preclinical Testing and Clinical Trials..................... A-29
3.9 Intellectual Property....................................... A-29
3.10 Contracts................................................... A-30
3.11 Litigation.................................................. A-31
3.12 Employees................................................... A-31
3.13 Employee Benefits........................................... A-31
3.14 Interim Operations of the Transitory Subsidiary............. A-33
3.15 Environmental Matters....................................... A-33
3.16 Legal Compliance............................................ A-34
3.17 Brokers' Fees............................................... A-34
3.18 Books and Records........................................... A-34
3.19 Disclosure.................................................. A-34
3.20 Information Supplied........................................ A-35
ARTICLE IV COVENANTS................................................................ A-35
4.1 Closing Efforts............................................. A-35
4.2 Governmental and Third-Party Notices and Consents........... A-35
Special Meeting, Prospectus/Proxy Statement and Registration
4.3 Statement................................................. A-35
4.4 Company Operation of Business............................... A-37
4.5 Buyer Operation of Business................................. A-38
4.6 Access to Company Information............................... A-39
4.7 Access to Buyer Information................................. A-40
4.8 Exclusivity................................................. A-40
4.9 Expenses.................................................... A-41
4.10 Indemnification............................................. A-41
4.11 Lock-Up and Affiliate Agreements............................ A-41
4.12 Listing of Merger Shares.................................... A-42
4.13 Executive Officers and Board of Directors of the Buyer...... A-42
4.14 Delivery of Tax Notices..................................... A-42
ARTICLE V CONDITIONS TO CONSUMMATION OF MERGER...................................... A-43
5.1 Conditions to Each Party's Obligations...................... A-43
Conditions to Obligations of the Buyer and the Transitory
5.2 Subsidiary................................................ A-43
5.3 Conditions to Obligations of the Company.................... A-45
ARTICLE VI INDEMNIFICATION.......................................................... A-47
6.1 Indemnification by the Company Stockholders................. A-47
6.2 Indemnification Claims...................................... A-48
6.3 Survival of Representations and Warranties.................. A-51
6.4 Limitations................................................. A-51
ARTICLE VII TERMINATION............................................................. A-53
7.1 Termination of Agreement.................................... A-53
7.2 Effect of Termination....................................... A-53
ARTICLE VIII DEFINITIONS............................................................ A-54
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE IX MISCELLANEOUS............................................................ A-56
9.1 Press Releases and Announcements............................ A-56
9.2 No Third Party Beneficiaries................................ A-57
9.3 Entire Agreement............................................ A-57
9.4 Succession and Assignment................................... A-57
9.5 Counterparts and Facsimile Signature........................ A-57
9.6 Headings.................................................... A-57
9.7 Notices..................................................... A-57
9.8 Governing Law............................................... A-58
9.9 Amendments and Waivers...................................... A-58
9.10 Severability................................................ A-58
9.11 Submission to Jurisdiction.................................. A-59
9.12 Construction................................................ A-59
</TABLE>
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Company Disclosure Schedule
Buyer Disclosure Schedule
Exhibit A-- Escrow Agreement
Attachment A to Escrow Agreement
Exhibit B--Form of Lock-up Agreement
Exhibit C--Form of Affiliate Agreement
Exhibit D--Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
Exhibit E--Form of Voting and Transfer Restriction Agreement
Exhibit F-- Form of Certificate of Amendment to Amended and Restated Certificate
of Incorporation
Exhibit G--Form of Employment Offer Letter
Exhibit H--Form of Non-Competition and Non-Solicitation Agreement
Exhibit I--Opinion of Hale and Dorr LLP
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of December 8, 2000 by and among BioTransplant
Incorporated, a Delaware corporation (the "Buyer"), BT/EL Acquisition Co., a
Delaware corporation and a wholly-owned subsidiary of the Buyer (the "Transitory
Subsidiary"), and Eligix, Inc., a Delaware corporation (the "Company"). The
Buyer, the Transitory Subsidiary and the Company are referred to collectively
herein as the "Parties."
This Agreement contemplates a merger of the Transitory Subsidiary into the
Company. In such merger, the stockholders of the Company will receive common
stock of the Buyer in exchange for their capital stock of the Company.
The Parties intend that the merger shall constitute a "reorganization"
within the meaning of Section 368(a) of the Code (as defined herein) and that
this Agreement shall be a "plan of reorganization."
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon and subject to the terms and conditions of this
Agreement, the Transitory Subsidiary shall merge with and into the Company (with
such merger referred to herein as the "Merger") at the Effective Time (as
defined below). From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and the Company shall
continue as the surviving corporation in the Merger (the "Surviving
Corporation"). The "Effective Time" shall be the time at which the Surviving
Corporation files a certificate of merger or other appropriate documents
prepared and executed in accordance with Section 251(c) of the Delaware General
Corporation Law (the "Certificate of Merger") with the Secretary of State of the
State of Delaware. The Merger shall have the effects set forth in Section 259 of
the Delaware General Corporation Law.
1.2 THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hale and Dorr LLP
in Boston, Massachusetts, commencing at 9:00 a.m. local time as soon as
practicable (and in any event not later than three business days) after the
satisfaction or waiver of all conditions (excluding the delivery of any
documents to be delivered at the Closing by any of the Parties) set forth in
Article V hereof (the "Closing Date").
1.3 ACTIONS AT THE CLOSING. At the Closing:
(a) the Company shall deliver to the Buyer and the Transitory Subsidiary
the various certificates, instruments and documents referred to in
Section 5.2;
(b) the Buyer and the Transitory Subsidiary shall deliver to the Company
the various certificates, instruments and documents referred to in
Section 5.3;
A-1
<PAGE>
(c) the Surviving Corporation shall file with the Secretary of State of
the State of Delaware the Certificate of Merger;
(d) each of the stockholders of record of the Company immediately prior
to the Effective Time (the "Company Stockholders") shall deliver to the
Buyer the certificate(s) representing his, her or its Company Shares (as
defined below);
(e) the Buyer shall deliver certificates for the Initial Shares (as
defined below) to each Company Stockholder in accordance with Section 1.5;
and
(f) the Buyer, Robert Momsen and Pieter Schiller (the "Escrow
Representatives"), the Management Members (as defined below) and The
American Stock Transfer and Trust Company (the "Escrow Agent") shall execute
and deliver the Escrow Agreement attached hereto as Exhibit A (the "Escrow
Agreement"), and the Buyer shall deliver to the Escrow Agent a certificate
for the Escrow Shares (as defined in Section 1.14) being placed in escrow on
the Closing Date pursuant to Section 1.10.
1.4 ADDITIONAL ACTION. The Surviving Corporation may, at any time after
the Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of either the Company or the Transitory
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
1.5 CONVERSION OF SHARES. In consideration of the transactions
contemplated hereby, the Buyer has agreed to issue an aggregate of 6,600,000
shares (the "Total Consideration") of its common stock, $0.01 par value per
share ("Buyer Common Stock") (i) in exchange for all of the Company Shares (as
defined below) outstanding immediately prior to the Effective Time, (ii) in
satisfaction of the Company's management incentive liability set forth in
Section 1.14 below, and (iii) upon exercise or conversion, as the case may be,
of all of the Company Options, Company Warrants and Company Notes (each as
defined below), whether vested or unvested, outstanding immediately prior to the
Effective Time. At the Effective Time, by virtue of the Merger and without any
action on the part of any Party or the holder of any of the following
securities:
(a) Each share of common stock, $0.001 par value per share, of the
Company ("Common Shares") issued and outstanding immediately prior to the
Effective Time (other than Common Shares owned beneficially by the Buyer or
the Transitory Subsidiary, Dissenting Shares (as defined below) and Common
Shares held in the Company's treasury) shall be converted into and represent
the right to receive (subject to the provisions of Section 1.10) such number
of shares of Buyer Common Stock as is equal to the Common Conversion Ratio.
The "Common Conversion Ratio" shall initially be equal to a fraction
expressed as a decimal carried out to four places, the numerator of which is
(i) the Total Consideration minus (ii) the sum of (A) the aggregate number of
shares of Buyer Common Stock, if any, issued pursuant to subsections 1.5(b),
(c), (d), (e) and (f) below; (B) the aggregate number of shares of Buyer Common
Stock, if any, reserved for issuance upon exercise or conversion of the Company
Series A Warrants (as defined below) and Company Series B Warrants (as defined
below) and the Company Notes; and (C) the Management Incentive Shares (as
defined below), and the denominator of which is the total number of issued and
outstanding Common Shares at the
A-2
<PAGE>
Effective Time, including, but not limited to for this purpose all Common Shares
which are issued or issuable upon exercise of outstanding Company Options and
Company Common Warrants (as defined below), whether vested, unvested or subject
to repurchase by the Company following such exercise. The Common Conversion
Ratio shall be subject to equitable adjustment in the event of any stock split,
stock dividend, reverse stock split or similar event affecting the Buyer Common
Stock between the date of this Agreement and the Effective Time.
(b) Each share (if any) of Series A Preferred Stock, $0.001 par value
per share, of the Company ("Series A Preferred Shares") issued and
outstanding immediately prior to the Effective Time (other than Series A
Preferred Shares owned beneficially by the Buyer or the Transitory
Subsidiary, Dissenting Shares and Series A Preferred Shares held in the
Company's treasury) shall be converted into and represent the right to
receive (subject to the provisions of Section 1.10) such number of shares of
Buyer Common Stock as is equal to the Series A Preferred Conversion Ratio.
The "Series A Preferred Conversion Ratio" shall initially be equal to a
fraction expressed as a decimal carried out to four places, the numerator of
which is $1.3333 and the denominator of which is $11.5714. The Series A
Conversion Ratio shall be subject to equitable adjustment in the event of
any stock split, stock dividend, reverse stock split or similar event
affecting the Buyer Common Stock between the date of this Agreement and the
Effective Time.
(c) Each share (if any) of Series B Preferred Stock, $0.001 par value
per share, of the Company ("Series B Preferred Shares") issued and
outstanding immediately prior to the Effective Time (other than Series B
Preferred Shares owned beneficially by the Buyer or the Transitory
Subsidiary, Dissenting Shares and Series B Preferred Shares held in the
Company's treasury) shall be converted into and represent the right to
receive (subject to the provisions of Section 1.10) such number of shares of
Buyer Common Stock as is equal to the Series B Preferred Conversion Ratio.
The "Series B Preferred Conversion Ratio" shall initially be equal to a
fraction expressed as a decimal carried out to four places, the numerator of
which is $1.50 and the denominator of which is $11.5714. The Series B
Conversion Ratio shall be subject to equitable adjustment in the event of
any stock split, stock dividend, reverse stock split or similar event
affecting the Buyer Common Stock between the date of this Agreement and the
Effective Time.
(d) Each share (if any) of Series C-1 Preferred Stock, $0.001 par value
per share, of the Company ("Series C-1 Preferred Shares") issued and
outstanding immediately prior to the Effective Time (other than Series C-1
Preferred Shares owned beneficially by the Buyer or the Transitory
Subsidiary, Dissenting Shares and Series C-1 Preferred Shares held in the
Company's treasury) shall be converted into and represent the right to
receive (subject to the provisions of Section 1.10) such number of shares of
Buyer Common Stock as is equal to the Series C-1 Preferred Conversion Ratio.
The "Series C-1 Preferred Conversion Ratio" shall initially be equal to a
fraction expressed as a decimal carried out to four places, the numerator of
which is $4.50 and the denominator of which is $11.5714. The Series C-1
Conversion Ratio shall be subject to equitable adjustment in the event of
any stock split, stock dividend, reverse stock split or similar event
affecting the Buyer Common Stock between the date of this Agreement and the
Effective Time.
A-3
<PAGE>
(e) Each share (if any) of Series C-2 Preferred Stock, $0.001 par value
per share, of the Company ("Series C-2 Preferred Shares") issued and
outstanding immediately prior to the Effective Time (other than Series C-2
Preferred Shares owned beneficially by the Buyer or the Transitory
Subsidiary, Dissenting Shares and Series C-2 Preferred Shares held in the
Company's treasury) shall be converted into and represent the right to
receive (subject to the provisions of Section 1.10) such number of shares of
Buyer Common Stock as is equal to the Series C-2 Preferred Conversion Ratio.
The "Series C-2 Preferred Conversion Ratio" shall initially be equal to a
fraction expressed as a decimal carried out to four places, the numerator of
which is $1.3333 and the denominator of which is $11.5714. The Series C-2
Conversion Ratio shall be subject to equitable adjustment in the event of
any stock split, stock dividend, reverse stock split or similar event
affecting the Buyer Common Stock between the date of this Agreement and the
Effective Time.
(f) Each share (if any) of Series C-3 Preferred Stock, $0.001 par value
per share, of the Company ("Series C-3 Preferred Shares" and, together with
the Series A Preferred Shares, Series B Preferred Shares, Series C-1
Preferred Shares and Series C-2 Preferred Shares, the "Preferred Shares")
issued and outstanding immediately prior to the Effective Time (other than
Series C-3 Preferred Shares owned beneficially by the Buyer or the
Transitory Subsidiary, Dissenting Shares and Series C-3 Preferred Shares
held in the Company's treasury) shall be converted into and represent the
right to receive (subject to the provisions of Section 1.10) such number of
shares of Buyer Common Stock as is equal to the Series C-3 Preferred
Conversion Ratio. The "Series C-3 Preferred Conversion Ratio" shall
initially be equal to a fraction expressed as a decimal carried out to four
places, the numerator of which is $1.50 and the denominator of which is
$11.5714. The Series C-3 Conversion Ratio shall be subject to equitable
adjustment in the event of any stock split, stock dividend, reverse stock
split or similar event affecting the Buyer Common Stock between the date of
this Agreement and the Effective Time.
(g) At the Effective Time, Company Stockholders shall be entitled to
receive eighty percent (80%) of the shares of Buyer Common Stock into which
their Common Shares and/or Preferred Shares (collectively, the "Company
Shares") were converted pursuant to this Section 1.5 (the "Initial Shares");
the remaining twenty percent (20%) of the shares of Buyer Common Stock into
which their Company Shares were converted pursuant to this Section 1.5,
rounded to the nearest whole number (the "Company Stockholder Escrow
Shares"), shall be deposited in escrow pursuant to Section 1.10 and shall be
held and disposed of in accordance with the terms of the Escrow Agreement.
The Initial Shares and the Company Stockholder Escrow Shares shall together
be referred to herein as the "Merger Shares."
(h) Each Company Share held in the Company's treasury immediately prior
to the Effective Time and each Company Share owned beneficially by the Buyer
or the Transitory Subsidiary shall be cancelled and retired without payment
of any consideration therefor.
(i) Each share of common stock, $.01 par value per share, of the
Transitory Subsidiary issued and outstanding immediately prior to the
Effective Time shall be converted into and thereafter evidence one share of
common stock, $.01 par value per share, of the Surviving Corporation.
A-4
<PAGE>
1.6 DISSENTING SHARES.
(a) For purposes of this Agreement, "Dissenting Shares" means Company
Shares held as of the Effective Time by a Company Stockholder who has not
voted such Company Shares in favor of the adoption of this Agreement and the
Merger and with respect to which appraisal shall have been duly demanded and
perfected in accordance with Section 262 of the Delaware General Corporation
Law and not effectively withdrawn or forfeited prior to the Effective Time.
Dissenting Shares shall not be converted into or represent the right to
receive Merger Shares, unless such Company Stockholder shall have forfeited
his, her or its right to appraisal under the Delaware General Corporation
Law or properly withdrawn, his, her or its demand for appraisal. If such
Company Stockholder has so forfeited or withdrawn his, her or its right to
appraisal of Dissenting Shares, then (i) as of the occurrence of such event,
such holder's Dissenting Shares shall cease to be Dissenting Shares and
shall be converted into and represent the right to receive the Merger Shares
issuable in respect of such Company Shares pursuant to Section 1.5, and
(ii) promptly following the occurrence of such event, the Buyer shall
deliver to such Company Stockholder a certificate representing eighty
percent (80%) of the Merger Shares to which such holder is entitled pursuant
to Section 1.5 (which shares shall be considered Initial Shares for all
purposes of this Agreement) and shall deliver to the Escrow Agent a
certificate representing the remaining twenty percent (20%) of the Merger
Shares to which such holder is entitled pursuant to Section 1.5 (which
shares shall be considered Company Stockholder Escrow Shares for all
purposes of this Agreement).
(b) The Company shall give the Buyer (i) prompt notice of any written
demands for appraisal of any Company Shares, withdrawals of such demands,
and any other instruments that relate to such demands received by the
Company and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the Delaware General Corporation
Law. The Company shall not, except with the prior written consent of the
Buyer, make any payment with respect to any demands for appraisal of Company
Shares or offer to settle or settle any such demands.
1.7 EXCHANGE OF SHARES.
(a) From and after the Effective Time, each holder of an outstanding
certificate or certificates which represented, immediately prior to the
Effective Time, Company Shares converted into Merger Shares pursuant to
Section 1.5 ("Certificates") shall have the right to surrender each
Certificate to the Buyer, and receive in exchange therefor a certificate
representing the whole number of Initial Shares issuable pursuant to
Section 1.5. Until surrendered, each outstanding Certificate which prior to
the Effective Time represented Company Shares shall be deemed for all
purposes to evidence the right to receive the whole number of Initial Shares
into which the Company Shares have been converted. From and after the
Effective Time, the holders of Company Shares shall cease to have any rights
in respect to such Company Shares and their rights shall be solely in
respect to the Buyer Common Stock into which such Company Shares have been
converted. From and after the Effective Time, there shall be no further
registration of transfers on the records of the Company of Company Shares
outstanding immediately prior to the Effective Time.
A-5
<PAGE>
(b) Unless otherwise agreed to in writing, Initial Shares will not be
issued in the name of a person other than the person in whose name the
Certificate(s) surrendered in exchange therefor is registered.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed, the Buyer shall
issue in exchange for such lost, stolen or destroyed Certificate the Initial
Shares issuable in exchange therefor pursuant to Section 1.5. The Board of
Directors of the Buyer may, in its discretion and as a condition precedent
to the issuance thereof, require the owner of such lost, stolen or destroyed
Certificate to submit to the Buyer an affidavit and to give to the Buyer an
indemnity against any claim that may be made against the Buyer with respect
to the Certificate alleged to have been lost, stolen or destroyed.
1.8 FRACTIONAL SHARES. No certificates or scrip representing fractional
Initial Shares shall be issued to former Company Stockholders upon the surrender
for exchange of Certificates, and such former Company Stockholders shall not be
entitled to any voting rights, rights to receive any dividends or distributions
or other rights as a stockholder of the Buyer with respect to any fractional
Initial Shares that would have otherwise been issued to such former Company
Stockholders. In lieu of any fractional Initial Shares that would have otherwise
been issued, each former Company Stockholder that would have been entitled to
receive a fractional Initial Share shall, upon proper surrender of such person's
Certificates, receive a cash payment equal to $11.5714 (which equals the average
of the closing prices for a share of Buyer Common Stock as quoted on the Nasdaq
National Market ("Nasdaq"), as reported by Nasdaq, for the thirty (30) trading
days immediately preceding the date which is three (3) calendar days prior to
the date of this Agreement (subject to the equitable adjustment in the event of
any stock split, stock dividend, reverse stock split or similar event affecting
the Buyer Common Stock since the beginning of such thirty-day period))
multiplied by the fraction of a share that such Company Stockholder would
otherwise be entitled to receive.
1.9 OPTIONS, WARRANTS AND NOTES.
(a) As of the Effective Time, all options to purchase Common Shares
issued by the Company pursuant to its stock option plans or otherwise
("Company Options"), whether vested or unvested, shall be assumed by the
Buyer. Immediately after the Effective Time, each Company Option outstanding
immediately prior to the Effective Time shall be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such Company Option at the Effective Time, such number of shares of Buyer
Common Stock as is equal to the number of Common Shares subject to the
unexercised portion of such Company Option multiplied by the Common
Conversion Ratio (with any fraction resulting from such multiplication to be
rounded down to the nearest whole number). The exercise price per share of
each such assumed Company Option shall be equal to the exercise price of
such Company Option immediately prior to the Effective Time, divided by the
Common Conversion Ratio (rounded up to the nearest whole cent). The term,
exercisability, vesting schedule, status as an "incentive stock option"
under Section 422 of the Internal Revenue Code of 1986 (as amended, the
"Code"), if applicable, and all of the other terms of the Company Options
shall otherwise remain unchanged. It is intended that any assumption of an
option which is an "incentive stock option" as defined in Section 422 of the
Code will comply with Section 424 of the Code.
A-6
<PAGE>
(b) As soon as practicable after the Effective Time, the Buyer or the
Surviving Corporation shall deliver to the holders of Company Options
appropriate notices setting forth such holders' rights pursuant to such
Company Options, as amended by this Section 1.9, and the agreements
evidencing such Company Options shall continue in effect on the same terms
and conditions (subject to the amendments provided for in this Section 1.9
and such notice).
(c) The Buyer shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Buyer Common Stock for delivery
upon exercise of the Company Options assumed in accordance with this
Section 1.9. Within seventy-five (75) days after the Effective Time, the
Buyer shall file a Registration Statement on Form S-8 (or any successor
form) under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to all shares of Buyer Common Stock subject to such Company
Options that are eligible for registration on a Form S-8, and shall use its
best efforts to maintain the effectiveness of such Registration Statement
for so long as such Company Options remain outstanding.
(d) The Company shall use its Reasonable Best Efforts (as defined below)
to cause the exercise prior to the Effective Time of any outstanding
warrants to purchase Company Shares (the "Company Warrants").
Notwithstanding the foregoing, each Company Warrant which remains
outstanding as of the Effective Time shall be assumed by the Buyer in
accordance with the following terms:
(i) as of the Effective Time, all Company Warrants which are
exercisable for Common Shares ("Company Common Warrants"), whether
exercisable or unexercisable, shall be assumed by the Buyer. Immediately
after the Effective Time, each Company Common Warrant outstanding
immediately prior to the Effective Time shall be deemed to constitute a
warrant to acquire, on the same conditions as were applicable under such
Company Common Warrant at the Effective Time (as modified by this
Agreement), such number of shares of Buyer Common Stock as is equal to
the number of Common Shares subject to the unexercised portion of such
Company Common Warrant multiplied by the Common Conversion Ratio (with
any fraction resulting from such multiplication to be rounded down to the
nearest whole number). The exercise price per share of each such assumed
Company Common Warrant shall be equal to the exercise price of such
Company Common Warrant immediately prior to the Effective Time, divided
by the Common Conversion Ratio (rounded up to the nearest whole cent).
The term, exercisability and other terms of the Company Common Warrants
shall otherwise remain unchanged;
(ii) as of the Effective Time, all Company Warrants which are
exercisable for Series A Preferred Shares ("Company Series A Warrants"),
whether exercisable or unexercisable, shall be assumed by the Buyer.
Immediately after the Effective Time, each Company Series A Warrant
outstanding immediately prior to the Effective Time shall be deemed to
constitute a warrant to acquire, on the same conditions as were
applicable under such Company Series A Warrant at the Effective Time (as
modified by this Agreement), such number of shares of Buyer Common Stock
as is equal to the number of Series A Preferred Shares subject to the
unexercised portion of such Company Series A Warrant multiplied by the
Series A Preferred Conversion Ratio (with any fraction resulting from
such multiplication to be rounded down to the nearest whole number). The
exercise price per share of each such assumed Company Series A Warrant
shall be equal to the exercise price of such Company Series A
A-7
<PAGE>
Warrant immediately prior to the Effective Time, divided by the Series A
Preferred Conversion Ratio (rounded up to the nearest whole cent). The
term, exercisability and other terms of the Company Series A Warrants
shall otherwise remain unchanged; and
(iii) as of the Effective Time, all Company Warrants which are
exercisable for Series B Preferred Shares ("Company Series B Warrants"),
whether exercisable or unexercisable, shall be assumed by the Buyer.
Immediately after the Effective Time, each Company Series B Warrant
outstanding immediately prior to the Effective Time shall be deemed to
constitute a warrant to acquire, on the same conditions as were
applicable under such Company Series B Warrant at the Effective Time (as
modified by this Agreement), such number of shares of Buyer Common Stock
as is equal to the number of Series B Preferred Shares subject to the
unexercised portion of such Company Series B Warrant multiplied by the
Series B Preferred Conversion Ratio (with any fraction resulting from
such multiplication to be rounded down to the nearest whole number). The
exercise price per share of each such assumed Company Series B Warrant
shall be equal to the exercise price of such Company Series B Warrant
immediately prior to the Effective Time, divided by the Series B
Preferred Conversion Ratio (rounded up to the nearest whole cent). The
term, exercisability and other terms of the Company Series B Warrants
shall otherwise remain unchanged.
(e) The Company shall obtain, prior to the Closing, the consent from
each holder of a Company Option, to the amendment of such Company Option
pursuant to this Section 1.9 (unless such consent is not required under the
terms of the applicable agreement, instrument or plan). The Company shall
use its Reasonable Best Efforts to obtain, prior to the Closing, the consent
from each holder of a Company Warrant or Company Note to the termination of
any registration rights granted to the holders of Company Warrants or
Company Notes.
(f) The Company shall use its Reasonable Best Efforts to cause the
conversion, prior to the Effective Time, of any outstanding convertible debt
securities which are convertible into shares of capital stock of the Company
(the "Company Notes"). Notwithstanding the foregoing, each Company Note
which remains outstanding as of the Effective Time shall be assumed by the
Buyer in accordance with the following terms:
(i) At the Effective Time, each Company Note which is convertible
into Series A Preferred Shares (a "Company Series A Note") outstanding
immediately prior to the Effective Time shall be deemed to constitute a
note which is convertible, on the same terms and conditions as were
applicable under such Company Series A Note (as modified by this
Agreement), into such number of shares of Buyer Common Stock as is equal
to the number of Series A Preferred Shares into which such Company
Series A Note is convertible immediately prior to the Effective Time
multiplied by the Series A Preferred Conversion Ratio (with any fraction
resulting from such multiplication to be rounded down to the nearest
whole number). The maturity date, payment, subordination, subrogation and
all other terms of the Company Series A Notes shall otherwise remain
unchanged;
(ii) At the Effective Time, each Company Note which is convertible
into Series B Preferred Shares (a "Company Series B Note") outstanding
immediately prior to the Effective Time shall be deemed to constitute a
note which is convertible, on the same terms
A-8
<PAGE>
and conditions as were applicable under such Company Series B Note (as
defined by this Agreement), into such number of shares of Buyer Common
Stock as is equal to the number of Series B Preferred Shares into which
such Company Series B Note is convertible immediately prior to the
Effective Time multiplied by the Series B Preferred Conversion Ratio
(with any fraction resulting from such multiplication to be rounded down
to the nearest whole number). The maturity date, payment, subordination,
subrogation and all other terms of the Company Series B Notes shall
otherwise remain unchanged; and
(iii) At the Effective Time, each Company Note which is convertible
into Series C-1 Preferred Shares (a "Company Series C-1 Note")
outstanding immediately prior to the Effective Time shall be deemed to
constitute a note which is convertible, on the same terms and conditions
as were applicable under such Company Series C-1 Note (as modified by
this Agreement), into such number of shares of Buyer Common Stock as is
equal to the number of Series C-1 Preferred Shares into which such
Company Series C-1 Note is convertible immediately prior to the Effective
Time multiplied by the Series C-1 Preferred Conversion Ratio (with any
fraction resulting from such multiplication to be rounded down to the
nearest whole number). The maturity date, payment, subordination,
subrogation and all other terms of the Company Series C-1 Notes shall
otherwise remain unchanged;
1.10 ESCROW.
(a) On the Closing Date, the Buyer shall deliver to the Escrow Agent a
certificate (issued in the name of the Escrow Agent or its nominee)
representing the Escrow Shares, of which (i) fifty percent (50%) shall be
held for the purpose of securing the indemnification obligations of the
Holders (as defined in Section 6.1) set forth in this Agreement (the
"Indemnification Escrow Shares") and (ii) fifty percent (50%) shall be held
by the Escrow Agent subject to the satisfaction of the specified regulatory
event set forth in the Escrow Agreement (the "Milestone Escrow Shares"). The
Escrow Shares shall be held by the Escrow Agent under the Escrow Agreement
pursuant to the terms thereof. The Escrow Shares shall be held as a trust
fund and shall not be subject to any lien, attachment, trustee process or
any other judicial process of any creditor of any party, and shall be held
and disbursed solely for the purposes and in accordance with the terms of
the Escrow Agreement.
(b) The adoption of this Agreement and the approval of the Merger by the
Company Stockholders shall constitute approval of the Escrow Agreement and
of all of the arrangements relating thereto, including without limitation
the placement of the Escrow Shares in escrow and the appointment of the
Escrow Representatives.
1.11 CERTIFICATE OF INCORPORATION AND BY-LAWS.
(a) The Certificate of Incorporation of the Surviving Corporation
immediately following the Effective Time shall be the same as the
Certificate of Incorporation of the Transitory Subsidiary immediately prior
to the Effective Time, except that (1) the name of the corporation set forth
therein shall be changed to the name of the Company and (2) the identity of
the incorporator shall be deleted.
A-9
<PAGE>
(b) The By-laws of the Surviving Corporation immediately following the
Effective Time shall be the same as the By-laws of the Transitory Subsidiary
immediately prior to the Effective Time, except that the name of the
corporation set forth therein shall be changed to the name of the Company.
1.12 NO FURTHER RIGHTS. From and after the Effective Time, no Company
Shares shall be deemed to be outstanding, and holders of Certificates shall
cease to have any rights with respect thereto, except as provided herein or by
law.
1.13 CLOSING OF TRANSFER BOOKS. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Company Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented to
the Buyer or the Surviving Corporation, they shall be cancelled and exchanged
for Initial Shares in accordance with Section 1.5, subject to Section 1.10 and
to applicable law in the case of Dissenting Shares.
1.14 SATISFACTION OF COMPANY'S MANAGEMENT INCENTIVE LIABILITY. Within
seventy-five (75) days after the Effective Time, the Buyer shall, in
satisfaction of the Company's incentive payment obligation to each of the
persons set forth on Section 1.14 of the Company Disclosure Schedule (as defined
below) (the "Management Members") convey to such Management Members, out of the
Total Consideration, an aggregate of 990,000 shares of Buyer Common Stock (the
"Management Incentive Shares"), it being understood that the issuance of such
Management Incentive Shares to such Management Members shall be subject to the
terms and conditions of the Amended and Restated Management Equity Incentive
Plan (the "Management Incentive Plan"), which was approved by the Board of
Directors of the Company pursuant to a written action of directors dated
December 8, 2000. Of the total number of Management Incentive Shares, twenty
percent (20%), rounded to the nearest whole number, shall be deposited into
escrow pursuant to Section 1.10 (the "Management Escrow Shares" and, together
with the Company Stockholder Escrow Shares, the "Escrow Shares") and shall be
held and disposed of in accordance with the terms of the Escrow Agreement.
Within seventy-five (75) days after the Effective Time, the Buyer shall file a
Registration Statement on Form S-8 (or any successor form) under the Securities
Act, with respect to all Management Incentive Shares issued or issuable pursuant
to the Management Incentive Plan.
1.15 PRIORITY ON ISSUANCE OF BUYER COMMON STOCK. Of the Total
Consideration to be issued by the Buyer, the Buyer agrees to first reserve for
issuance to the Management Members the aggregate number of Management Incentive
Shares. After reserving for issuance the Management Incentive Shares, in
accordance with the Company's Certificate of Incorporation, the Buyer shall
issue to the holders of the Series C-1, Series C-2 and Series C-3 Preferred
Shares, and reserve for issuance to holders of Company Series C-1 Notes, the
number of shares of Buyer Common Stock to which they are entitled pursuant to
the provisions of Sections 1.5(d), (e) and (f) and 1.9(f)(iii) above. After
issuance (or reservation for issuance) of the Management Incentive Shares and
the shares of Buyer Common Stock issued or issuable to the holders of
Series C-1, C-2 and C-3 Preferred Shares and holders of Company Series C-1
Notes, the Buyer shall issue to the holders of Series A and Series B Preferred
Shares, and reserve for issuance to holders of Company Series A Notes, Company
Series B Notes, Company Series A Warrants and Company Series B Warrants, the
number of shares of Buyer Common Stock to which they are entitled pursuant to
Sections 1.5(b) and (e), 1.9(d)(ii) and (iii) and 1.9(f)(i) and (ii) above. If
after
A-10
<PAGE>
reserving for issuance the Management Incentive Shares there shall be
insufficient shares of Buyer Common Stock remaining to make payment in full to
all holders of Series C-1, Series C-2 and Series C-3 Preferred Shares and
Company Series C-1 Notes, the number of shares of Buyer Common Stock to which
such holders of Series C-1, Series C-2 and Series C-3 Preferred Shares and
Company Series C-1 Notes are entitled pursuant to Sections 1.5(d), (e) and
(f) and 1.9(f)(iii), then such shares of Buyer Common Stock shall be distributed
(or reserved for distribution) ratably to the holders of Series C-1, Series C-2
and Series C-3 Preferred Shares and Company Series C-1 Notes in proportion to
the full amounts to which they would otherwise be respectively entitled. If
after reserving for issuance the Management Incentive Shares and issuing (or
reserving for issuance) the shares of Buyer Common Stock issued or issuable to
the holders of Series C-1, Series C-2 and Series C-3 Preferred Shares and
Company Series C-1 Notes there shall be insufficient shares of Buyer Common
Stock remaining to make payment in full to all holders of Series A and Series B
Preferred Shares and holders of Company Series A Notes, Company Series B Notes,
Company Series A Warrants and Company Series B Warrants, the number of shares of
Buyer Common Stock to which such holders of Series A and Series B Preferred
Shares and holders of Company Series A Notes, Company Series B Notes, Company
Series A Warrants and Company Series B Warrants are entitled pursuant to
Sections 1.5(b) and (c), 1.9(d)(ii) and (iii) and 1.9(f)(i) and (ii) above, then
such shares of Buyer Common Stock shall be distributed (or reserved for
distribution) ratably to the holders of Series A and Series B Preferred Shares
and holders of Company Series A Notes, Company Series B Notes, Company Series A
Warrants and Company Series B Warrants in proportion to the full amounts to
which they would otherwise be respectively entitled. After issuance (or
reservation for issuance) of the Management Incentive Shares and the shares of
Buyer Common Stock issued or issuable to the holders of the Preferred Shares and
holders of the Company Notes, Company Series A Warrants and Company Series B
Warrants, the remaining shares of Buyer Common Stock, if any, will be issued (or
reserved for issuance) to the holders of the Common Shares, Company Options and
Company Common Warrants.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that the statements
contained in this Article II are true and correct, except as set forth in the
disclosure schedule provided by the Company to the Buyer on the date hereof and
accepted in writing by the Buyer (the "Company Disclosure Schedule"). The
Company Disclosure Schedule shall be arranged in sections corresponding to the
numbered and lettered paragraphs contained in this Article II, and any
information disclosed in the Company Disclosure Schedule under any section
number shall be deemed to have been disclosed and incorporated into any other
sections in this Article II where such disclosure would be appropriate.
2.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the State of Delaware. The Company is duly qualified
to conduct business and is in corporate and tax good standing under the laws of
each jurisdiction in which the nature of its businesses or the ownership or
leasing of its properties requires such qualification, except where the failure
to be so qualified or in good standing, individually or in the aggregate, has
not had and would not reasonably be expected to have a Company Material Adverse
Effect (as defined below). The
A-11
<PAGE>
Company has all requisite corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. The Company has furnished to the Buyer complete and accurate copies
of its Certificate of Incorporation and By-laws. The Company is not in default
under or in violation of any provision of its Certificate of Incorporation or
By-laws. For purposes of this Agreement, "Company Material Adverse Effect" means
a material adverse effect on the assets, business, condition (financial or
otherwise), results of operations or future prospects of the Company.
2.2 CAPITALIZATION. The authorized capital stock of the Company consists
of (a) sixty-six million (66,000,000) Common Shares, of which, as of the date of
this Agreement, 196,969 shares were issued and outstanding and no shares were
held in the treasury of the Company and (b) fifty-seven million two hundred
thousand (57,200,000) shares of Preferred Stock, $0.001 par value per share, of
which (i) eleven million one hundred thousand (11,100,000) shares have been
designated as Series A Preferred Stock, $0.001 par value per share, of which, as
of the date of this Agreement, 10,911,332 shares were issued and outstanding,
(ii) twelve million five hundred thousand (12,500,000) shares have been
designated as Series B Preferred Stock, $0.001 par value per share, of which, as
of the date of this Agreement, 11,214,755 shares were issued and outstanding,
(iii) ten million (10,000,000) shares have been designated as Series C-1
Preferred Stock, $0.001 par value per share, of which, as of the date of this
Agreement, no shares were issued and outstanding, (iv) eleven million one
hundred thousand (11,100,000) shares have been designated as Series C-2
Preferred Stock, $0.001 par value per share, of which, as of the date of this
Agreement, no shares were issued and outstanding, and (v) twelve million five
hundred thousand (12,500,000) shares have been designated as Series C-3
Preferred Stock, $0.001 par value per share, of which, as of the date of this
Agreement, no shares were issued and outstanding. Section 2.2 of the Company
Disclosure Schedule sets forth a complete and accurate list of (i) all
stockholders of the Company, indicating the number and class or series of
Company Shares held by each stockholder and (for Company Shares other than
Common Shares) the number of Common Shares (if any) into which such Company
Shares are convertible, (ii) all outstanding Company Options, Company Warrants
and Company Notes, indicating (A) the holder thereof, (B) the number and class
or series of Company Shares subject to each Company Option, Company Warrant and
Company Note and (for Company Shares other than Common Shares) the number of
Common Shares (if any) into which such Company Shares are convertible, (C) the
exercise or conversion price, date of grant or issuance, vesting schedule and
expiration or maturity date for each Company Option, Company Warrant and Company
Note, and (D) any terms regarding the acceleration of vesting, and (iii) all
stock option plans and other stock or equity-related plans of the Company. All
of the issued and outstanding Company Shares are, and all Company Shares that
may be issued upon exercise or conversion of Company Options Company Warrants or
Company Notes will be (upon issuance in accordance with their terms), duly
authorized, validly issued, fully paid, nonassessable and free of all preemptive
rights. Other than the Company Options, Company Warrants and Company Notes
listed in Section 2.2 of the Company Disclosure Schedule, there are no
outstanding or authorized options, warrants, notes, rights, agreements or
commitments to which the Company is a party or which are binding upon the
Company providing for the issuance or redemption of any of its capital stock.
There are no outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to the Company. There are no agreements to which the
Company is a party or by which it is bound with respect to the voting (including
without limitation voting trusts or proxies), registration under the Securities
Act, or sale or transfer (including without limitation
A-12
<PAGE>
agreements relating to pre-emptive rights, rights of first refusal, co-sale
rights or "drag-along" rights) of any securities of the Company. To the
knowledge of the Company, there are no agreements among other parties, to which
the Company is not a party and by which it is not bound, with respect to the
voting (including without limitation voting trusts or proxies) or sale or
transfer (including without limitation agreements relating to rights of first
refusal, co-sale rights or "drag-along" rights) of any securities of the
Company. The Company has not repurchased any Company Shares, or terminated,
cancelled or otherwise extinguished any options, warrants, notes or other
securities exercisable for, convertible into or exchangeable for any Company
Shares, in breach of any contract, agreement or instrument to which the Company
is a party or in contravention of any law, rule, statute or regulation. All of
the issued and outstanding Company Shares were issued in compliance with
applicable federal and state securities laws.
2.3 AUTHORIZATION OF TRANSACTION. The Company has all requisite power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery by the Company of this Agreement and,
subject to the adoption of this Agreement and the approval of the Merger by
(a) a majority of the votes represented by the outstanding Company Shares
entitled to vote on this Agreement and the Merger and (b) at least sixty-six and
two-thirds percent (66 2/3%) of the votes represented by the outstanding
Preferred Shares, voting together as a class (collectively, the "Requisite
Company Stockholder Approval"), the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of the Company. Without limiting the
generality of the foregoing, the Board of Directors of the Company, at a meeting
duly called and held, by the unanimous vote of all directors (i) determined that
the Merger is fair and in the best interests of the Company and its
stockholders, (ii) adopted this Agreement in accordance with the provisions of
the Delaware General Corporation Law, and (iii) directed that this Agreement and
the Merger be submitted to the stockholders of the Company for their adoption
and approval and resolved to recommend that the stockholders of Company vote in
favor of the adoption of this Agreement and the approval of the Merger. This
Agreement has been duly and validly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms.
2.4 NONCONTRAVENTION. Subject to the filing of the Certificate of Merger
as required by the Delaware General Corporation Law and approval by the Company
Stockholders of an amendment to the Amended and Restated Certificate of
Incorporation of the Company (as described in Section 5.2(q) below) and except
as set forth in Section 2.4 of the Company Disclosure Schedule, neither the
execution and delivery by the Company of this Agreement, nor the consummation by
the Company of the transactions contemplated hereby, will (a) conflict with or
violate any provision of the Certificate of Incorporation or By-laws of the
Company, (b) require on the part of the Company any filing with, or any permit,
authorization, consent or approval of, any court, arbitrational tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency (a "Governmental Entity"), (c) conflict with, result in a
breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of obligations under, create in any
party the right to terminate, modify or cancel, or require any notice, consent
or waiver under, any contract or instrument to which the Company is a party or
by which the Company is bound or to which any of its assets is subject, except
for (i) any conflict, breach, default, acceleration, termination, modification
or
A-13
<PAGE>
cancellation which would not have a Company Material Adverse Effect and would
not adversely affect the consummation of the transactions contemplated hereby or
(ii) any notice, consent or waiver the absence of which would not have a Company
Material Adverse Effect and would not adversely affect the consummation of the
transactions contemplated hereby, (d) result in the imposition of any Security
Interest (as defined below) upon any assets of the Company or (e) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Company or any of its properties or assets. For purposes of this Agreement:
"Security Interest" means any mortgage, pledge, security interest, encumbrance,
charge or other lien (whether arising by contract or by operation of law), other
than (i) mechanic's, materialmen's, and similar liens, (ii) liens arising under
worker's compensation, unemployment insurance, social security, retirement, and
similar legislation, and (iii) liens on goods in transit incurred pursuant to
documentary letters of credit, in each case arising in the Ordinary Course of
Business (as defined below) of the Company and not material to the Company; and
"Ordinary Course of Business" means the ordinary course of the Company's
business, consistent with past custom and practice (including with respect to
frequency and amount).
2.5 SUBSIDIARIES. The Company does not control directly or indirectly or
have any direct or indirect equity participation or similar interest in any
corporation, partnership, limited liability company, joint venture, trust or
other business association.
2.6 FINANCIAL STATEMENTS. The Company has provided to the Buyer (a) the
audited balance sheets and statements of income, changes in stockholders' equity
and cash flows of the Company as of and for each of the last three fiscal years;
and (b) the unaudited balance sheet and statements of income, changes in
stockholders' equity and cash flows as of and for the ten months ended
October 31, 2000 (the "Most Recent Balance Sheet Date"). Such financial
statements (collectively, the "Financial Statements") have been prepared in
accordance with United States generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods covered thereby, fairly
present the financial condition, results of operations and cash flows of the
Company as of the respective dates thereof and for the periods referred to
therein and are consistent with the books and records of the Company; PROVIDED,
HOWEVER, that the Financial Statements referred to in clause (b) above are
subject to normal recurring year-end adjustments and do not include footnotes.
2.7 ABSENCE OF CERTAIN CHANGES. Except as disclosed in Section 2.7 of the
Company Disclosure Schedule, since the Most Recent Balance Sheet Date,
(a) there has occurred no event or development which has had, or could
reasonably be expected to have in the future, a Company Material Adverse Effect,
and (b) the Company has not taken any of the actions set forth in paragraphs
(a) through (o) of Section 4.4.
2.8 UNDISCLOSED LIABILITIES. The Company has no liability (whether known
or unknown, whether absolute or contingent, whether liquidated or unliquidated
and whether due or to become due), except (a) as disclosed in Section 2.8 of the
Company Disclosure Schedule, (b) liabilities shown on the balance sheet referred
to in clause (b) of Section 2.6 (the "Most Recent Balance Sheet"),
(c) liabilities which have arisen since the Most Recent Balance Sheet Date in
the Ordinary Course of Business and which are similar in nature and amount to
the liabilities which arose during the comparable period of time in the
immediately preceding fiscal
A-14
<PAGE>
period and (d) contractual and other liabilities incurred in the Ordinary Course
of Business which are not required by GAAP to be reflected on a balance sheet.
2.9 TAX MATTERS.
(a) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Taxes" means all taxes, charges, fees, levies or other similar
assessments or liabilities, including without limitation income, gross
receipts, ad valorem, premium, value-added, excise, real property,
personal property, sales, use, transfer, withholding, employment,
unemployment insurance, social security, business license, business
organization, environmental, workers compensation, payroll, profits,
license, lease, service, service use, severance, stamp, occupation,
windfall profits, customs, duties, franchise and other taxes imposed by
the United States of America or any state, local or foreign government,
or any agency thereof, or other political subdivision of the United
States or any such government, and any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or
incurred in connection with any tax or any contest or dispute thereof.
(ii) "Tax Returns" means all reports, returns, declarations,
statements or other information required to be supplied to a taxing
authority in connection with Taxes.
(b) The Company has filed on a timely basis all Tax Returns that it was
required to file, and all such Tax Returns were complete and accurate in all
material respects. The Company is not and has never been a member of a group
of corporations with which it has filed (or been required to file)
consolidated, combined or unitary Tax Returns. The Company has paid on a
timely basis all Taxes that were due and payable. The unpaid Taxes of the
Company for tax periods through the Most Recent Balance Sheet Date do not
exceed the accruals and reserves for Taxes (excluding accruals and reserves
for deferred Taxes established to reflect timing differences between book
and Tax income) set forth on the Most Recent Balance Sheet. The Company has
no actual or potential liability for any Tax obligation of any taxpayer
(including without limitation any affiliated group of corporations or other
entities that included the Company during a prior period) other than the
Company. All Taxes that the Company is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required,
have been paid to the proper Governmental Entity.
(c) The Company has delivered to the Buyer complete and accurate copies
of all federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by the Company since
December 31, 1995. The federal income Tax Returns of the Company have been
audited by the Internal Revenue Service or are closed by the applicable
statute of limitations for all taxable years through the taxable year
specified in Section 2.9(c) of the Company Disclosure Schedule. The Company
has delivered or made available to the Buyer complete and accurate copies of
all other Tax Returns of the Company together with all related examination
reports and statements of deficiency for all periods from and after
December 31, 1995. No examination or audit of any Tax Return of the Company
by any Governmental Entity is currently in progress or, to the knowledge of
the Company, threatened or contemplated. The Company has not been informed
by any jurisdiction that the
A-15
<PAGE>
jurisdiction believes that the Company was required to file any Tax Return
that was not filed. The Company has not waived any statute of limitations
with respect to Taxes or agreed to an extension of time with respect to a
Tax assessment or deficiency.
(d) The Company: (i) is not a "consenting corporation" within the
meaning of Section 341(f) of the Code, and none of the assets of the Company
are subject to an election under Section 341(f) of the Code; (ii) has not
been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(l)(A)(ii) of the Code; (iii) has not made any payments, is
not obligated to make any payments, and is not a party to any agreement that
could obligate it to make any payments that may be treated as an "excess
parachute payment" under Section 280G of the Code; or (iv) has no actual or
potential liability for any Taxes of any person (other than the Company)
under Treasury Regulation Section 1.1502-6 (or any similar provision of
federal, state, local, or foreign law), or as a transferee or successor, by
contract, or otherwise.
(e) None of the assets of the Company: (i) is property that is required
to be treated as being owned by any other person pursuant to the provisions
of former Section 168(f)(8) of the Code; (ii) is "tax-exempt use property"
within the meaning of Section 168(h) of the Code; or (iii) directly or
indirectly secures any debt the interest on which is tax exempt under
Section 103(a) of the Code.
(f) The Company has not undergone a change in its method of accounting
resulting in an adjustment to its taxable income pursuant to Section 481 of
the Code.
(g) Except as set forth in Section 2.9(g) of the Company Disclosure
Schedule, no state or federal "net operating loss" of the Company determined
as of the Closing Date is subject to limitation on its use pursuant to
Section 382 of the Code or comparable provisions of state law as a result of
any "ownership change" within the meaning of Section 382(g) of the Code or
comparable provisions of any state law occurring prior to the Closing Date.
(h) The Company has never participated in or cooperated with an
international boycott within the meaning of Section 999 of the Code.
2.10 ASSETS. Except as set forth in Section 2.10 of the Company Disclosure
Schedule, the Company owns or leases all tangible assets necessary for the
conduct of its business as presently conducted and as presently proposed to be
conducted. Each such tangible asset is free from material defects, has been
maintained in accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear) and is suitable for the
purposes for which it presently is used. No asset of the Company (tangible or
intangible) is subject to any Security Interest.
2.11 OWNED REAL PROPERTY. The Company does not own any real property.
2.12 REAL PROPERTY LEASES. Section 2.12 of the Company Disclosure Schedule
lists all real property leased or subleased to or by the Company and lists the
term of such lease, any extension and expansion options, and the rent payable
thereunder. The Company has delivered to the Buyer complete and accurate copies
of the leases and subleases (as amended to date) listed
A-16
<PAGE>
in Section 2.12 of the Company Disclosure Schedule. With respect to each lease
and sublease listed in Section 2.12 of the Company Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding, enforceable and in
full force and effect;
(b) the lease or sublease will continue to be legal, valid, binding,
enforceable and in full force and effect immediately following the Closing
in accordance with the terms thereof as in effect immediately prior to the
Closing;
(c) neither the Company nor, to the knowledge of the Company, any other
party, is in breach or violation of, or default under, any such lease or
sublease, and no event has occurred, is pending or, to the knowledge of the
Company, is threatened, which, after the giving of notice, with lapse of
time, or otherwise, would constitute a breach or default by the Company or,
to the knowledge of the Company, any other party under such lease or
sublease;
(d) the Company has not assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the leasehold or subleasehold;
and
(e) the Company is not aware of any Security Interest, easement,
covenant or other restriction applicable to the real property subject to
such lease, except for recorded easements, covenants and other restrictions
which do not materially impair the current uses or the occupancy by the
Company of the property subject thereto.
2.13 PRECLINICAL TESTING AND CLINICAL TRIALS. Section 2.13 of the Company
Disclosure Schedule sets forth all (i) human clinical trials, and (ii) animal
studies and other preclinical tests that have been conducted in support of human
clinical trials, in each case conducted by the Company or in which the Company
has participated (the "Company Ongoing Clinical Programs"). The Company Ongoing
Clinical Programs conducted on behalf of the Company were and, if still pending,
are being conducted in accordance with applicable laws and regulations,
including but not limited to 21 CFR part 50 (informed consent), part 56
(institutional review boards), part 58 (good laboratory practices), part 812
(investigational device exemptions), and all other applicable laws and
regulations, except to the extent of any such conduct that would not reasonably
be expected to have a Company Material Adverse Effect. Neither the Company, nor
any agent or representative of the Company, has received any notices or
correspondence from the United States Food and Drug Administration or any other
governmental agency requiring the delay, termination, suspension or modification
of any animal studies, preclinical tests or clinical trials conducted by or on
behalf of the Company or in which the Company has participated, or any
disqualification of testing facilities used by the Company. To the Company's
knowledge, no clinical investigator acting for the Company has been, is or is
threatened to become, the subject of any disbarment or disqualification
proceedings by any regulatory agency or has been terminated or threatened to be
terminated from any such investigation.
2.14 INTELLECTUAL PROPERTY.
(a) Section 2.14 of the Company Disclosure Schedule sets forth a true
and complete list of each of the following items: (1) all patents and
applications therefor, including
A-17
<PAGE>
any patent term extensions or supplementary protection certificates,
registrations of trademarks (including service marks) and applications
therefor, domain names and registrations of copyrights and applications
therefor that are owned by the Company or that are licensed or sublicensed
to the Company, (2) all licenses, agreements and contracts relating to
Intellectual Property Rights (as defined below) pursuant to which the
Company is entitled to use any Intellectual Property Rights owned by any
third party (the "Company Third Party Licenses"), other than commercially
available, mass marketed shrink-wrap software, and (3) all agreements under
which the Company has granted any third party the right to use any
Intellectual Property Rights.
(b) To the Company's knowledge, the Company exclusively owns, or is
licensed, sublicensed or otherwise possesses legally enforceable rights to
use, pursuant to the licenses, agreements and contracts listed on
Section 2.14 of the Company Disclosure Schedule, all Intellectual Property
Rights that are used or necessary to conduct business of the Company as
currently conducted, or would be used or necessary as such business is
planned to be conducted, including without limitation all Intellectual
Property Rights used or necessary to conduct each of the Company Ongoing
Clinical Programs and all Intellectual Property Rights that are now used or
planned to be used or are necessary to make, use or sell any products under
development after those products are approved for marketing and sale by the
appropriate health regulatory authorities (the "Company Intellectual
Property Rights"). For purposes hereof, "Intellectual Property Rights" means
all patents, including patent term extensions and supplementary protection
certificates, trademarks, trade names, domain names, service marks and
copyrights, any applications for and registrations of such patents,
trademarks, trade names, domain names, service marks and copyrights, and all
processes, formulae, methods, schematics, technology, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material.
(c) The execution and delivery of this Agreement and consummation of the
Merger will not result in the breach of, or create on behalf of any third
party the right to terminate or modify, any license, sublicense or other
agreement relating to the Company Intellectual Property Rights, including
any Company Third Party License.
(d) To the Company's knowledge, all patents, including all patent term
extensions and supplementary protection certificates, registered trademarks,
service marks and copyrights under which the Company holds any rights and
which are material to the business of the Company are valid and subsisting,
and all applications for such patents, trademarks, service marks and
copyrights are subsisting and were filed in good faith. The Company has
taken reasonable measures to protect the proprietary nature of the Company
Intellectual Property Rights that are material to the business of the
Company and to maintain in confidence all trade secrets and confidential
information owned or used by the Company and that are material to the
business of the Company. To the knowledge of the Company, no other person or
entity is infringing, violating or misappropriating any of the Company
Intellectual Property Rights.
(e) To the Company's knowledge, none of the activities or business
previously or currently conducted by the Company or planned to be conducted
by the Company (including the manufacture, use or sale of the future
products which are the subject of Company Ongoing Clinical Programs for any
clinical indications) infringes, violates or constitutes a
A-18
<PAGE>
misappropriation of, any Intellectual Property Rights of any other person or
entity. The Company has not received any complaint, claim or notice alleging
any such infringement, violation or misappropriation, present or future.
(f) The Company is not a party to any agreement under which, following
the Closing, a third party would be entitled to receive a license or any
other right in or to Intellectual Property Rights of Buyer or any of Buyer's
Affiliates (other than the Company) or which, following the Closing, would
restrict or limit the business or operations of Buyer or any of its
Affiliates (other than the Company).
2.15 CONTRACTS.
(a) Section 2.15 of the Company Disclosure Schedule lists the following
agreements (written or oral) to which the Company is a party as of the date
of this Agreement:
(i) any agreement (or group of related agreements) for the lease of
personal property from or to third parties providing for lease payments
in excess of $50,000 per annum;
(ii) any agreement (or group of related agreements) for the purchase
or sale of products or for the furnishing or receipt of services
(A) which calls for performance over a period of more than one year,
(B) which involves more than the sum of $50,000, or (C) in which the
Company has granted manufacturing rights, "most favored nation" pricing
provisions or marketing or distribution rights relating to any products
under development or any territory or has agreed to purchase a minimum
quantity of goods or services or has agreed to purchase goods or services
exclusively from a certain party;
(iii) any agreement establishing a partnership, limited liability
company or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed or guaranteed (or may create, incur,
assume or guarantee) indebtedness (including capitalized lease
obligations) involving more than $50,000 or under which it has imposed
(or may impose) a Security Interest on any of its assets, tangible or
intangible;
(v) any agreement concerning confidentiality or non-competition;
(vi) any employment or consulting agreement;
(vii) any agreement involving any officer, director or stockholder of
the Company or any affiliate (an "Affiliate"), as defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), thereof;
(viii) any agreement which contains any provisions requiring the
Company to indemnify any other party thereto (excluding indemnities
contained in agreements for the purchase, sale or license of products
entered into in the Ordinary Course of Business); and
A-19
<PAGE>
(ix) any other agreement (or group of related agreements) either
involving more than $50,000 or not entered into in the Ordinary Course of
Business.
(b) The Company has delivered to the Buyer a complete and accurate copy
of each agreement listed in Section 2.14 or Section 2.15 of the Company
Disclosure Schedule. With respect to each agreement so listed: (i) the
agreement is legal, valid, binding and enforceable and in full force and
effect; (ii) the agreement will continue to be legal, valid, binding and
enforceable and in full force and effect immediately following the Closing
in accordance with the terms thereof as in effect immediately prior to the
Closing; and (iii) neither the Company nor, to the knowledge of the Company,
any other party, is in breach or violation of, or default under, any such
agreement, and no event has occurred, is pending or, to the knowledge of the
Company, is threatened, which, after the giving of notice, with lapse of
time, or otherwise, would constitute a breach or default by the Company or,
to the knowledge of the Company, any other party under such contract.
2.16 POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Company.
2.17 INSURANCE. Section 2.17 of the Company Disclosure Schedule lists each
insurance policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Company is a party. Such insurance policies are of the type and in amounts
customarily carried by organizations conducting businesses or owning assets
similar to those of the Company. There is no material claim pending under any
such policy as to which coverage has been questioned, denied or disputed by the
underwriter of such policy. All premiums due and payable under all such policies
have been paid, the Company is not liable for retroactive premiums or similar
payments, and the Company is otherwise in compliance in all material respects
with the terms of such policies. The Company has no knowledge of any threatened
termination of, or material premium increase with respect to, any such policy.
Each such policy will continue to be enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect immediately prior to the Closing.
2.18 LITIGATION. Except as set forth in Section 2.18 of the Company
Disclosure Schedule, there is no action, suit, proceeding, claim, arbitration or
investigation before any Governmental Entity or before any arbitrator (together,
"Legal Proceedings") which is pending or has been threatened in writing against
the Company which (a) if determined adversely to the Company, could have,
individually or in the aggregate, a Company Material Adverse Effect or (b) in
any manner challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement.
2.19 EMPLOYEES.
(a) Section 2.19 of the Company Disclosure Schedule contains a list of
all employees of the Company whose annual rate of compensation exceeds
$50,000 per year, along with the position and the annual rate of
compensation of each such person. Each such employee has entered into a
confidentiality/assignment of inventions agreement with the Company, a copy
of which has previously been delivered to the Buyer. Section 2.19 of the
Company Disclosure
A-20
<PAGE>
Schedule contains a list of all employees of the Company who are a party to
a non-competition agreement with the Company; copies of such agreements have
previously been delivered to the Buyer. To the knowledge of the Company, no
key employee or group of employees has any plans to terminate employment
with the Company.
(b) The Company is not a party to or bound by any collective bargaining
agreement, nor has it experienced any strikes, grievances, claims of unfair
labor practices or other collective bargaining disputes. The Company has no
knowledge of any organizational effort made or threatened, either currently
or within the past two years, by or on behalf of any labor union with
respect to employees of the Company.
2.20 EMPLOYEE BENEFITS.
(a) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Employee Benefit Plan" means any "employee pension benefit plan"
(as defined in Section 3(2) of ERISA), any "employee welfare benefit
plan" (as defined in Section 3(1) of ERISA), and any other written or
oral plan, agreement or arrangement involving direct or indirect
compensation, including without limitation insurance coverage, severance
benefits, disability benefits, deferred compensation, bonuses, stock
options, stock purchase, phantom stock, stock appreciation or other forms
of incentive compensation or post-retirement compensation.
(ii) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(iii) "Company ERISA Affiliate" means any entity which is, or at any
applicable time was, a member of (1) a controlled group of corporations
(as defined in Section 414(b) of the Code), (2) a group of trades or
businesses under common control (as defined in Section 414(c) of the
Code), or (3) an affiliated service group (as defined under
Section 414(m) of the Code or the regulations under Section 414(o) of the
Code), any of which includes or included the Company.
(b) Section 2.20(b) of the Company Disclosure Schedule contains a
complete and accurate list of all Employee Benefit Plans maintained, or
contributed to, by the Company or any Company ERISA Affiliate. Complete and
accurate copies of (i) all Employee Benefit Plans which have been reduced to
writing, (ii) written summaries of all unwritten Employee Benefit Plans,
(iii) all related trust agreements, insurance contracts and summary plan
descriptions, and (iv) all annual reports filed on IRS Form 5500, 5500C or
5500R and (for all funded plans) all plan financial statements for the last
three (3) plan years for each Employee Benefit Plan, have been delivered to
the Buyer. Each Employee Benefit Plan has been administered in all material
respects in accordance with its terms and each of the Company and the
Company ERISA Affiliates has in all material respects met its obligations
with respect to such Employee Benefit Plan and has made all required
contributions thereto. The Company, each Company ERISA Affiliate and each
Employee Benefit Plan are in compliance in all material respects with the
currently applicable provisions of ERISA and the Code and the regulations
thereunder (including
A-21
<PAGE>
without limitation Section 4980B of the Code, Subtitle K, Chapter 100 of the
Code and Sections 601 through 608 and Section 701 et seq. of ERISA). All
filings and reports as to each Employee Benefit Plan required to have been
submitted to the Internal Revenue Service or to the United States Department
of Labor have been duly submitted.
(c) There are no Legal Proceedings (except claims for benefits payable
in the normal operation of the Employee Benefit Plans and proceedings with
respect to qualified domestic relations orders) against or involving any
Employee Benefit Plan or asserting any rights or claims to benefits under
any Employee Benefit Plan that could give rise to any material liability.
(d) All the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code have received or are the subject of
determination letters from the Internal Revenue Service to the effect that
such Employee Benefit Plans are qualified and the plans and the trusts
related thereto are exempt from federal income taxes under Sections 401(a)
and 501(a), respectively, of the Code, no such determination letter has been
revoked and to the Company's knowledge revocation has not been threatened,
and no such Employee Benefit Plan has been amended or operated since the
date of its most recent determination letter or application therefor in any
respect, and no act or omission has occurred, that could be reasonably
expected to adversely affect its qualification or materially increase its
cost. Each Employee Benefit Plan which is required to satisfy
Section 401(k)(3) or Section 401(m)(2) of the Code has been tested for
compliance with, and satisfies the requirements of, Section 401(k)(3) and
Section 401(m)(2) of the Code for each plan year ending prior to the Closing
Date.
(e) Neither the Company, nor any Company ERISA Affiliate has ever
maintained an Employee Benefit Plan subject to Section 412 of the Code or
Title IV of ERISA.
(f) At no time has the Company, or any Company ERISA Affiliate been
obligated to contribute to any "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA).
(g) There are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination of employment to any employee of the
Company (or to any beneficiary of any such employee), including but not
limited to retiree health coverage and deferred compensation, but excluding
continuation of health coverage required to be continued under
Section 4980B of the Code or other applicable law and insurance conversion
privileges under state law. The assets of each Employee Benefit Plan which
is funded are reported at their fair market value on the books and records
of such Employee Benefit Plan.
(h) No act or omission has occurred and no condition exists with respect
to any Employee Benefit Plan maintained by the Company or any Company ERISA
Affiliate that could be reasonably expected to subject the Company or any
Company ERISA Affiliate to (i) any material fine, penalty, tax or liability
of any kind imposed under ERISA or the Code or (ii) any contractual
indemnification or contribution obligation protecting any fiduciary, insurer
or service provider with respect to any Employee Benefit Plan.
A-22
<PAGE>
(i) No Employee Benefit Plan is funded by, associated with or related to
a "voluntary employee's beneficiary association" within the meaning of
Section 501(c)(9) of the Code.
(j) Each Employee Benefit Plan is amendable and terminable unilaterally
by the Company at any time without liability to the Company as a result
thereof and no Employee Benefit Plan, plan documentation or agreement,
summary plan description or other written communication distributed
generally to employees by its terms prohibits the Company from amending or
terminating any such Employee Benefit Plan.
(k) Section 2.20(k) of the Company Disclosure Schedule discloses each:
(i) agreement with any stockholder, director, executive officer or other key
employee of the Company (A) the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving the Company of the nature of any of the transactions contemplated
by this Agreement, (B) providing any term of employment or compensation
guarantee or (C) providing severance benefits or other benefits after the
termination of employment of such director, executive officer or key
employee; (ii) agreement, plan or arrangement under which any person may
receive payments from the Company that may be subject to the tax imposed by
Section 4999 of the Code or included in the determination of such person's
"parachute payment" under Section 280G of the Code; and (iii) agreement or
plan binding the Company, including without limitation any stock option
plan, stock appreciation right plan, restricted stock plan, stock purchase
plan, severance benefit plan or Employee Benefit Plan, any of the benefits
of which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by
this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
(l) Section 2.20(l) of the Company Disclosure Schedule sets forth the
policy of the Company with respect to accrued vacation, accrued sick time
and earned time-off and the amount of such liabilities.
(m) Section 2.20(m) of the Company Disclosure Schedule sets forth a true
and correct copy of the Management Incentive Plan, which has been duly
authorized by the Board of Directors of the Company and is in full force and
effect as of the date of this Agreement.
2.21 ENVIRONMENTAL MATTERS.
(a) The Company has complied with all applicable Environmental Laws (as
defined below), except for noncompliance with any Environmental Laws that,
individually or in the aggregate, has not had and would not reasonably be
expected to have a Company Material Adverse Effect. There is no pending or,
to the knowledge of the Company or reflected in the Company's files,
threatened civil or criminal litigation, written notice of violation or
formal administrative proceeding by any Governmental Entity, relating to any
Environmental Law involving the Company, except for litigation, notices of
violations or formal administrative proceedings that, individually or in the
aggregate, have not had and would not reasonably be expected to have a
Company Material Adverse Effect. For purposes of this Agreement,
"Environmental Law" means any federal, state or local law, statute, rule or
regulation or the
A-23
<PAGE>
common law relating to protection of the environment or occupational
health and safety, including without limitation any statute, regulation,
administrative decision or order pertaining to (i) treatment, storage,
disposal, generation, handling and transportation of Materials of
Environmental Concern (as defined below); (ii) air, water and noise
pollution; (iii) groundwater and soil contamination; (iv) the release or
threatened release into the environment of Materials of Environmental
Concern, including without limitation emissions, discharges, injections,
spills, escapes or dumping; (v) storage tanks, vessels, containers,
abandoned or discarded barrels, and other closed receptacles; and
(vi) health and safety of employees. As used above, the terms "release"
and "environment" shall have the meaning set forth in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA").
(b) There have been no releases of any Materials of Environmental
Concern into the environment that could reasonably be expected to have a
Company Material Adverse Effect (i) at any facility formerly or currently
owned, operated or controlled by the Company; (ii) to the knowledge of the
Company, at any parcel of real property on which any such facility is
located; or (iii) to the knowledge of the Company, at any parcel of real
property or facility other than those owned, operated or controlled by the
Company. For the purpose of this Agreement, "Materials of Environmental
Concern" means any hazardous substances (as such term is defined under
CERCLA), solid wastes and hazardous wastes (as such terms are defined under
the Resource Conservation and Recovery Act), oil or petroleum and petroleum
products.
(c) Set forth in Section 2.21(c) of the Company Disclosure Schedule is a
list of all documents (whether in hard copy or electronic form) that contain
any environmental reports, investigations and audits in the Company's
possession, custody or control relating to premises currently or previously
owned or operated by the Company (whether conducted by or on behalf of the
Company or a third party, and whether done at the initiative of the Company
or directed by a Governmental Entity or other third party) which were issued
or conducted during the past five years. A complete and accurate copy of
each such document has been provided to the Buyer.
(d) The Company is not aware of any material environmental liability of
any solid or hazardous waste transporter or treatment, storage or disposal
facility that has been used by the Company which reasonably could be
expected to result in a claim or liability under any Environmental Law
against the Company, Transitory Subsidiary or Buyer.
(e) Any representations by the Company respecting (i) compliance with,
or liabilities, litigation, notices of violation or administrative
proceedings relating to, any Environmental Law; or (ii) releases of
Materials of Environmental Concern appear only in this Section 2.21. No
other representations in this Agreement (including, but not limited to,
those in Sections 2.8 and 2.18) apply to such compliance with, or
liabilities, litigation, notices of violation or administrative proceedings
relating to, any Environmental Law, or such releases of Materials of
Environmental Concern.
2.22 LEGAL COMPLIANCE. The Company, and the conduct and operations of its
business, is in compliance with each applicable law (including rules and
regulations thereunder) of any federal, state, local or foreign government, or
any Governmental Entity, except for any violations
A-24
<PAGE>
or defaults that, individually or in the aggregate, have not had and would not
reasonably be expected to have a Company Material Adverse Effect.
2.23 PERMITS. Section 2.23 of the Company Disclosure Schedule sets forth a
list of all permits, licenses, registrations, certificates, orders or approvals
from any Governmental Entity (including without limitation those issued or
required under Environmental Laws and those relating to the occupancy or use of
owned or leased real property) ("Permits") issued to or held by the Company.
Except as set forth in Section 2.23 of the Company Disclosure Schedule, such
listed Permits are the only Permits that are required for the Company to conduct
its business as presently conducted or as proposed to be conducted, except for
those the absence of which, individually or in the aggregate, have not had and
would not reasonably be expected to have a Company Material Adverse Effect. Each
such Permit is in full force and effect and, to the knowledge of the Company, no
suspension or cancellation of such Permit is threatened. Each such Permit will
continue in full force and effect immediately following the Closing.
2.24 CERTAIN BUSINESS RELATIONSHIPS WITH AFFILIATES. No Affiliate of the
Company (a) owns any property or right, tangible or intangible, which is used in
the business of the Company, (b) has any claim or cause of action against the
Company, or (c) owes any money to, or is owed any money by, the Company.
Section 2.24 of the Company Disclosure Schedule describes any transactions or
relationships between the Company and any Affiliate thereof
2.25 BROKERS' FEES. Except as set forth in Section 2.25 of the Company
Disclosure Schedule, the Company has no liability or obligation to pay any fees
or commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement.
2.26 BOOKS AND RECORDS. The minute books and other similar records of the
Company contain complete and accurate records of all actions taken at any
meetings of the Company's stockholders, Board of Directors or any committee
thereof and of all written consents executed in lieu of the holding of any such
meeting. The books and records of the Company accurately reflect in all material
respects the assets, liabilities, business, financial condition and results of
operations of the Company and have been maintained in accordance with good
business and bookkeeping practices.
2.27 DISCLOSURE. No representation or warranty by the Company contained in
this Agreement, and no statement contained in the Company Disclosure Schedule or
any other document, certificate or other instrument delivered or to be delivered
by or on behalf of the Company pursuant to this Agreement, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary, in light of the circumstances under which it was or
will be made, in order to make the statements herein or therein not misleading.
2.28 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Company specifically for inclusion or incorporation by reference
in the Registration Statement (as defined below), at the time the Registration
Statement becomes effective under the Securities Act, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading,
except that no representation or warranty is made by the Company with respect to
statements made or
A-25
<PAGE>
incorporated by reference therein based on information supplied by the Buyer
specifically for inclusion or incorporation by reference in the Registration
Statement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary represents and warrants to
the Company that the statements contained in this Article III are true and
correct, except as set forth in the disclosure schedule provided by the Buyer
and the Transitory Subsidiary to the Company on the date hereof and accepted in
writing by the Company (the "Buyer Disclosure Schedule"). The Buyer Disclosure
Schedule shall be arranged in sections corresponding to the numbered and
lettered paragraphs contained in this Article III, and any information disclosed
in the Buyer Disclosure Schedule under any section number shall be deemed to
have been disclosed and incorporated into any other paragraph of this
Article III where such disclosure would also be appropriate.
3.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. Each of the Buyer and
the Transitory Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation. The Buyer is
duly qualified to conduct business and is in corporate and tax good standing
under the laws of each jurisdiction in which the nature of its business or the
ownership or leasing of its properties requires such qualification, except where
the failure to be so qualified or in good standing would not have a Buyer
Material Adverse Effect (as defined below). The Buyer has all requisite
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. The Buyer has furnished
or made available to the Company complete and accurate copies of its Certificate
of Incorporation and By-laws. The Buyer is not in default under or in violation
of any provision of its Certificate of Incorporation or By-laws. For purposes of
this Agreement, "Buyer Material Adverse Effect" means a material adverse effect
on the assets, business, condition (financial or otherwise), results of
operations or future prospects of the Buyer.
3.2 CAPITALIZATION. The authorized capital stock of the Buyer consists of
(a) fifty million (50,000,000) shares of Buyer Common Stock, of which 11,710,793
shares were issued and outstanding as of September 30, 2000, and (b) two million
(2,000,000) shares of Preferred Stock, $0.01 par value per share ("Buyer
Preferred Stock" and, together with the Buyer Common Stock, the "Buyer Stock"),
of which no shares were issued or outstanding as of September 30, 2000. All of
the issued and outstanding shares of Buyer Common Stock are duly authorized,
validly issued, fully paid, nonassessable and free of all preemptive rights.
Section 3.2 of the Buyer Disclosure Schedule sets forth a summary as of
September 30, 2000 of (i) all outstanding options to purchase shares of Buyer
Stock issued by the Buyer pursuant to its stock option plans or otherwise
("Buyer Options") and warrants to purchase shares of Buyer Stock ("Buyer
Warrants"), indicating (A) the aggregate number and class or series of the
shares of Buyer Stock subject to the Buyer Options and Buyer Warrants, and
(B) the weighted-average exercise price of the Buyer Options and Buyer Warrants,
and (ii) all stock option plans and other stock or equity-related plans of the
Buyer. All of the Merger Shares and Management Incentive Shares will be, when
issued in accordance with this Agreement, duly authorized, validly issued, fully
paid, nonassessable and free of all preemptive rights. All shares of Buyer Stock
that may be issued
A-26
<PAGE>
upon exercise of Buyer Options or Buyer Warrants will be (upon issuance in
accordance with their terms), duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. Other than the Buyer Options
and Buyer Warrants listed in Section 3.2 of the Buyer Disclosure Schedule, there
are no outstanding or authorized options, warrants, rights, agreements or
commitments to which the Buyer is a party or which are binding upon the Buyer
providing for the issuance or redemption of any of its capital stock. Except as
disclosed in Section 3.2 of the Buyer Disclosure Schedule, there are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Buyer. Except as disclosed in Section 3.2 of the Buyer
Disclosure Schedule, there are no agreements to which the Buyer is a party or by
which it is bound with respect to the voting (including without limitation
voting trust or proxies), registration under the Securities Act, or sale or
transfer (including without limitation agreements relating to pre-emptive
rights, rights of first refusal, co-sale rights or "drag-along" rights) of any
securities of the Buyer. All of the issued and outstanding shares of Buyer Stock
were issued in compliance with applicable federal and state securities laws.
3.3 AUTHORIZATION OF TRANSACTION. Each of the Buyer and the Transitory
Subsidiary has all requisite power and authority to execute and deliver this
Agreement and (in the case of the Buyer) the Escrow Agreement and to perform its
obligations hereunder and thereunder. The execution and delivery by the Buyer
and the Transitory Subsidiary of this Agreement and (in the case of the Buyer)
the Escrow Agreement and, subject to the approval of the issuance of the Merger
Shares and the Management Incentive Shares by a majority of the total Buyer
Common Stock votes cast on such proposal (the "Requisite Buyer Stockholder
Approval"), the consummation by the Buyer and the Transitory Subsidiary of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Buyer and the
Transitory Subsidiary, respectively. Without limiting the generality of the
foregoing, the Boards of Directors of the Buyer and the Transitory Subsidiary,
at a meeting duly called and held or by written action of directors in lieu of a
meeting, by the unanimous vote of all directors (i) determined that the Merger
is fair and in the best interests of the Buyer and the Transitory Subsidiary,
respectively, and their stockholders, (ii) adopted this Agreement in accordance
with the provisions of the Delaware General Corporation Law, and (iii) directed
that the issuance of the Merger Shares and the Management Incentive Shares and
this Agreement and the Merger be submitted to the stockholders of the Buyer and
the Transitory Subsidiary, respectively, for their adoption and approval and
resolved to recommend that the stockholders of the Buyer and the Transitory
Subsidiary, respectively, vote in favor of the issuance of the Merger Shares and
the Management Incentive Shares and the adoption of this Agreement and the
approval of the Merger. This Agreement has been duly and validly executed and
delivered by the Buyer and the Transitory Subsidiary and constitutes a valid and
binding obligation of the Buyer and the Transitory Subsidiary, enforceable
against them in accordance with its terms.
3.4 NONCONTRAVENTION. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws, the
Exchange Act and the filing of the Certificate of Merger as required by the
Delaware General Corporation Law and except as set forth in Section 3.4 of the
Buyer Disclosure Schedule, neither the execution and delivery by the Buyer or
the Transitory Subsidiary of this Agreement or (in the case of the Buyer) the
Escrow Agreement, nor the consummation by the Buyer or the Transitory Subsidiary
of the transactions contemplated hereby or thereby, will (a) conflict with or
violate any provision of the Certificate
A-27
<PAGE>
of Incorporation or By-laws of the Buyer or the Transitory Subsidiary,
(b) require on the part of the Buyer or the Transitory Subsidiary any filing
with, or any permit, authorization, consent or approval of, any Governmental
Entity, (c) conflict with, result in breach of, constitute (with or without due
notice or lapse of time or both) a default under, result in the acceleration of
obligations under, create in any party any right to terminate, modify or cancel,
or require any notice, consent or waiver under, any contract or instrument to
which the Buyer or the Transitory Subsidiary is a party or by which either is
bound or to which any of their assets are subject, except for (i) any conflict,
breach, default, acceleration, termination, modification or cancellation which
would not have a Buyer Material Adverse Effect and would not adversely affect
the consummation of the transactions contemplated hereby or (ii) any notice,
consent or waiver the absence of which would not have a Buyer Material Adverse
Effect and would not adversely affect the consummation of the transactions
contemplated hereby, or (d) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer or the Transitory Subsidiary
or any of their properties or assets. The restrictions contained in Section 203
of the Delaware General Corporation Law applicable to a "business combination"
(as defined in Section 203) do not apply to the execution, delivery or
performance of this Agreement or to the consummation of the Merger or the other
transactions contemplated by this Agreement.
3.5 REPORTS AND FINANCIAL STATEMENTS. The Buyer has previously furnished
or made available to the Company complete and accurate copies, as amended or
supplemented, of its (a) Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, as filed with the Securities and Exchange Commission (the
"SEC"), and (b) all other reports filed by the Buyer under Section 13 or
subsections (a) or (c) of Section 14 of the Exchange Act with the SEC since
December 31, 1999 (such reports are collectively referred to herein as the
"Buyer Reports"). The Buyer Reports constitute all of the documents required to
be filed by the Buyer under Section 13 or subsections (a) or (c) of Section 14
of the Exchange Act with the SEC from December 31, 1999 through the date of this
Agreement. The Buyer Reports complied in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder when
filed. As of their respective dates, the Buyer Reports did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Buyer has filed in
the Buyer Reports all exhibits to any such Buyer Reports as are required to be
filed under Item 601(b)(10) of Regulation S-K of the Securities Act. The audited
financial statements and unaudited interim financial statements of the Buyer
included in the Buyer Reports (i) complied as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto when filed, (ii) were prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered thereby
(except as may be indicated therein or in the notes thereto, and in the case of
quarterly financial statements, as permitted by Form 10-Q under the Exchange
Act), (iii) fairly present the consolidated financial condition, results of
operations and cash flows of the Buyer as of the respective dates thereof and
for the periods referred to therein, and (iv) are consistent with the books and
records of the Buyer.
3.6 ABSENCE OF CERTAIN CHANGES. Since September 30, 2000, (a) there has
occurred no event or development which has had, or could reasonably be expected
to have in the future, a Buyer Material Adverse Effect and (b) the Buyer has not
taken any of the actions prohibited by Section 4.5 of this Agreement.
A-28
<PAGE>
3.7 TAX MATTERS. The Buyer has filed on a timely basis all Tax Returns
that it was required to file, and all such Tax Returns were complete and
accurate in all material respects. The Buyer is not and has never been a member
of a group of corporations with which it has filed (or been required to file)
consolidated, combined or unitary Tax Returns. The Buyer has paid on a timely
basis all Taxes that were due and payable. The unpaid Taxes of the Buyer for tax
periods through September 30, 2000 do not exceed the accruals and reserves for
Taxes (excluding accruals and reserves for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the Buyer's most
recent balance sheet contained in the Buyer Reports. The Buyer has no actual or
potential liability for any Tax obligation of any taxpayer (including without
limitation any affiliated group of corporations or other entities that included
the Buyer during a prior period) other than the Buyer. All Taxes that the Buyer
is or was required by law to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental
Entity. Except as set forth in Section 3.7 of the Buyer Disclosure Schedule, no
examination or audit of any Tax Return of the Buyer by any Governmental Entity
is currently in progress or, to the knowledge of the Buyer, threatened or
contemplated.
3.8 PRECLINICAL TESTING AND CLINICAL TRIALS. Section 3.8 of the Buyer
Disclosure Schedule sets forth all (i) human clinical trials, and (ii) animal
studies and other preclinical tests that have been conducted in support of human
clinical trails, in each case conducted by the Buyer or in which the Buyer has
participated (the "Buyer Ongoing Clinical Programs"). The Buyer Ongoing Clinical
Programs conducted on behalf of the Buyer were and, if still pending, are being
conducted in accordance with applicable laws and regulations including but not
limited to 21 CFR part 50 (informed consent), part 56 (institutional review
boards), part 58 (good laboratory practices), part 812 (investigational device
exemptions), and all other applicable laws and regulations, except to the extent
of any such conduct that would not reasonably be expected to have a Buyer
Material Adverse Effect. Neither the Buyer, nor any agent or representative of
the Buyer, has received any notices or correspondence from the United States
Food and Drug Administration or any other governmental agency requiring the
delay, termination, suspension or modification of any animal studies,
preclinical tests or clinical trials conducted by or on behalf of the Buyer or
in which the Buyer has participated, or any disqualification of testing
facilities used by the Buyer. To the Buyer's knowledge, no clinical investigator
acting for the Buyer has been, is or is threatened to become, the subject of any
disbarment or disqualification proceedings by any regulatory agency or has been
terminated or threatened to be terminated, from any such investigation.
3.9 INTELLECTUAL PROPERTY.
(a) The Buyer has furnished to the Company a true and complete list of
each of the following items: (1) all patents and applications therefor,
including any patent term extensions or supplementary protection
certificates, registrations of trademarks (including service marks) and
applications therefor, domain names and registrations of copyrights and
applications therefor that are owned by the Buyer or that are licensed or
sublicensed to the Buyer, (2) all licenses, agreements and contracts
relating to Intellectual Property Rights pursuant to which the Buyer is
entitled to use any Intellectual Property Rights owned by any third party
(the "Buyer Third Party Licenses"), other than commercially available, mass
marketed shrink-
A-29
<PAGE>
wrap software, and (3) all agreements under which the Buyer has granted any
third party the right to use any Intellectual Property Rights.
(b) To the Buyer's knowledge, except as set forth in Section 3.9 of the
Buyer Disclosure Schedule, the Buyer exclusively owns, or is licensed,
sublicensed or otherwise possesses legally enforceable rights to use,
pursuant to the licenses, agreements and contracts previously furnished to
the Company pursuant to Section 3.9(a), all Intellectual Property Rights
that are used or necessary to conduct business of the Buyer as currently
conducted, or would be used or necessary as such business is planned to be
conducted, including without limitation all Intellectual Property Rights
used or necessary to conduct each of the Buyer Ongoing Clinical Programs and
all Intellectual Property Rights that are now used or planned to be used or
are necessary to make, use or sell any products under development after
those products are approved for marketing and sale by the appropriate health
regulatory authorities (the "Buyer Intellectual Property Rights").
(c) The execution and delivery of this Agreement and consummation of the
Merger will not result in the breach of, or create on behalf of any third
party the right to terminate or modify, any license, sublicense or other
agreement relating to the Buyer Intellectual Property Rights, including any
Buyer Third Party License.
(d) To the Buyer's knowledge, all patents, including all patent term
extensions and supplementary protection certificates, registered trademarks,
service marks and copyrights under which the Buyer holds any rights and
which are material to the business of the Buyer are valid and subsisting,
and all applications for such patents, trademarks, service marks and
copyrights are subsisting and were filed in good faith. The Buyer has taken
reasonable measures to protect the proprietary nature of the Buyer
Intellectual Property Rights that are material to the business of the Buyer
and to maintain in confidence all trade secrets and confidential information
owned or used by the Buyer and that are material to the business of the
Buyer. To the knowledge of the Buyer, no other person or entity is
infringing, violating or misappropriating any of the Buyer Intellectual
Property Rights.
(e) To the Buyer's knowledge, and except as set forth in Section 3.9(e)
of the Buyer Disclosure Schedule, none of the activities or business
previously or currently conducted by the Buyer or planned to be conducted by
the Buyer (including the manufacture, use or sale of the future products
which are the subject of Buyer Ongoing Clinical Programs for any clinical
indications) infringes, violates or constitutes a misappropriation of, any
Intellectual Property Rights of any other person or entity. The Buyer has
not received any complaint, claim or notice alleging any such infringement,
violation or misappropriation, present or future.
3.10 CONTRACTS. With respect to each agreement to which the Buyer is a
party and which is material to the Buyer and by its terms remains executory:
(a) the agreement is legal, valid, binding and enforceable and in full force and
effect; (b) the agreement will continue to be legal, valid, binding and
enforceable and in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect immediately prior to the Closing;
and (c) neither the Buyer nor, to the knowledge of the Buyer, any other party,
is in breach or violation of, or default under, any such agreement, and no event
has occurred, is pending or, to the knowledge of the Buyer, is threatened,
which, after the giving of notice, with lapse of time,
A-30
<PAGE>
or otherwise, would constitute a breach or default by the Buyer or, to the
knowledge of the Buyer, any other party under such contract.
3.11 LITIGATION. Except as disclosed in the Buyer Reports, as of the date
of this Agreement, there is no Legal Proceeding which is pending or, to the
Buyer's knowledge, threatened against the Buyer which, (a) if determined
adversely to the Buyer, could have, individually or in the aggregate, a Buyer
Material Adverse Effect or (b) in any manner challenges or seeks to prevent,
enjoin, alter or delay the transactions contemplated by this Agreement.
3.12 EMPLOYEES.
(a) The Buyer is not a party to or bound by any collective bargaining
agreement, nor has it experienced any strikes, grievances, claims of unfair
labor practices or other collective bargaining disputes. The Buyer has no
knowledge of any organizational effort made or threatened, either currently
or within the past two years, by or on behalf of any labor union with
respect to employees of the Buyer.
(b) Each employee of the Buyer has entered into a
confidentiality/assignment of inventions agreement with the Buyer, a copy of
which has previously been delivered to the Company. To the knowledge of the
Buyer, no key employee or group of employees has any plans to terminate
employment with the Buyer.
3.13 EMPLOYEE BENEFITS.
(a) For purposes of this Agreement, "Buyer ERISA Affiliate" means any
entity which is, or at any applicable time was, a member of (1) a controlled
group of corporations (as defined in Section 414(b) of the Code), (2) a
group of trades or businesses under common control (as defined in
Section 414(c) of the Code), or (3) an affiliated service group (as defined
under Section 414(m) of the Code or the regulations under Section 414
(o) of the Code), any of which includes or included the Buyer.
(b) Section 3.13(b) of the Buyer Disclosure Schedule contains a complete
and accurate list of all Employee Benefit Plans maintained, or contributed
to, by the Buyer or any Buyer ERISA Affiliate. Complete and accurate copies
of (i) all Employee Benefit Plans which have been reduced to writing,
(ii) written summaries of all unwritten Employee Benefit Plans, (iii) all
related trust agreements, insurance contracts and summary plan descriptions,
and (iv) all annual reports filed on IRS Form 5500, 5500C or 5500R and (for
all funded plans) all plan financial statements for the last three (3) plan
years for each Employee Benefit Plan, have been made available to the
Company. Each Employee Benefit Plan has been administered in all material
respects in accordance with its terms and each of the Buyer and the Buyer
ERISA Affiliates has in all material respects met its obligations with
respect to such Employee Benefit Plan and has made all required
contributions thereto. The Buyer, each Buyer ERISA Affiliate and each
Employee Benefit Plan are in compliance in all material respects with the
currently applicable provisions of ERISA and the Code and the regulations
thereunder (including without limitation Section 4980B of the Code, Subtitle
K, Chapter 100 of the Code and Sections 601 through 608 and Section 701 et
seq. of ERISA). All filings and reports as to each Employee
A-31
<PAGE>
Benefit Plan required to have been submitted to the Internal Revenue Service
or to the United States Department of Labor have been duly submitted.
(c) There are no Legal Proceedings (except claims for benefits payable
in the normal operation of the Employee Benefit Plans and proceedings with
respect to qualified domestic relations orders) against or involving any
Employee Benefit Plan or asserting any rights or claims to benefits under
any Employee Benefit Plan that could give rise to any material liability.
(d) All the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code have received or are the subject of
determination letters from the Internal Revenue Service to the effect that
such Employee Benefit Plans are qualified and the plans and the trusts
related thereto are exempt from federal income taxes under Sections 401(a)
and 501(a), respectively, of the Code, no such determination letter has been
revoked and to the Buyer's knowledge revocation has not been threatened, and
no such Employee Benefit Plan has been amended or operated since the date of
its most recent determination letter or application therefor in any respect,
and no act or omission has occurred, that could be reasonably expected to
adversely affect its qualification or materially increase its cost. Each
Employee Benefit Plan which is required to satisfy Section 401(k)(3) or
Section 401(m)(2) of the Code has been tested for compliance with, and
satisfies the requirements of, Section 401(k)(3) and Section 401(m)(2) of
the Code for each plan year ending prior to the Closing Date.
(e) Neither the Buyer, nor any Buyer ERISA Affiliate has ever maintained
an Employee Benefit Plan subject to Section 412 of the Code or Title IV of
ERISA.
(f) At no time has the Buyer, or any Buyer ERISA Affiliate been
obligated to contribute to any "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA).
(g) There are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination of employment to any employee of the
Buyer (or to any beneficiary of any such employee), including but not
limited to retiree health coverage and deferred compensation, but excluding
continuation of health coverage required to be continued under
Section 4980B of the Code or other applicable law and insurance conversion
privileges under state law. The assets of each Employee Benefit Plan which
is funded are reported at their fair market value on the books and records
of such Employee Benefit Plan.
(h) No act or omission has occurred and no condition exists with respect
to any Employee Benefit Plan maintained by the Buyer or any Buyer ERISA
Affiliate that could be reasonably expected to subject the Buyer or any
Buyer ERISA Affiliate to (i) any material fine, penalty, tax or liability of
any kind imposed under ERISA or the Code or (ii) any contractual
indemnification or contribution obligation protecting any fiduciary, insurer
or service provider with respect to any Employee Benefit Plan.
(i) No Employee Benefit Plan is funded by, associated with or related to
a "voluntary employee's beneficiary association" within the meaning of
Section 501(c)(9) of the Code.
A-32
<PAGE>
(j) Each Employee Benefit Plan is amendable and terminable unilaterally
by the Buyer at any time without liability to the Buyer as a result thereof
and no Employee Benefit Plan, plan documentation or agreement, summary plan
description or other written communication distributed generally to
employees by its terms prohibits the Buyer from amending or terminating any
such Employee Benefit Plan.
(k) Section 3.13(k) of the Buyer Disclosure Schedule discloses each:
(i) agreement with any stockholder, director, executive officer or other key
employee of the Buyer (A) the benefits of which are contingent, or the terms
of which are materially altered, upon the occurrence of a transaction
involving the Buyer of the nature of any of the transactions contemplated by
this Agreement, (B) providing any term of employment or compensation
guarantee or (C) providing severance benefits or other benefits after the
termination of employment of such director, executive officer or key
employee; (ii) agreement, plan or arrangement under which any person may
receive payments from the Buyer that may be subject to the tax imposed by
Section 4999 of the Code or included in the determination of such person's
"parachute payment" under Section 280G of the Code; and (iii) agreement or
plan binding the Buyer, including without limitation any stock option plan,
stock appreciation right plan, restricted stock plan, stock purchase plan,
severance benefit plan or Employee Benefit Plan, any of the benefits of
which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by
this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
(l) Section 3.13(l) of the Buyer Disclosure Schedule sets forth the
policy of the Buyer with respect to accrued vacation, accrued sick time and
earned time-off and the amount of such liabilities.
3.14 INTERIM OPERATIONS OF THE TRANSITORY SUBSIDIARY. The Transitory
Subsidiary was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement and has engaged in no business activities other
than as contemplated by this Agreement.
3.15 ENVIRONMENTAL MATTERS.
(a) The Buyer has complied with all applicable Environmental Laws,
except for noncompliance with any Environmental Laws that, individually or
in the aggregate, has not had and would not reasonably be expected to have a
Buyer Material Adverse Effect. There is no pending or, to the knowledge of
the Buyer or as reflected in the Buyer's files, threatened civil or criminal
litigation, written notice of violation or formal administrative proceeding
by any Governmental Entity, relating to any Environmental Law involving the
Buyer, except for litigation, notices of violations or formal administrative
proceedings that, individually or in the aggregate, have not had and would
not reasonably be expected to have a Buyer Material Adverse Effect.
(b) There have been no releases of any Materials of Environmental
Concern into the environment that could reasonably be expected to have a
Buyer Material Adverse Effect: (i) at any facility formerly or currently
owned, operated or controlled by the Buyer; (ii) to the knowledge of the
Buyer, at any parcel of real property on which any such facility is located;
or
A-33
<PAGE>
(iii) to the knowledge of the Buyer, at any parcel of real property or
facility other than those owned, operated or controlled by the Buyer.
(c) The Buyer has made available to the Company a complete and accurate
copy of all environmental reports, investigations and audits in the Buyer's
possession, custody or control relating to premises currently or previously
owned or operated by the Buyer (whether conducted by or on behalf of the
Buyer or a third party, and whether done at the initiative of the Buyer or
directed by a Governmental Entity or other third party) which were issued or
conducted during the past five years.
(d) The Buyer is not aware of any material environmental liability of
any solid or hazardous waste transporter or treatment, storage or disposal
facility that has been used by the Buyer which reasonably could be expected
to result in a claim or liability under any Environmental Law against the
Buyer, Transitory Subsidiary or Company.
(e) Any representations by the Buyer respecting (i) compliance with, or
liabilities, litigation, notices of violation or administrative proceedings
relating to, any Environmental Law; or (ii) releases of Materials of
Environmental Concern appear only in this Section 3.15. No other
representations in this Agreement (including, but not limited to, those in
Section 3.11) apply to such compliance with, or liabilities, litigation,
notices of violation or administrative proceedings relating to, any
Environmental Law, or such releases of Materials of Environmental Concern.
3.16 LEGAL COMPLIANCE. The Buyer, and the conduct and operations of its
business, is in compliance with each applicable law (including rules and
regulations thereunder) of any federal, state, local or foreign government, or
any Governmental Entity, except for any violations or defaults that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Buyer Material Adverse Effect.
3.17 BROKERS' FEES. Except as set forth in Section 3.17 of the Buyer
Disclosure Schedule, neither the Buyer nor the Transitory Subsidiary has any
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement.
3.18 BOOKS AND RECORDS. The minute books and other similar records of the
Buyer contain complete and accurate records of all actions taken at any meetings
of the Buyer's stockholders, Board of Directors or any committee thereof and of
all written consents executed in lieu of the holding of any such meeting. The
books and records of the Buyer accurately reflect in all material respects the
assets, liabilities, business, financial condition and results of operations of
the Buyer and have been maintained in accordance with good business and
bookkeeping practices.
3.19 DISCLOSURE. No representation or warranty by the Buyer contained in
this Agreement, and no statement contained in the Buyer Disclosure Schedule or
any other document, certificate or other instrument delivered or to be delivered
by or on behalf of the Buyer pursuant to this Agreement, contains or will
contain any untrue statement of a material fact
A-34
<PAGE>
or omit or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading.
3.20 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Buyer specifically for inclusion or incorporation by reference
in the Registration Statement, at the time the Registration Statement becomes
effective under the Securities Act, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. The Registration
Statement will comply as to form in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations
thereunder, except that no representation or warranty is made by the Buyer with
respect to statements made or incorporated by reference therein based on
information supplied by the Company specifically for inclusion or incorporation
by reference in the Registration Statement.
ARTICLE IV
COVENANTS
4.1 CLOSING EFFORTS. Each of the Parties shall use its best efforts, to
the extent commercially reasonable ("Reasonable Best Efforts"), to take all
actions and to do all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, including without limitation using
its Reasonable Best Efforts to ensure that (i) its representations and
warranties remain true and correct in all material respects through the Closing
Date and (ii) the conditions to the obligations of the other Parties to
consummate the Merger are satisfied.
4.2 GOVERNMENTAL AND THIRD-PARTY NOTICES AND CONSENTS.
(a) Each Party shall use its Reasonable Best Efforts to obtain, at its
expense, all waivers, permits, consents, approvals or other authorizations
from Governmental Entities, and to effect all registrations, filings and
notices with or to Governmental Entities, as may be required for such Party
to consummate the transactions contemplated by this Agreement and to
otherwise comply with all applicable laws and regulations in connection with
the consummation of the transactions contemplated by this Agreement.
(b) The Company shall use its Reasonable Best Efforts to obtain, at its
expense, all such waivers, consents or approvals from third parties, and to
give all such notices to third parties, as are required to be listed in
Section 2.4 of the Company Disclosure Schedule.
4.3 SPECIAL MEETING, PROSPECTUS/PROXY STATEMENT AND REGISTRATION STATEMENT.
(a) The Company shall use its Reasonable Best Efforts to obtain, as
promptly as practicable, the Requisite Company Stockholder Approval, either
at a special meeting of stockholders or pursuant to a written stockholder
consent, in accordance with the applicable requirements of the Delaware
General Corporation Law. The Buyer shall use its Reasonable Best Efforts to
obtain, as promptly as practicable, the Requisite Buyer Stockholder Approval
at a special meeting of the stockholders of the Buyer, as required by the
rules of the Nasdaq Stock Market, in accordance with the applicable
requirements of the Delaware General Corporation Law. In connection
therewith, the Buyer shall prepare, with the assistance and cooperation of
A-35
<PAGE>
the Company, a Registration Statement on Form S-4 (the "Registration
Statement"). The Registration Statement shall include a prospectus/proxy
statement to be used for the purpose of offering the Merger Shares to the
stockholders of the Company, soliciting proxies or written consents from the
stockholders of the Company for the purpose of obtaining the Requisite
Company Stockholder Approval, and soliciting proxies from the stockholders
of the Buyer for the purpose of obtaining the Requisite Buyer Stockholder
Approval (such prospectus/proxy statement, together with any accompanying
letter to stockholders, notice of meeting and form of proxy or written
consent, shall be referred to herein as the "Prospectus/Proxy Statement").
The summary of the Merger in the Prospectus/Proxy Statement shall include a
summary of the terms relating to the indemnification obligations of the
Company Stockholders, the escrow arrangements and the authority of the
Escrow Representatives, and a statement that the adoption of this Agreement
by the stockholders of the Company and the Buyer shall constitute approval
of such terms. The Buyer shall use its Reasonable Best Efforts to file the
Registration Statement with the SEC on or before the 28th day following the
date of this Agreement (it being understood that the Buyer shall not be so
obligated to the extent that the Buyer's failure to file the Registration
Statement within such period is the consequence of events beyond its
control, including the failure of the Company, the Company's financial
advisors or any other third party not affiliated with or retained by the
Buyer to furnish to the Buyer for inclusion in the Registration Statement
information which is required to be included therein prior to filing) and
shall, with the assistance of the Company, promptly respond to any SEC
comments on the Registration Statement and shall otherwise use its
Reasonable Best Efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable. Promptly
following such time as the Registration Statement is declared effective, the
Company shall distribute the Prospectus/Proxy Statement to its stockholders
and the Buyer shall distribute the Prospectus/Proxy Statement to its
stockholders. If the Requisite Company Stockholder Approval is obtained by
means of a written consent, the Company shall send, pursuant to Sections 228
and 262(d) of the Delaware General Corporation Law, a written notice to all
stockholders of the Company that did not execute such written consent
informing them that this Agreement and the Merger were adopted and approved
by the stockholders of the Company and that appraisal rights are available
for their Company Shares pursuant to Section 262 of the Delaware General
Corporation Law (which notice shall include a copy of such Section 262), and
shall promptly inform the Buyer of the date on which such notice was sent.
(b) The Company, acting through its Board of Directors, shall include in
the Prospectus/Proxy Statement the unanimous recommendation of its Board of
Directors that the stockholders of the Company vote in favor of the adoption
of this Agreement and the approval of the Merger.
(c) The Buyer, acting through its Board of Directors, shall include in
the Prospectus/Proxy Statement the unanimous recommendation of its Board of
Directors that the stockholders of the Buyer vote in favor of the adoption
of this Agreement, the approval of the Merger and the issuance of the Merger
Shares and Management Incentive Shares. Such approval shall not be withdrawn
or modified by the Buyer's Board of Directors, nor shall the Buyer's Board
of Directors support any other transaction comparable to that contemplated
hereby prior to the Closing.
A-36
<PAGE>
(d) The Buyer shall ensure that the Registration Statement does not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading (provided that the Buyer shall not be responsible for
the accuracy or completeness of any information relating to the Company or
furnished by the Company in writing for inclusion in the Registration
Statement).
(e) The Company shall ensure that the Prospectus/Proxy Statement does
not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light of
the circumstances under which they were made, not misleading (provided that
the Company shall not be responsible for the accuracy or completeness of any
information relating to the Buyer or furnished by the Buyer in writing for
inclusion in the Prospectus/Proxy Statement).
4.4 COMPANY OPERATION OF BUSINESS. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Effective
Time, the Company shall conduct its operations in the Ordinary Course of
Business and in compliance with all applicable laws and regulations and, to the
extent consistent therewith, use its Reasonable Best Efforts to preserve intact
its current business organization, keep its physical assets in good working
condition, keep available the services of its current officers and employees and
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that its goodwill and ongoing business shall not be
impaired in any material respect. Without limiting the generality of the
foregoing, prior to the Effective Time and except as set forth in Section 4.4 of
the Company Disclosure Schedule or as contemplated by this Agreement, the
Company shall not, without the written consent of the Buyer:
(a) issue or sell, or redeem or repurchase, any stock or other
securities of the Company or any rights, warrants or options to acquire any
such stock or other securities (except pursuant to the conversion or
exercise of convertible securities or Company Options or Company Warrants
outstanding on the date hereof), or amend any of the terms of (including
without limitation the vesting of) any such convertible securities or
Company Options or Company Warrants;
(b) split, combine or reclassify any shares of its capital stock;
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock;
(c) create, incur or assume any indebtedness (including obligations in
respect of capital leases); assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person or entity; or make any loans, advances or
capital contributions to, or investments in, any other person or entity;
(d) enter into, adopt or amend the Management Incentive Plan, any
Employee Benefit Plan or any employment or severance agreement or
arrangement of the type described in Section 2.20(k) or (except for normal
increases in the Ordinary Course of Business for employees who are not
Affiliates) increase in any manner the compensation or fringe benefits of,
or materially modify the employment terms of, its directors, officers or
employees, generally or individually, or pay any bonus or other benefit to
its directors, officers or employees;
A-37
<PAGE>
(e) acquire, sell, lease, license or dispose of any assets or property
with a value of greater than $25,000 per transaction and $100,000 in the
aggregate, other than purchases and sales of assets in the Ordinary Course
of Business;
(f) mortgage or pledge any of its property or assets or subject any such
property or assets to any Security Interest;
(g) discharge or satisfy any Security Interest or pay any obligation or
liability other than in the Ordinary Course of Business;
(h) amend its charter, by-laws or other organizational documents;
(i) change in any material respect its accounting methods, principles or
practices, except insofar as may be required by a generally applicable
change in GAAP;
(j) enter into, amend, terminate, take or omit to take any action that
would constitute a violation of or default under, or waive any rights under,
any material contract or agreement;
(k) make or commit to make any capital expenditure in excess of $25,000
per item or $100,000 in the aggregate;
(l) institute or settle any Legal Proceeding;
(m) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action
would result in (i) any of the representations and warranties of the Company
set forth in this Agreement becoming untrue or (ii) any of the conditions to
the Merger set forth in Article V not being satisfied;
(n) make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, file any amendment to an
income Tax Return, enter into any closing agreement, settle any claim or
assessment in respect of material Taxes, or consent to any extension or
waiver of the limitation period applicable to any claim or assessment in
respect of material Taxes; or
(o) agree in writing or otherwise to take any of the foregoing actions.
4.5 BUYER OPERATION OF BUSINESS. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Effective Time, the
Buyer shall use Reasonable Best Efforts to conduct its operations in the
ordinary course of business and in compliance with all applicable laws and
regulations material to its business and, to the extent consistent therewith,
use its Reasonable Best Efforts to preserve intact its current business
organization, keep its physical assets in good working condition, keep available
the services of its current officers and preserve its relationships with
customers, suppliers and others having business dealings with it to the end that
its goodwill and ongoing business shall not be impaired in any material respect.
Without limiting the generality of the foregoing, prior to the Effective Time,
the Buyer shall not, without the written consent of the Company:
A-38
<PAGE>
(a) amend its charter, bylaws or other organizational documents;
(b) change in any material respect its accounting methods, principles or
practices, except insofar as may be required by a generally applicable
change in GAAP;
(c) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take such action
would result in (i) any of the representations and warranties of the Buyer
set forth in this Agreement becoming untrue or (ii) any of the conditions to
the Merger set forth in Article V not being satisfied;
(d) enter into a term sheet or letter of intent to acquire, acquire, or
agree to acquire, by merging or consolidating with, or by purchasing any
assets or equity securities of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets,
(i) the purchase price of which exceeds (A) Five Million Dollars
($5,000,000) in cash, in the event of an acquisition or other transaction,
the consideration for which is cash, or (B) ten percent (10%) of the Buyer's
outstanding capital stock, in the event of an acquisition or other
transaction, the consideration for which is the Buyer's capital stock, or
(ii) which requires the approval of the stockholders of the Buyer;
(e) issue or sell shares of capital stock, or any securities exercisable
for or convertible into shares of capital stock, of the Buyer, at a
purchase, exercise or conversion price which is (i) less than the fair
market value of such shares at the time the obligation to issue or sell such
securities arises, and (ii) not commercially reasonable given the nature of
the transaction involved, in each case as reasonably determined by the Board
of Directors of the Buyer; provided, however, that nothing in this
clause (e) shall prohibit the Buyer from (i) granting options or other
awards (or issuing any shares upon the exercise of any options or awards)
under its employee stock option, purchase or other equity incentive plans,
(ii) issuing shares of its Buyer Common Stock upon the exercise of warrants
outstanding on the date of this Agreement, (iii) issuing shares of Buyer
Common Stock to the holders of Buyer Common Stock in connection with any
stock split, stock dividend or similar event affecting the Buyer Common
Stock or (iv) issuing shares of Buyer Common Stock in an underwritten public
offering; or
(f) agree in writing or otherwise to take any of the foregoing actions.
4.6 ACCESS TO COMPANY INFORMATION.
(a) The Company shall permit representatives of the Buyer to have full
access (at all reasonable times, and in a manner so as not to interfere with
the normal business operations of the Company) to all premises, properties,
financial and accounting records, contracts, other records and documents
(excluding confidential employee medical records unless authorized by the
employee whose record is to be reviewed), and personnel, of or pertaining to
the Company.
(b) Within twenty (20) days after the end of each month ending prior to
the Closing, beginning with December 31, 2000, the Company shall furnish to
the Buyer an unaudited income statement for such month and a balance sheet
as of the end of such month, prepared on a basis consistent with the
Financial Statements; provided that the Company shall
A-39
<PAGE>
not be required to deliver an unaudited balance sheet for the month ended
December 31, 2000 to the extent it is reasonably impracticable for the
Company to do so. Such financial statements shall present fairly the
financial condition and results of operations of the Company as of the dates
thereof and for the periods covered thereby, and shall be consistent with
the books and records of the Company.
4.7 ACCESS TO BUYER INFORMATION.
(a) The Buyer shall permit representatives of the Company to have full
access (at all reasonable times, and in a manner so as not to interfere with
the normal business operations of the Buyer) to all premises, properties,
financial and accounting records, contracts, other records and documents
(excluding confidential employee medical records unless authorized by the
employee whose record is to be reviewed) and personnel, of or pertaining to
the Buyer.
(b) Within twenty (20) days after the end of each month ending prior to
the Closing, beginning with December 31, 2000, the Buyer shall furnish to
the Company an unaudited income statement for such month and a balance sheet
as of the end of such month, prepared on a basis consistent with the audited
financial statements and unaudited interim financial statements of the
Buyers included in the Buyer Reports; provided that the Buyer shall not be
required to deliver an unaudited balance sheet for the month ended
December 31, 2000 to the extent it is reasonably impracticable for the Buyer
to do so. Such financial statement shall present fairly the financial
condition and results of operations of the Buyer as of the dates thereof and
for the periods covered thereby, and shall be consistent with the books and
records of the Buyer.
4.8 EXCLUSIVITY.
(a) Except for transactions set forth on Section 4.8 of the Company
Disclosure Schedule, the Company shall not, and the Company shall require
each of its officers, directors, employees, representatives and agents not
to, directly or indirectly, (i) initiate, solicit, encourage or otherwise
facilitate any inquiry, proposal, offer or discussion with any party (other
than the Buyer) concerning any merger, reorganization, consolidation,
recapitalization, business combination, liquidation, dissolution, share
exchange, sale of stock, sale, license or other disposition of material
assets or similar business transaction involving the Company or any division
of the Company, (ii) furnish any non-public information concerning the
business, properties or assets of the Company or any division of the Company
to any party (other than the Buyer), (iii) engage in discussions or
negotiations with any party (other than the Buyer) concerning any such
transaction or (iv) execute an agreement with respect to, or otherwise enter
into, any such transaction without the consent of the Buyer.
(b) The Company shall immediately notify any party with which
discussions or negotiations of the nature described in paragraph (a) above
were pending that the Company is terminating such discussions or
negotiations. If the Company receives any inquiry, proposal or offer of the
nature described in paragraph (a) above, the Company shall, within one
business day after such receipt, notify the Buyer of such inquiry, proposal
or offer, including the identity of
A-40
<PAGE>
the other party and the terms of such inquiry, proposal or offer and shall
forward to the Buyer a copy of any electronic or written correspondence
relating to such inquiry, proposal or offer.
4.9 EXPENSES. Except as set forth in Article VI and the Escrow Agreement,
each of the Parties shall bear its own costs and expenses (including legal fees
and expenses) incurred in connection with this Agreement and the transactions
contemplated hereby; provided, however, that if the Merger is consummated, the
Company shall not incur more than an aggregate of $375,000 in legal and
accounting fees and expenses in connection with the Merger.
4.10 INDEMNIFICATION.
(a) The Buyer shall not, for a period of six years after the Effective
Time, take any action to alter or impair any exculpatory or indemnification
provisions now existing in the Certificate of Incorporation or By-laws of
the Company for the benefit of any individual who served as a director or
officer of the Company at any time prior to the Effective Time, except for
any changes which may be required to conform with changes in applicable law
and any changes which do not affect the application of such provisions to
acts or omissions of such individuals prior to the Effective Time.
(b) From and after the Effective Time, the Buyer agrees that it will,
and will cause the Surviving Corporation to, indemnify and hold harmless
each present and former director and officer of the Company (the
"Indemnified Executives") against any costs or expenses (including
attorneys' fees), judgments, fines, losses, claims, damages, liabilities or
amounts paid in settlement incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative
or investigative, arising out of or pertaining to matters existing or
occurring at or prior to the Effective Time, whether asserted or claimed
prior to, at or after the Effective Time, to the fullest extent permitted
under Delaware law (and the Buyer and the Surviving Corporation shall also
advance expenses as incurred to the fullest extent permitted under Delaware
law, provided the Indemnified Executive to whom expenses are advanced
provides an undertaking to repay such advances if it is ultimately
determined that such Indemnified Executive is not entitled to
indemnification).
4.11 LOCK-UP AND AFFILIATE AGREEMENTS.
(a) The Company shall use its Reasonable Best Efforts to deliver or
cause to be delivered to the Buyer as soon as practicable and in any case
prior to the Effective Date, a Lock-Up Agreement, in the form attached
hereto as Exhibit B (a "Lock-Up Agreement"), executed by each of the persons
or entities set forth in Section 4.11(a) of the Company Disclosure Schedule.
The Buyer shall be entitled to place appropriate legends on the certificates
evidencing any shares of Buyer Common Stock to be issued to such persons or
entities hereunder, and to issue appropriate stop transfer instructions to
the transfer agent for the Buyer Common Stock, setting forth restrictions on
transfer consistent with the terms of the Lock-Up Agreement.
(b) In order to help ensure that the issuance of and any resale of the
Merger Shares will comply with the Securities Act, the Company shall use its
Reasonable Best Efforts to deliver or cause to be delivered to the Buyer, as
soon as practicable and in any case prior to the
A-41
<PAGE>
mailing of the Prospectus/Proxy Statement (or, in the case of any person who
becomes an Affiliate after such date, as soon as practicable after such
person becomes an Affiliate), an Affiliate Agreement, in the form attached
hereto as Exhibit C, executed by each of its Affiliates set forth in
Section 4.11(b) of the Company Disclosure Schedule (unless such Affiliate
has previously delivered to the Buyer a Voting and Transfer Restriction
Agreement, as provided in Section 5.2(m) below). The Buyer shall be entitled
to place appropriate legends on the certificates evidencing any Merger
Shares to be issued to Affiliates of the Company, and to issue appropriate
stop transfer instructions to the transfer agent for the Buyer Common Stock,
setting forth restrictions on transfer consistent with the terms of the
Affiliate Agreement.
4.12 LISTING OF MERGER SHARES. Prior to the Effective Time, the Buyer
shall file a Nasdaq National Market Notification for Listing of Additional
Shares (or comparable notice) (the "Nasdaq Notice") with Nasdaq with respect to
the listing of the Total Consideration on Nasdaq.
4.13 EXECUTIVE OFFICERS AND BOARD OF DIRECTORS OF THE BUYER.
(a) Prior to the Effective Time, the Boards of Directors of the Buyer
and the Company shall each comply as applicable with the provisions of the
SEC's no-action letter dated January 12, 1999 addressed to Skadden, Arps,
Slate, Meagher and Flom LLP relating to Section 16(b) of the Exchange Act.
(b) The Board of Directors of the Buyer shall use its best efforts to
take all actions necessary to cause the Board of Directors of the Buyer,
immediately after the Effective Time, to include two members designated by
the Company. In the event that an open position of the Board of Directors of
the Buyer is otherwise to be filled prior to the Effective Time, the Buyer
will seek the concurrence of the Company in the appointment of a third
person as well, which concurrence will not be unreasonably withheld. The
Buyer agrees to continue to nominate each director designated by the Company
pursuant to this Section 4.13, except to the extent such designee dies,
resigns, refuses to stand for re-election or is otherwise removed from
office in accordance with the Buyer's Certificate of Incorporation and
By-laws.
4.14 DELIVERY OF TAX NOTICES. If requested by the Buyer, on or before the
Closing (i) the Company will deliver to the Buyer and to the Internal Revenue
Service notices that the Company Shares are not a "U.S. real property interest"
in accordance with the Treasury Regulations under Sections 897 and 1445 of the
Code, or (ii) the Company Stockholders will deliver to the Buyer certifications
that they are not foreign persons in accordance with the Treasury Regulations
under Section 1445 of the Code; provided that if the Company does not provide
the Buyer and the Internal Revenue Service with the notice required under
clause (i) or the Company Stockholders do not timely deliver the certificates
required under clause (ii), the Buyer shall have the right to withhold from the
amount payable (including any Buyer Common Stock) to the Company Stockholders
all amounts required under Section 1445 of the Code.
A-42
<PAGE>
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations of
each Party to consummate the Merger are subject to the satisfaction of the
following conditions:
(a) this Agreement and the Merger shall have received the Requisite
Company Stockholder Approval and Requisite Buyer Stockholder Approval; and
(b) the Registration Statement shall have become effective in accordance
with the provisions of the Securities Act, and there shall not be in effect
any stop order suspending the effectiveness of the Registration Statement or
any proceedings seeking such a stop order.
5.2 CONDITIONS TO OBLIGATIONS OF THE BUYER AND THE TRANSITORY
SUBSIDIARY. The obligation of each of the Buyer and the Transitory Subsidiary
to consummate the Merger is subject to the satisfaction (or waiver by the Buyer)
of the following additional conditions:
(a) the number of Dissenting Shares shall not exceed ten percent (10%)
of the number of outstanding Common Shares as of the Effective Time
(calculated after giving effect to the conversion into Common Shares of all
outstanding Preferred Shares);
(b) the Company shall have obtained (and shall have provided copies
thereof to the Buyer) all of the waivers, permits, consents, approvals or
other authorizations, and effected all of the registrations, filings and
notices, referred to in Section 4.2 which are required on the part of the
Company;
(c) the representations and warranties of the Company set forth in the
first sentence of Section 2.1 and in Section 2.3 and any representations and
warranties of the Company set forth in this Agreement that are qualified as
to materiality shall be true and correct in all respects, and all other
representations and warranties of the Company set forth in this Agreement
shall be true and correct in all material respects, in each case as of the
date of this Agreement and as of the Effective Time as though made as of the
Effective Time, except to the extent such representations and warranties are
specifically made as of a particular date or as of the date of this
Agreement (in which case such representations and warranties shall be true
and correct as of such date);
(d) the Company shall have performed or complied with in all material
respects its agreements and covenants required to be performed or complied
with under this Agreement as of or prior to the Effective Time;
(e) no Legal Proceeding shall be pending or threatened wherein an
unfavorable judgment, order, decree, stipulation or injunction would
(i) prevent consummation of any of the transactions contemplated by this
Agreement, (ii) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation or (iii) have a Company Material
Adverse Effect, and no such judgment, order, decree, stipulation or
injunction shall be in effect;
(f) the Company shall have delivered to the Buyer and the Transitory
Subsidiary a certificate (the "Company Certificate") to the effect that each
of the conditions specified in clause (a) of Section 5.1 (insofar as it
relates to the Company) and clauses (a)
A-43
<PAGE>
through (e) (insofar as clause (e) relates to Legal Proceedings involving
the Company) of this Section 5.2 is satisfied in all respects;
(g) the Buyer shall have received a "comfort letter" dated as of a date
not more than two days prior to the date that the Registration Statement is
declared effective and shall have received a subsequent similar letter dated
as of a date not more than two days prior to the Effective Time, from
PricewaterhouseCoopers LLP, auditors for the Company, addressed to the Buyer
in a customary form reasonably satisfactory to the Buyer;
(h) the Buyer shall have received from counsel to the Company an opinion
with respect to the matters set forth in Exhibit D attached hereto,
addressed to the Buyer and dated as of the Closing Date;
(i) the Buyer shall have received copies of the resignations, effective
as of the Effective Time, of each director and officer of the Company (other
than any such resignations which the Buyer designates, by written notice to
the Company, as unnecessary);
(j) the Buyer shall have received an opinion from Hale and Dorr LLP, in
a form reasonably satisfactory to the Buyer, dated the Closing Date, to the
effect that the Merger will constitute a reorganization for federal income
tax purposes within the meaning of Section 368(a) of the Code; provided that
if Hale and Dorr LLP does not render such opinion, this condition shall
nonetheless be deemed satisfied if Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C. renders such opinion to the Buyer. In rendering such opinion,
counsel may require and rely upon representations and covenants made by the
Parties that are customary in transactions of this form;
(k) the Buyer shall have received such other certificates and
instruments (including without limitation certificates of good standing of
the Company in its jurisdiction of organization and the various foreign
jurisdictions in which it is qualified, certified charter documents,
certificates as to the incumbency of officers and the adoption of
authorizing resolutions) as it shall reasonably request in connection with
the Closing;
(l) the holders of at least (i) 95% of the Company Shares subject to
outstanding Options, and (ii) at least 95% of the total number of
outstanding Company Shares as of the Effective Time shall have signed a
Lock-up Agreement or Voting and Transfer Restriction Agreement, as
applicable, by the Closing Date; provided that, not withstanding the
foregoing subsection (l)(ii), the Company is not required to obtain a
Lock-up Agreement from any person who holds, in the aggregate, less than
40,000 Company Shares as of the Effective Time, so long as the aggregate
number of persons excluded pursuant to this proviso does not exceed the
lesser of (A) 2% of the total number of outstanding Company Shares as of the
Effective Time or (B) 20 persons in the aggregate;
(m) the Buyer shall have received originally-executed Voting and
Transfer Restriction Agreements in the form attached hereto as Exhibit E
from each individual or entity set forth in Section 5.2(m) of the Company
Disclosure Schedule;
(n) the Escrow Representatives, the Management Members and the Escrow
Agent (as defined in the Escrow Agreement) shall have executed the Escrow
Agreement;
A-44
<PAGE>
(o) there shall have been no material adverse change in the business,
properties, operations, condition (financial or otherwise), assets or
liabilities of the Company and no event or events shall have occurred that
could reasonably be expected to have a Company Material Adverse Effect
(other than as a result of (i) general economic conditions, (ii) business
and economic conditions generally affecting the biotechnology industry,
(iii) liabilities directly incurred in connection with this Agreement or the
transactions contemplated hereby (including litigation brought or threatened
against the Company or any member of its Board of Directors in respect of
this Agreement), or (iv) directly attributable to the announcement of the
transactions contemplated hereby (including loss of personnel, customers or
suppliers, the delay or cancellation of orders or products or the revision
of analyst expectations relating to the Company)), and the Buyer shall have
received a certificate signed on behalf of the Company by its Chief
Executive Officer and Chief Financial Officer to such effect;
(p) each of the stockholder agreements, investor rights agreements and
voting agreements entered into by the Company Stockholders prior to the date
hereof, registration rights agreements entered into by the Company and other
parties thereto (including without limitation the holders of Company
Warrants and Company Notes) prior to the date hereof and any other
agreements or arrangements by and between the Company and any Company
Stockholders shall have been terminated by the Company and each of the other
parties thereto;
(q) The Board of Directors of the Company shall have recommended to the
stockholders of the Company, and the stockholders of the Company shall have
approved, an amendment to the Amended and Restated Certificate of
Incorporation of the Company substantially in the form of Exhibit F. The
Company shall have taken all necessary or appropriate action to cause such
amendment to the Amended and Restated Certificate of Incorporation of the
Company to be, and the Amended and Restated Certificate of Incorporation of
the Company as so amended shall be, in full force and effect; and
(r) each of the employees of the Company listed in Section 5.2(r) of the
Company Disclosure Schedule shall have entered into (i) a form of Employment
Offer Letter substantially in the form attached hereto as Exhibit G, setting
forth such key terms and conditions of employment for each such employee as
are set forth in Section 5.2(r) of the Company Disclosure Schedule, and
(ii) a form of Invention, Non-Disclosure and Non-Competition Agreement in
the form attached hereto as Exhibit H.
5.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of the
Company to consummate the Merger is subject to the satisfaction of the following
additional conditions:
(a) the Buyer shall have filed a Nasdaq Notice with Nasdaq with respect
to the listing of the Merger Shares thereon;
(b) the Buyer shall have obtained (and shall have provided copies
thereof to the Company) all of the waivers, permits, consents, approvals or
other authorizations, and effected all of the registrations, filings and
notices, referred to in Section 3.4 which are required on the part of the
Buyer;
A-45
<PAGE>
(c) the Buyer shall have effected all of the registrations, filings and
notices referred to in Section 4.2 which are required on the part of the
Buyer;
(d) the representations and warranties of the Buyer and the Transitory
Subsidiary set forth in the first sentence of Section 3.1 and Section 3.3
and any representations and warranties of the Buyer and the Transitory
Subsidiary set forth in this Agreement that are qualified as to materiality
shall be true and correct in all respects, and the representations and
warranties of the Buyer and the Transitory Subsidiary set forth in this
Agreement that are not so qualified (other than those set forth in
Section 3.1 and Section 3.3) shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the
Effective Time as though made as of the Effective Time, except to the extent
such representations and warranties are specifically made as of a particular
date or as of the date of this Agreement (in which case such representations
and warranties shall be true and correct as of such date);
(e) each of the Buyer and the Transitory Subsidiary shall have performed
or complied with in all material respects its agreements and covenants
required to be performed or complied with under this Agreement as of or
prior to the Effective Time;
(f) no Legal Proceeding shall be pending or threatened wherein an
unfavorable judgment, order, decree, stipulation or injunction would
(i) prevent consummation of any of the transactions contemplated by this
Agreement, (ii) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation or (iii) have a Buyer Material
Adverse Effect, and no such judgment, order, decree, stipulation or
injunction shall be in effect;
(g) the Buyer shall have delivered to the Company a certificate (the
"Buyer Certificate") to the effect that each of the conditions specified in
clause (a) of Section 5.1 (insofar as it relates to the Buyer),
Section 5.1(b), and clauses (a) through (f) (insofar as clause (f) relates
to Legal Proceedings involving the Buyer) of this Section 5.3 is satisfied
in all respects;
(h) the Company shall have received a "comfort letter" dated as of the
date not more than two days prior to the date that the Registration
Statement is declared effective and shall have received a subsequent similar
letter dated as of a date not more than two days prior to the Effective
Time, from Arthur Andersen LLP, auditors for the Buyer, addressed to the
Company in a customary form reasonably satisfactory to the Company;
(i) the Company shall have received from counsel to the Buyer and the
Transitory Subsidiary an opinion with respect to the matters set forth in
Exhibit I attached hereto, addressed to the Company and dated as of the
Closing Date;
(j) the Company shall have received an opinion from Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, P.C., in a form reasonably satisfactory to the
Company, dated the Closing Date, to the effect that the Merger will
constitute a reorganization for federal income tax purposes within the
meaning of Section 368(a) of the Code; provided that if Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, P.C., does not render such opinion, this
condition shall nonetheless be deemed satisfied if Hale and Dorr LLP renders
such opinion to the Company.
A-46
<PAGE>
In rendering such opinion, counsel may require and rely upon representations
and covenants made by the Parties that are customary in transactions of this
form;
(k) the Company shall have received such other certificates and
instruments (including without limitation certificates of good standing of
the Buyer and the Transitory Subsidiary in their jurisdiction of
organization, certified charter documents, certificates as to the incumbency
of officers and the adoption of authorizing resolutions) as it shall
reasonably request in connection with the Closing;
(l) the Buyer, the Escrow Representatives, the Management Members and
the Escrow Agent shall have executed the Escrow Agreement;
(m) the Buyer shall have entered into (i) a form of Employment Offer
Letter attached hereto as Exhibit G with each employee of the Company listed
in Section 5.2(r) of the Company Disclosure Schedule, setting forth such key
terms and conditions of employment for each such employee as are set forth
in Section 5.2(r) of the Company Disclosure Schedule, and (ii) a form of
Invention, Non-Disclosure and Non-Competition Agreement attached hereto as
Exhibit H with each such employee; and
(n) there shall have been no material adverse change in the business,
properties, operations, condition (financial or otherwise), assets or
liabilities of the Buyer and no event or events shall have occurred that
could reasonably be expected to have a Buyer Material Adverse Effect (other
than as a result of (i) general economic conditions, (ii) business and
economic conditions generally affecting the biotechnology industry,
(iii) liabilities directly incurred in connection with this Agreement or the
transactions contemplated hereby (including litigation brought or threatened
against the Buyer or any member of its Board of Directors in respect of this
Agreement), or (iv) directly attributable to the announcement of the
transactions contemplated hereby (including loss of personnel, customers or
suppliers, the delay or cancellation of orders of products or the revision
of analyst expectations relating to the Buyer)) and the Company shall have
received a certificate signed on behalf of the Buyer by its Chief Executive
Officer and Chief Financial Officer to such effect, it being understood for
purposes of this Section 5.3(n) that a decline in the trading price of the
Buyer Common Stock, in and of itself, shall not constitute a Buyer Material
Adverse Effect.
ARTICLE VI
INDEMNIFICATION
6.1 INDEMNIFICATION BY THE COMPANY STOCKHOLDERS. The Company Stockholders
receiving the Merger Shares pursuant to Section 1.5 and the Management Members
receiving the Management Incentive Shares pursuant to Section 1.14
(collectively, the "Holders") shall indemnify the Buyer in respect of, and hold
it harmless against, any and all debts, obligations and other liabilities
(whether absolute, accrued, contingent, fixed or otherwise, or whether known or
unknown, or due or to become due or otherwise), monetary damages, fines, fees,
penalties, interest obligations, deficiencies, losses and expenses (including
without limitation amounts paid in settlement, interest, court costs, costs of
investigators, fees and expenses of attorneys, accountants, financial advisors
and other experts, and other expenses of litigation and, with respect to
Section 6.1(c) below, any amount which the Delaware Court of Chancery determines
a
A-47
<PAGE>
Company Stockholder is entitled to receive from the Surviving Corporation or the
Buyer as the fair value of any Dissenting Shares, including any interest to be
paid thereon, in accordance with Section 262 of the Delaware General Corporation
Law ("Damages") incurred or suffered by the Surviving Corporation or the Buyer
or any Affiliate thereof resulting from, relating to or constituting:
(a) any misrepresentation, breach of warranty or failure to perform any
covenant or agreement of the Company contained in this Agreement or the
Company Certificate;
(b) any failure of any Company Stockholder to have good, valid and
marketable title to the issued and outstanding Company Shares issued in the
name of such Company Stockholder, free and clear of all Security Interests;
or
(c) any written demand by a Company Stockholder for a judicial
determination of the fair value of his, hers or its Dissenting Shares in
accordance with Section 262 of the Delaware General Corporation Law, whether
or not such Company Stockholder withdraws his or her demand for appraisal at
any time before or after the Effective Time; provided, however, that the
Holders shall be liable for Damages incident to this Section 6.1(c) solely
with respect to Dissenting Shares in excess of five percent (5%) and less
than or equal to ten percent (10%) of the outstanding Common Shares as of
the Effective Time (calculated after giving effect to the conversion into
Common Shares of all outstanding Preferred Shares).
6.2 INDEMNIFICATION CLAIMS.
(a) A party entitled, or seeking to assert rights, to indemnification
under this Article VI (an "Indemnified Party") shall give written
notification to the party from whom indemnification is sought (the
"Indemnifying Party") of the commencement of any suit or proceeding relating
to a third party claim for which indemnification pursuant to this
Article VI may be sought. Such notification shall be given within 20
business days after receipt by the Indemnified Party of notice of such suit
or proceeding, and shall describe in reasonable detail (to the extent known
by the Indemnified Party) the facts constituting the basis for such suit or
proceeding and the amount of the claimed damages; provided, however, that no
delay on the part of the Indemnified Party in notifying the Indemnifying
Party shall relieve the Indemnifying Party of any liability or obligation
hereunder except to the extent of any damage or liability caused by or
arising out of such failure. Within 20 days after delivery of such
notification, the Indemnifying Party may, upon written notice thereof to the
Indemnified Party, assume control of the defense of such suit or proceeding
with counsel reasonably satisfactory to the Indemnified Party; provided that
(i) the Indemnifying Party may only assume control of such defense if
(A) it acknowledges in writing to the Indemnified Party that any damages,
fines, costs or other liabilities that may be assessed against the
Indemnified Party in connection with such suit or proceeding constitute
Damages for which the Indemnified Party shall be indemnified pursuant to
this Article VI and (B) the AD DAMNUM is less than or equal to the amount of
Damages for which the Indemnifying Party is liable under this Article VI and
(ii) the Indemnifying Party may not assume control of the defense of a suit
or proceeding involving criminal liability or in which equitable relief is
sought against the Indemnified Party. If the Indemnifying Party does not so
assume control of such defense, the Indemnified Party shall control such
defense. The party not controlling such defense (the "Non-controlling
Party") may participate therein at its own
A-48
<PAGE>
expense; provided that if the Indemnifying Party assumes control of such
defense and the Indemnified Party reasonably concludes that the Indemnifying
Party and the Indemnified Party have conflicting interests or different
defenses available with respect to such suit or proceeding, the reasonable
fees and expenses of counsel to the Indemnified Party shall be considered
"Damages" for purposes of this Agreement. The party controlling such defense
(the "Controlling Party") shall keep the Non-controlling Party advised of
the status of such suit or proceeding and the defense thereof and shall
consider in good faith recommendations made by the Non-controlling Party
with respect thereto. The Non-controlling Party shall furnish the
Controlling Party with such information as it may have with respect to such
suit or proceeding (including copies of any summons, complaint or other
pleading which may have been served on such party and any written claim,
demand, invoice, billing or other document evidencing or asserting the same)
and shall otherwise cooperate with and assist the Controlling Party in the
defense of such suit or proceeding. The Indemnifying Party shall not agree
to any settlement of, or the entry of any judgment arising from, any such
suit or proceeding without the prior written consent of the Indemnified
Party, which shall not be unreasonably withheld or delayed. The Indemnified
Party shall not agree to any settlement of, or the entry of any judgment
arising from, any such suit or proceeding without the prior written consent
of the Indemnifying Party, which shall not be unreasonably withheld or
delayed.
(b) In order to seek indemnification under this Article VI, the
Indemnified Party shall give written notification (a "Claim Notice") to the
Indemnifying Party which contains (i) a description and the amount (the
"Claimed Amount") of any Damages incurred or reasonably expected to be
incurred by the Indemnified Party, (ii) a statement that the Indemnified
Party is entitled to indemnification under this Article VI for such Damages
and a reasonable explanation of the basis therefor, and (iii) a demand for
payment (in the manner provided in paragraph (c) below) in the amount of
such Damages. The Indemnifying Party shall deliver a copy of the Claim
Notice to the Escrow Agent.
(c) Within 20 days after delivery of a Claim Notice, the Indemnifying
Party shall deliver to the Indemnified Party a written response (the
"Response") in which the Indemnifying Party shall: (i) agree that the
Indemnified Party is entitled to receive all of the Claimed Amount (in which
case the Indemnifying Party and the Indemnified Party shall deliver to the
Escrow Agent, within three days following the delivery of the Response, a
written notice executed by both parties instructing the Escrow Agent to
distribute to the Buyer such number of Indemnification Escrow Shares as have
an aggregate Value (as defined below) equal to the Claimed Amount),
(ii) agree that the Indemnified Party is entitled to receive part, but not
all, of the Claimed Amount (the "Agreed Amount") (in which case the
Indemnifying Party and the Indemnified Party shall deliver to the Escrow
Agent, within three days following the delivery of the Response, a written
notice executed by both parties instructing the Escrow Agent to distribute
to the Buyer such number of Indemnification Escrow Shares as have an
aggregate Value equal to the Agreed Amount) or (iii) dispute that the
Indemnified Party is entitled to receive any of the Claimed Amount. If the
Indemnifying Party in the Response disputes its liability for all or part of
the Claimed Amount, the Indemnifying Party and the Indemnified Party shall
follow the procedures set forth in Section 6.2(d) for the resolution of such
dispute (a "Dispute"). For purposes of this Article VI, the "Value" of any
Indemnification Escrow Shares delivered in satisfaction of an indemnity
claim shall be the average of the closing prices for a share of Buyer Common
Stock as quoted on Nasdaq, as reported by Nasdaq, for the thirty (30)
A-49
<PAGE>
consecutive trading days immediately preceding the date which is three
(3) calendar days prior to the date of distribution of such Indemnification
Escrow Shares pursuant to this Article VI (subject to equitable adjustment
in the event of any stock split, stock dividend, reverse stock split or
similar event affecting the Buyer Common Stock since the beginning of such
thirty-day period), multiplied by the number of such Indemnification Escrow
Shares.
(d) During the 60-day period following the delivery of a Response that
reflects a Dispute, the Indemnifying Party and the Indemnified Party shall
use good faith efforts to resolve the Dispute. If the Dispute is not
resolved within such 60-day period, the Indemnifying Party and the
Indemnified Party shall discuss in good faith the submission of the Dispute
to a mutually acceptable alternative dispute resolution procedure (which may
be non-binding or binding upon the parties, as they agree in advance) (the
"ADR Procedure"). In the event the Indemnifying Party and the Indemnified
Party agree upon an ADR Procedure, such parties shall, in consultation with
the chosen dispute resolution service (the "ADR Service"), promptly agree
upon a format and timetable for the ADR Procedure, agree upon the rules
applicable to the ADR Procedure, and promptly undertake the ADR Procedure.
The provisions of this Section 6.2(d) shall not obligate the Indemnifying
Party and the Indemnified Party to pursue an ADR Procedure or prevent either
such party from pursuing the Dispute in a court of competent jurisdiction;
provided that, if the Indemnifying Party and the Indemnified Party agree to
pursue an ADR Procedure, neither the Indemnifying Party nor the Indemnified
Party may commence litigation or seek other remedies with respect to the
Dispute prior to the completion of such ADR Procedure. Any ADR Procedure
undertaken by the Indemnifying Party and the Indemnified Party shall be
considered a compromise negotiation for purposes of federal and state rules
of evidence, and all statements, offers, opinions and disclosures (whether
written or oral) made in the course of the ADR Procedure by or on behalf of
the Indemnifying Party, the Indemnified Party or the ADR Service shall be
treated as confidential and, where appropriate, as privileged work product.
Such statements, offers, opinions and disclosures shall not be discoverable
or admissible for any purposes in any litigation or other proceeding
relating to the Dispute (provided that this sentence shall not be construed
to exclude from discovery or admission any matter that is otherwise
discoverable or admissible). The fees and expenses of any ADR Service used
by the Indemnifying Party and the Indemnified Party shall be shared equally
by the Indemnifying Party and the Indemnified Party. The Indemnifying Party
and the Indemnified Party shall deliver to the Escrow Agent, promptly
following the resolution of the Dispute (whether by mutual agreement,
pursuant to an ADR Procedure, as a result of a judicial decision or
otherwise), a written notice executed by both parties instructing the Escrow
Agent as to what (if any) portion of the Indemnification Escrow Shares shall
be distributed to the Buyer (which notice shall be consistent with the terms
of the resolution of the Dispute).
(e) Notwithstanding the other provisions of this Section 6.2, if a third
party asserts (other than by means of a lawsuit) that the Indemnified Party
is liable to such third party for a monetary or other obligation which may
constitute or result in Damages for which the Indemnified Party may be
entitled to indemnification pursuant to this Article VI, and the Indemnified
Party reasonably determines that it has a valid business reason to fulfill
such obligation, then (i) the Indemnified Party shall be entitled to satisfy
such obligation, without prior notice to or consent from the Indemnifying
Party, (ii) the Indemnified Party may subsequently make a claim for
indemnification in accordance with the provisions of this Article VI, and
(iii) the Indemnified Party shall be reimbursed, in accordance with the
provisions
A-50
<PAGE>
of this Article VI, for any such Damages for which it is entitled to
indemnification pursuant to this Article VI (subject to the right of the
Indemnifying Party to dispute the Indemnified Party's entitlement to
indemnification, or the amount for which it is entitled to indemnification,
under the terms of this Article VI).
(f) For purposes of this Section 6.2 and the last three sentences of
Section 6.3, any references to the Indemnifying Party (except provisions
relating to an obligation to make payments provided for in Section 6.2 or
Section 6.3) shall be deemed to refer to the Escrow Representatives. The
Escrow Representatives shall have full power and authority on behalf of each
Holder to take any and all actions on behalf of, execute any and all
instruments on behalf of, and execute or waive any and all rights of, the
Holders under this Article VI. The Escrow Representatives shall have no
liability to any Holder for any action taken or omitted on behalf of the
Holders pursuant to this Article VI.
6.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in this Agreement, the Company Certificate or the Buyer
Certificate shall (a) survive the Closing and any investigation at any time made
by or on behalf of an Indemnified Party and (b) shall expire on the date which
is the end of the fifteenth (15th) full month following the Closing Date. If the
Indemnified Party delivers to an Indemnifying Party, before expiration of a
representation or warranty, either a Claim Notice based upon a breach of such
representation or warranty, or a notice that, as a result of a legal proceeding
instituted by or written claim made by a third party, the Indemnified Party
reasonably expects to incur Damages as a result of a breach of such
representation or warranty (an "Expected Claim Notice"), then such
representation or warranty shall survive until, but only for purposes of, the
resolution of the matter covered by such notice. The Indemnified Party shall
deliver a copy of the Expected Claim Notice to the Escrow Agent and
Indemnification Escrow Shares shall be retained in escrow after the Termination
Date (as defined in the Escrow Agreement) with respect to such Expected Claim
Notice. If the legal proceeding or written claim with respect to which an
Expected Claim Notice has been given is definitively withdrawn or resolved in
favor of the Indemnified Party, the Indemnified Party shall promptly so notify
the Indemnifying Party; and the Indemnifying Party and the Indemnified Party
shall promptly deliver to the Escrow Agent a written notice executed by both
parties instructing the Escrow Agent to distribute such retained Indemnification
Escrow Shares to the Holders in accordance with the terms of the Escrow
Agreement.
6.4 LIMITATIONS.
(a) Notwithstanding anything to the contrary herein, (i) the aggregate
liability of the Holders for Damages under this Article VI shall not exceed
the aggregate Value (as defined in the Escrow Agreement) of the
Indemnification Escrow Shares and (ii) the Holders shall be liable under
this Article VI only for that portion of the aggregate Damages for which
they would otherwise be liable which exceeds Five Hundred Thousand Dollars
($500,000). For purposes solely of this Article VI, all representations and
warranties of the Company in Article II (other than Section 2.27) shall be
construed as if the term "material" and any reference to "Company Material
Adverse Effect" (and variations thereof) were omitted from such
representations and warranties.
A-51
<PAGE>
(b) The Escrow Agreement is intended to secure the indemnification
obligations of the Holders under this Agreement.
(c) Except with respect to claims based on fraud, after the Closing, the
rights of the Indemnified Party under this Article VI and the Escrow
Agreement shall be the exclusive remedy of the Indemnified Party with
respect to claims resulting from or relating to any misrepresentation,
breach of warranty or failure to perform any covenant or agreement contained
in this Agreement.
(d) No Holder shall have any right of contribution against the Company
or the Surviving Corporation with respect to any breach by the Company of
any of its representations, warranties, covenants or agreements.
A-52
<PAGE>
ARTICLE VII
TERMINATION
7.1 TERMINATION OF AGREEMENT. The Parties may terminate this Agreement
prior to the Effective Time (whether before or after Requisite Company
Stockholder Approval or Requisite Buyer Stockholder Approval), as provided
below:
(a) the Parties may terminate this Agreement by mutual written consent;
(b) the Buyer may terminate this Agreement by giving written notice to
the Company in the event the Company is in breach of any representation,
warranty or covenant contained in this Agreement, and such breach,
individually or in combination with any other such breach, (i) would cause
the conditions set forth in clauses (c) or (d) of Section 5.2 not to be
satisfied and (ii) is not cured within 20 days following delivery by the
Buyer to the Company of written notice of such breach;
(c) the Company may terminate this Agreement by giving written notice to
the Buyer in the event the Buyer or the Transitory Subsidiary is in breach
of any representation, warranty or covenant contained in this Agreement, and
such breach, individually or in combination with any other such breach,
(i) would cause the conditions set forth in clauses (c) or (d) of
Section 5.3 not to be satisfied and (ii) is not cured within 20 days
following delivery by the Company to the Buyer of written notice of such
breach;
(d) any Party may terminate this Agreement by giving written notice to
the other Parties at any time after either the Buyer's stockholders entitled
to vote upon the issuance of the Merger Shares or the Company Stockholders
have voted on whether to approve this Agreement and the Merger in the event
this Agreement and the Merger failed to receive the Requisite Buyer
Stockholder Approval or Requisite Company Stockholder Approval, as the case
may be;
(e) the Buyer may terminate this Agreement by giving written notice to
the Company if the Closing shall not have occurred on or before April 30,
2001 by reason of the failure of any condition precedent under Section 5.1
or 5.2 hereof (unless the failure results primarily from a breach by the
Buyer or the Transitory Subsidiary of any representation, warranty or
covenant contained in this Agreement); or
(f) the Company may terminate this Agreement by giving written notice to
the Buyer and the Transitory Subsidiary if the Closing shall not have
occurred on or before April 30, 2001 by reason of the failure of any
condition precedent under Section 5.1 or 5.3 hereof (unless the failure
results primarily from a breach by the Company of any representation,
warranty or covenant contained in this Agreement).
7.2 EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant
to Section 7.1, all obligations of the Parties hereunder shall terminate without
any liability of any Party to any other Party; provided that, if this Agreement
is terminated by either party as a result of the other party's failure to
perform or comply in all material respects with the agreements and covenants
required by it to be performed or complied with under this Agreement, then the
non-terminating party will tender a cash payment of Two Million Dollars
($2,000,000) to the
A-53
<PAGE>
terminating party within five (5) business days after notice from the
terminating party of its termination of this Agreement.
ARTICLE VIII
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
<TABLE>
<CAPTION>
DEFINED TERM SECTION
------------ -------
<S> <C>
ADR Procedure........................................... 6.2(d)
ADR Service............................................. 6.2(d)
Affiliate............................................... 2.15(a)(vii)
Agreed Amount........................................... 6.2(c)
Buyer................................................... Introduction
Buyer Average Stock Price............................... 7.1(g)(i)
Buyer Certificate....................................... 5.3(g)
Buyer Common Stock...................................... 1.5
Buyer Disclosure Schedule............................... 3
Buyer ERISA Affiliate................................... 3.13(a)
Buyer Intellectual Property Rights...................... 3.9(b)
Buyer Material Adverse Effect........................... 3.1
Buyer Ongoing Clinical Programs......................... 3.8
Buyer Options........................................... 3.2
Buyer Preferred Stock................................... 3.2
Buyer Reports........................................... 3.5
Buyer Stock............................................. 3.2
Buyer Third Party License............................... 3.9(a)
Buyer Warrants.......................................... 3.2
CERCLA.................................................. 2.21(a)
Certificates............................................ 1.7(a)
Certificate of Merger................................... 1.1
Claim Notice............................................ 6.2(b)
Claimed Amount.......................................... 6.2(b)
Closing................................................. 1.2
Closing Date............................................ 1.2
Code.................................................... 1.9(a)
Common Conversion Ratio................................. 1.5(a)
Common Shares........................................... 1.5(a)
Company................................................. Introduction
Company Certificate..................................... 5.2(g)
Company Common Warrants................................. 1.9(d)(i)
Company Disclosure Schedule............................. Article II-Preamble
Company ERISA Affiliate................................. 2.20(a)(iii)
Company Intellectual Property Rights.................... 2.14(b)
Company Material Adverse Effect......................... 2.1
</TABLE>
A-54
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM SECTION
------------ -------
<S> <C>
Company Ongoing Clinical Programs....................... 2.13
Company Options......................................... 1.9(a)
Company Notes........................................... 1.9(f)
Company Series A Warrants............................... 1.9(d)(ii)
Company Series B Warrants............................... 1.9(d)(iii)
Company Series A Notes.................................. 1.9(f)(i)
Company Series B Notes.................................. 1.9(f)(ii)
Company Series C-1 Notes................................ 1.9
Company Shares.......................................... 1.5(g)
Company Stockholder..................................... 1.3(d)
Company Stockholders' Meeting........................... 7.1(g)
Company Stockholder Escrow Shares....................... 1.5(g)
Company Third Party Licenses............................ 2.14(a)
Company Warrants........................................ 1.9(d)
Controlling Party....................................... 6.2(a)
Damages................................................. 6.1
Dispute................................................. 6.2(c)
Dissenting Shares....................................... 1.6(a)
Effective Time.......................................... 1.1
Employee Benefit Plan................................... 2.20(a)(i)
Environmental Law....................................... 2.21(a)
ERISA................................................... 2.20(a)(ii)
Escrow Agreement........................................ 1.3(f)
Escrow Agent............................................ 1.3(f)
Escrow Representatives.................................. 1.3(f)
Escrow Shares........................................... 1.14
Expected Claim Notice................................... 6.3
Exchange Act............................................ 2.15(a)(vii)
Financial Statements.................................... 2.6
GAAP.................................................... 2.6
Governmental Entity..................................... 2.4
Holders................................................. 6.1
Indemnification Escrow Shares........................... 1.10(a)
Indemnified Executives.................................. 4.10
Indemnified Party....................................... 6.2(a)
Indemnifying Party...................................... 6.2(a)
Initial Shares.......................................... 1.5(g)
Intellectual Property Rights............................ 2.14(b)
Legal Proceedings....................................... 2.18
Lock-up Agreement....................................... 4.11
Management Escrow Shares................................ 1.14
Management Incentive Plan............................... 1.14
Management Incentive Shares............................. 1.14
Management Member....................................... 1.14
Materials of Environmental Concern...................... 2.21(b)
Merger.................................................. 1.1
</TABLE>
A-55
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM SECTION
------------ -------
<S> <C>
Merger Shares........................................... 1.5(g)
Milestone Escrow Shares................................. 1.10(a)
Most Recent Balance Sheet............................... 2.8
Most Recent Balance Sheet Date.......................... 2.6
Nasdaq.................................................. 1.8
Nasdaq Notice........................................... 4.12
Non-controlling Party................................... 6.2(a)
Company Options......................................... 1.9(a)
Ordinary Course of Business............................. 2.4
Parties................................................. Introduction
Permits................................................. 2.23
Preferred Shares........................................ 1.5(f)
Prospectus/Proxy Statement.............................. 4.3(a)
Reasonable Best Efforts................................. 4.1
Registration Statement.................................. 4.3(a)
Response................................................ 6.2(c)
Requisite Buyer Stockholder Approval.................... 3.3
Requisite Company Stockholder Approval.................. 2.3
SEC..................................................... 3.5
Securities Act.......................................... 1.9(c)
Security Interest....................................... 2.4
Series A Preferred Shares............................... 1.5(b)
Series A Preferred Conversion Ratio..................... 1.5(b)
Series B Preferred Shares............................... 1.5(c)
Series B Preferred Conversion Ratio..................... 1.5(c)
Series C-1 Preferred Shares............................. 1.5(d)
Series C-1 Preferred Conversion Ratio................... 1.5(d)
Series C-2 Preferred Shares............................. 1.5(e)
Series C-2 Preferred Conversion Ratio................... 1.5(e)
Surviving Corporation................................... 1.1
Taxes................................................... 2.9(a)(i)
Tax Returns............................................. 2.9(a)(ii)
Total Consideration..................................... 1.5
Transitory Subsidiary................................... Introduction
Value................................................... 6.2(c)
</TABLE>
ARTICLE IX
MISCELLANEOUS
9.1 PRESS RELEASES AND ANNOUNCEMENTS. No Party shall issue any press
release or public announcement relating to the subject matter of this Agreement
without the prior written approval of the other Parties; PROVIDED, HOWEVER, that
any Party may make any public disclosure it believes in good faith is required
by applicable law, regulation or stock market rule (in which case the disclosing
Party shall use reasonable efforts to advise the other Parties and provide them
with a copy of the proposed disclosure prior to making the disclosure).
A-56
<PAGE>
9.2 NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; PROVIDED, HOWEVER, that (a) the provisions in
Article I concerning issuance of the Merger Shares and Management Inventive
Shares and Article VI concerning indemnification are intended for the benefit of
the Company Stockholders and Management Members and (b) the provisions in
Section 4.10 concerning indemnification are intended for the benefit of the
individuals specified therein and their successors and assigns.
9.3 ENTIRE AGREEMENT. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements or representations by or among the Parties,
written or oral, with respect to the subject matter hereof; provided that the
Confidentiality Agreement dated June 13, 2000 between the Buyer and the Company
shall remain in effect in accordance with its terms.
9.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests or obligations hereunder without the prior written approval of
the other Parties; provided that the Transitory Subsidiary may assign its
rights, interests and obligations hereunder to an Affiliate of the Buyer.
9.5 COUNTERPARTS AND FACSIMILE SIGNATURE. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument. This Agreement
may be executed by facsimile signature.
9.6 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered four business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent for next business day
delivery via a reputable nationwide overnight courier service, in each case to
the intended recipient as set forth below:
<TABLE>
<CAPTION>
<C> <S>
IF TO THE COMPANY: Eligix, Inc.
200 Boston Avenue
Medford, MA 02155
Attention: President
Copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attn: William T. Whelan, Esq.
</TABLE>
A-57
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
IF TO THE BUYER OR THE BioTransplant Incorporated
TRANSITORY SUBSIDIARY: Building 75
Third Avenue
Charlestown, MA 02129
Attention: Chief Executive Officer
Copy to: Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attn: Steven D. Singer, Esq.
</TABLE>
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail or electronic mail), but no
such notice, request, demand, claim or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of laws of
any jurisdictions other than those of the State of Delaware.
9.9 AMENDMENTS AND WAIVERS. The Parties may mutually amend any provision
of this Agreement at any time prior to the Effective Time; PROVIDED, HOWEVER,
that any amendment effected subsequent to the Requisite Company Stockholder
Approval and or Requisite Buyer Stockholder Approval shall be subject to any
restrictions contained in the Delaware General Corporation Law. No amendment of
any provision of this Agreement shall be valid unless the same shall be in
writing and signed by all of the Parties. No waiver of any right or remedy
hereunder shall be valid unless the same shall be in writing and signed by the
Party giving such waiver. No waiver by any Party with respect to any default,
misrepresentation or breach of warranty or covenant hereunder shall be deemed to
extend to any prior or subsequent default, misrepresentation or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
9.10 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable
A-58
<PAGE>
and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
9.11 SUBMISSION TO JURISDICTION. Each of the Parties (a) submits to the
jurisdiction of any state or federal court sitting in the Commonwealth of
Massachusetts in any action or proceeding arising out of or relating to this
Agreement, (b) agrees that all claims in respect of such action or proceeding
may be heard and determined in any such court, and (c) agrees not to bring any
action or proceeding arising out of or relating to this Agreement in any other
court. Each of the Parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety
or other security that might be required of any other Party with respect
thereto. Any Party may make service on another Party by sending or delivering a
copy of the process to the Party to be served at the address and in the manner
provided for the giving of notices in Section 9.7. Nothing in this
Section 9.11, however, shall affect the right of any Party to serve legal
process in any other manner permitted by law.
9.12 CONSTRUCTION.
(a) The language used in this Agreement shall be deemed to be the
language chosen by the Parties to express their mutual intent, and no rule
of strict construction shall be applied against any Party.
(b) Any reference to any federal, state, local or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
[Remainder of page intentionally left blank.]
A-59
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
<TABLE>
<S> <C> <C>
BIOTRANSPLANT INCORPORATED
By: /s/ ELLIOT LEBOWITZ
----------------------------------------
Title: President and CEO
----------------------------------------
BT/EL ACQUISITION CO.
By: /s/ ELLIOT LEBOWITZ
----------------------------------------
Title: President
----------------------------------------
ELIGIX, INC.
By: /s/ WALTER C. OGIER
----------------------------------------
Title: President and CEO
----------------------------------------
</TABLE>
A-60
<PAGE>
The undersigned, being the duly elected Secretary of the Transitory
Subsidiary, hereby certifies that this Agreement has been adopted by a majority
of the votes represented by the outstanding shares of capital stock of the
Transitory Subsidiary entitled to vote on this Agreement.
--------------------------------------
Secretary
The undersigned, being the duly elected Secretary of the Company, hereby
certifies that this Agreement has been adopted by a majority of the votes
represented by the outstanding Company Shares entitled to vote on this
Agreement.
--------------------------------------
Secretary
A-61
<PAGE>
EXHIBIT A
ESCROW AGREEMENT
<PAGE>
ESCROW AGREEMENT
This Escrow Agreement is entered into as of , by and among
BioTransplant Incorporated, a Delaware corporation (the "Buyer"), each of the
persons named on the signature pages hereto under the heading "Management
Members" (the "Management Members"), Robert Momsen and Pieter Schiller (the
"Escrow Representatives") and The American Stock Transfer and Trust Company (the
"Escrow Agent"). Capitalized terms used herein but not defined shall have the
meaning ascribed to them in the Merger Agreement (defined below).
WHEREAS, the Buyer, BT/EL Acquisition Co., a wholly owned subsidiary of the
Buyer (the "Subsidiary"), and Eligix, Inc. (the "Company") have entered into an
Agreement and Plan of Merger dated December 8, 2000 (the "Merger Agreement")
pursuant to which the Subsidiary will be merged (the "Merger") with and into the
Company which, as the surviving corporation (the "Surviving Corporation"), will
become a wholly-owned subsidiary of the Buyer;
WHEREAS, pursuant to the Merger Agreement, the Company Stockholders and the
Management Members will receive shares of Buyer Common Stock;
WHEREAS, the Merger Agreement provides that an escrow account will be
established to secure (i) the indemnification obligations of the Company
Stockholders receiving consideration pursuant to Section 1.5 of the Merger
Agreement and the Management Members receiving consideration pursuant to
Section 1.14 of the Merger Agreement (collectively, the "Holders") to the Buyer
and (ii) the payment of fifty percent (50%) of the Escrow Shares (as defined
below) (the "Milestone Escrow Shares") to the Company Stockholders and the
Management Members, subject to the satisfaction of the conditions set forth in
Section 2(c) herein; and
WHEREAS, the parties hereto desire to establish the terms and conditions
pursuant to which such escrow account will be established and maintained;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. CONSENT OF HOLDERS. The Holders have, either by virtue of their
approval of the Merger Agreement or through the execution of an instrument to
such effect or through their execution of this Agreement (in the case of the
Management Members), consented to: (a) the establishment of this escrow to
secure (i) the Holders' indemnification obligations under Article VI of the
Merger Agreement and (ii) the payment of the Milestone Escrow Shares to the
Company Stockholders and the Management Members, subject to the satisfaction of
the conditions set forth in Section 2(c) herein, in each case in the manner set
forth herein, (b) the appointment of the Escrow Representatives as their
representatives for purposes of this Agreement and as attorneys-in-fact and
agents for and on behalf of each Holder, and the taking by the Escrow
Representatives of any and all actions and the making of any decisions required
or permitted to be taken or made by them under this Agreement and (c) all of the
other terms, conditions and limitations in this Agreement.
2. ESCROW AND INDEMNIFICATION.
(a) Escrow of Shares. Simultaneously with the execution of this
Agreement, the Buyer shall deposit with the Escrow Agent a certificate for
shares of Buyer Common Stock, as determined pursuant to Section 1.5 of
the Merger Agreement, issued in the name of the Escrow Agent or its nominee.
The Escrow Agent hereby acknowledges receipt of such stock certificate.
Within seventy-five (75) days after the date of this Agreement, the Buyer
shall deposit with the Escrow Agent a certificate for 198,000 shares of
Buyer Common Stock, in accordance with Section 1.14 of the Merger Agreement,
issued in the name of the Escrow Agent or its nominee. The Buyer may from
time to time deposit with the Escrow Agent additional shares of Buyer Common
Stock pursuant to the final sentence of Section 1.6(a) of the Merger
Agreement. The aggregate shares deposited with the Escrow Agent pursuant to
the first and second sentences of this Section 2(a), together with any
further shares deposited by the Buyer pursuant to the immediately preceding
sentence, are referred to herein as the "Escrow Shares." The Escrow Shares
shall be held as a trust fund and shall not be subject to any lien,
attachment, trustee
<PAGE>
process or any other judicial process of any creditor of any party hereto.
The Escrow Agent agrees to hold the Escrow Shares in an escrow account (the
"Escrow Account"), subject to the terms and conditions of this Agreement.
(b) INDEMNIFICATION. The Holders have agreed to indemnify and hold
harmless the Buyer from and against specified Damages (as defined in
Section 6.1 of the Merger Agreement) in accordance with Article VI of the
Merger Agreement. Fifty percent (50%) of the Escrow Shares (the
"Indemnification Escrow Shares") shall be security for such indemnity
obligation of the Holders, subject to the limitations, and in the manner
provided, in this Agreement.
(c) MILESTONE ESCROW SHARES. The Milestone Escrow Shares shall be held
by the Escrow Agent for issuance solely upon the receipt by the Buyer, on or
before December 31, 2001, of written authorization or other customary
evidence of approval from a recognized Notified Body under the European
Medical Device Directives (currently elected by the Company to be TUV
Product Services) in the European Union to affix the CE mark, denoting
conformity with European standards for safety, to the Company's TCell-HDM
product (the "Milestone"). The Buyer shall provide the funding,
authorizations and other resources reasonably necessary to meet the
Milestone, as determined in good faith by its Board of Directors; provided
that to the extent that any dispute arises with respect to whether the Buyer
has allocated reasonably necessary resources, the good faith determination
of the Buyer's Board of Directors with respect to the matter shall include
the determination of the members of the Board of Directors who have been
designated to serve on the Board of Directors in accordance with
Section 4.13 of the Merger Agreement.
(d) DIVIDENDS, ETC. Any securities distributed in respect of or in
exchange for any of the Escrow Shares, whether by way of stock dividends,
stock splits or otherwise, shall be issued in the name of the Escrow Agent
or its nominee, and shall be delivered to the Escrow Agent, who shall hold
such securities in the Escrow Account. Such securities shall be considered
Escrow Shares for purposes hereof. Any cash dividends or property (other
than securities) distributed in respect of the Escrow Shares shall promptly
be distributed by the Escrow Agent to the Holders in accordance with
Section 3(d).
(e) VOTING OF SHARES. The Escrow Representatives shall have the right,
in their sole discretion, on behalf of the Holders, to direct the Escrow
Agent in writing as to the exercise of any voting rights pertaining to the
Escrow Shares, and the Escrow Agent shall comply with any such written
instructions. In the absence of such instructions, the Escrow Agent shall
not vote any of the Escrow Shares. The Escrow Representatives shall have no
obligation to solicit consents or proxies from the Holders for purposes of
any such vote.
(f) Transferability. The respective interests of the Holders in the
Escrow Shares shall not be assignable or transferable, other than by
operation of law. Notice of any such assignment or transfer by operation of
law shall be given to the Escrow Agent and the Buyer, and no such assignment
or transfer shall be valid until such notice is given.
3. DISTRIBUTION OF ESCROW SHARES.
(a) The Escrow Agent shall distribute the Escrow Shares only in
accordance with (i) a written instrument delivered to the Escrow Agent that
is executed by both the Buyer and the Escrow Representatives and that
instructs the Escrow Agent as to the distribution of some or all of the
Escrow Shares, (ii) an order of a court of competent jurisdiction, a copy of
which is delivered to the Escrow Agent by either the Buyer or the Escrow
Representatives, that instructs the Escrow Agent as to the distribution of
some or all of the Escrow Shares, (iii) the provisions of Section 3(b)
hereof or (iv) the provisions of Section 3(c) hereof.
(b) Upon delivery to the Escrow Agent of a written instrument of
instruction that is executed by both the Buyer and the Escrow
Representatives within five business days after the date which is
Exhibit A-2
<PAGE>
the end of the fifteenth (15th) full month following the date of this
Agreement (the "Termination Date"), the Escrow Agent shall distribute to the
Holders all of the Indemnification Escrow Shares then held in escrow,
registered in the name of the Holders. Notwithstanding the foregoing, if the
Buyer has previously delivered to the Escrow Agent a copy of a Claim Notice
(as defined in Section 6.2(b) of the Merger Agreement) and the Escrow Agent
has not received written notice of the resolution of the claim covered
thereby, or if the Buyer has previously delivered to the Escrow Agent a copy
of an Expected Claim Notice (as defined in Section 6.3 of the Merger
Agreement) and the Escrow Agent has not received written notice of the
resolution of the anticipated claim covered thereby, the Escrow Agent shall
retain in escrow after the Termination Date such number of Indemnification
Escrow Shares as have a Value (as defined in Section 4 below) equal to the
Claimed Amount covered by such Claim Notice or equal to the estimated amount
of Damages set forth in such Expected Claim Notice, as the case may be. Any
Indemnification Escrow Shares so retained in escrow shall be distributed
only in accordance with the terms of clauses (i) or (ii) of Section 3(a)
hereof.
(c) In the event the Milestone is achieved, the Escrow Agent shall
distribute to the Holders the Milestone Escrow Shares then held in escrow,
registered in the name of the Holders. In the event the Milestone is not
achieved, the Escrow Agent shall distribute to the Buyer the Milestone
Escrow Shares then held in escrow, registered in the name of the Buyer. The
Escrow Agent shall distribute the Milestone Escrow Shares in accordance with
this Section 3(c) within five (5) business days after the date on which it
has received a written instrument that is executed by both the Buyer and the
Escrow Representatives and that instructs the Escrow Agent as to the proper
distribution of the Milestone Escrow Shares. The Buyer and the Escrow
Representatives agree in good faith to prepare written instructions to the
Escrow Agent as promptly as practicable after achievement of the Milestone
(or failure to achieve the Milestone).
(d) Any distribution of all or a portion of the Escrow Shares (or cash
or other property pursuant to Section 2(d)) to the Holders shall be made by
delivery of stock certificates issued in the name of the Holders covering
such percentage of the Escrow Shares being distributed as is calculated in
accordance with the percentages set forth opposite such holders' respective
names on ATTACHMENT A attached hereto; PROVIDED, HOWEVER, that the Escrow
Agent shall withhold the distribution of the portion of the Escrow Shares
otherwise distributable to a Holder who has not, according to a written
notice provided by the Buyer to the Escrow Agent, prior to such
distribution, surrendered pursuant to the terms of the Merger Agreement his,
her or its stock certificates formerly representing shares of stock of the
Company, if applicable, and PROVIDED FURTHER that such ATTACHMENT A shall be
appropriately revised by the Buyer in the event the Buyer deposits
additional Escrow Shares with the Escrow Agent pursuant to the final
sentence of Section 1.6(a) of the Merger Agreement following the date of
this Agreement. Any such withheld shares shall be delivered to the Buyer
promptly after the Termination Date, and shall be delivered by the Buyer to
the Holders to whom such shares would have otherwise been distributed upon
surrender of their Company stock certificates. Distributions to the Holders
shall be made by mailing stock certificates to such holders at their
respective addresses shown on ATTACHMENT A (or such other address as may be
provided in writing to the Escrow Agent by any such holder). No fractional
Escrow Shares shall be distributed to Holders pursuant to this Agreement.
Instead, the number of shares that each Holder shall receive shall be
rounded up or down to the nearest whole number (provided that the Escrow
Representatives shall have the authority to effect such rounding in such a
manner that the total number of whole Escrow Shares to be distributed equals
the number of Escrow Shares then held in the Escrow Account).
4. VALUATION OF INDEMNIFICATION ESCROW SHARES. For purposes of this
Agreement, the "Value" of any Indemnification Escrow Shares delivered in
satisfaction of an indemnity claim shall be the average of the closing prices
for a share of Buyer Common Stock (as defined in the Merger Agreement) as
Exhibit A-3
<PAGE>
quoted on the Nasdaq National Market ("Nasdaq"), as reported by Nasdaq, for the
thirty (30) consecutive trading days immediately preceding the date which is
three (3) calendar days prior to the date of distribution of such
Indemnification Escrow Shares pursuant to this Agreement (subject to equitable
adjustment in the event of any stock split, stock dividend, reverse stock split
or similar event affecting the Buyer Common Stock since the beginning of such
thirty-day period), multiplied by the number of such Indemnification Escrow
Shares.
5. FEES AND EXPENSES OF ESCROW AGENT. The Buyer shall pay the fees of the
Escrow Agent for the services to be rendered by the Escrow Agent hereunder.
6. LIMITATION OF ESCROW AGENT'S LIABILITY.
(a) The Escrow Agent shall incur no liability with respect to any action
taken or suffered by it in reliance upon any notice, direction, instruction,
consent, statement or other documents believed by it to be genuine and duly
authorized, nor for other action or inaction except its own willful
misconduct or gross negligence. The Escrow Agent shall not be responsible
for the validity or sufficiency of this Agreement. In all questions arising
under the Escrow Agreement, the Escrow Agent may rely on the advice of
counsel, and the Escrow Agent shall not be liable to anyone for anything
done, omitted or suffered in good faith by the Escrow Agent based on such
advice. The Escrow Agent shall not be required to take any action hereunder
involving any expense unless the payment of such expense is made or provided
for in a manner reasonably satisfactory to it. In no event shall the Escrow
Agent be liable for indirect, punitive, special or consequential damages.
(b) The Buyer and the Holders hereby, jointly and severally, agree to
indemnify the Escrow Agent for, and hold it harmless against, any loss,
liability or expense incurred without gross negligence or willful misconduct
on the part of Escrow Agent, arising out of or in connection with its
carrying out of its duties hereunder. The Buyer and the Holders agree, as
between themselves, that with respect to their indemnification obligations
under this Section 6(b), the Buyer, on the one hand, and the Holders, on the
other hand, shall each be liable for one-half of such amounts.
7. LIABILITY AND AUTHORITY OF ESCROW REPRESENTATIVES; SUCCESSORS AND
ASSIGNEES.
(a) The Escrow Representatives shall incur no liability to the Holders
with respect to any action taken or suffered by them in reliance upon any
note, direction, instruction, consent, statement or other documents believed
by them to be genuinely and duly authorized, nor for other action or
inaction except their own willful misconduct or gross negligence. The Escrow
Representatives may, in all questions arising under the Escrow Agreement,
rely on the advice of counsel and the Escrow Representatives shall not be
liable to the Holders for anything done, omitted or suffered in good faith
by the Escrow Representatives based on such advice.
(b) In the event of the death or permanent disability of any Escrow
Representative, or his or her resignation as an Escrow Representative, a
successor Escrow Representative shall be appointed by the other Escrow
Representative or, absent its appointment, a successor Escrow Representative
shall be elected by a majority vote of the Holders based upon the total
number of shares of the Buyer Common Stock issued in the Merger (including
for purposes of this clause (b) the shares of Buyer Common Stock issued to
the Management Members pursuant to Section 1.14 of the Merger Agreement),
with each such Holder (or his, her or its successors or assigns) to be given
a vote equal to the number of shares of the Buyer Common Stock issued to
such Holder in the Merger. Each successor Escrow Representative shall have
all of the power, authority, rights and privileges conferred by this
Agreement upon the original Escrow Representatives, and the term "Escrow
Representatives" as used herein shall be deemed to include successor Escrow
Representatives.
(c) The Escrow Representatives, acting jointly but not singly, shall
have full power and authority to represent the Holders, and their
successors, with respect to all matters arising under this Agreement and all
actions taken by any Escrow Representative hereunder shall be binding
Exhibit A-4
<PAGE>
upon the Holders, and their successors, as if expressly confirmed and
ratified in writing by each of them. Without limiting the generality of the
foregoing, the Escrow Representatives, acting by a majority thereof, shall
have full power and authority to interpret all of the terms and provisions
of this Agreement, to compromise any claims asserted hereunder and to
authorize any release of the Escrow Shares to be made with respect thereto,
on behalf of the Holders and their successors. All actions to be taken by
the Escrow Representatives hereunder shall be evidenced by, and taken upon,
the written direction of a majority thereof.
(d) The Escrow Agent may rely on the Escrow Representatives as the
exclusive agents of the Holders under this Agreement and shall incur no
liability to any party with respect to any action taken or suffered by it in
reliance thereon.
8. AMOUNTS PAYABLE BY HOLDERS. The amounts payable by the Holders under
this Agreement (i.e., the indemnification obligations pursuant to Section 6(b))
shall be payable solely as follows. The Escrow Agent shall notify the Escrow
Representatives of any such amount payable by the Holders as soon as it becomes
aware that any such amount is payable, with a copy of such notice to the Buyer.
On the sixth business day after the delivery of such notice, the Escrow Agent
shall sell such number of Indemnification Escrow Shares (up to the number of
Indemnification Escrow Shares then available in the Escrow Account), subject to
compliance with all applicable securities laws, as is necessary to raise such
amount, and shall be entitled to apply the proceeds of such sale in satisfaction
of such indemnification obligations of the Holders; provided that if the Buyer
delivers to the Escrow Agent (with a copy to the Escrow Representatives), within
five business days after delivery of such notice by the Escrow Representatives,
a written notice contesting the legitimacy or reasonableness of such amount,
then the Escrow Agent shall not sell Indemnification Escrow Shares to raise the
disputed portion of such claimed amount except in accordance with the terms of
clauses (i) or (ii) of Section 3(a).
9. TERMINATION. This Agreement shall terminate upon the distribution by
the Escrow Agent of all of the Escrow Shares in accordance with this Agreement;
provided that the provisions of Sections 6 and 7 shall survive such termination.
10. NOTICES. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (i) by registered or certified
mail, return receipt requested, postage prepaid, or (ii) via a reputable
nationwide overnight courier service, in each case to the address set forth
below. Any such notice, instruction or communication shall be deemed to have
been delivered two business days after it
Exhibit A-5
<PAGE>
is sent by registered or certified mail, return receipt requested, postage
prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service.
<TABLE>
<S> <C>
If to the Buyer: BioTransplant Incorporated
Building 75
Third Avenue
Charlestown, MA 02129
Attention: Chief Executive Officer
If to the Escrow
Representatives:
------------------------
------------------------
------------------------
If to the Escrow
Agent: The American Stock Transfer & Trust Company
6201 15th Avenue, 3rd Floor
Brooklyn, NY 11219
Attention: Herbert Lemmer, Esq.
General Counsel
</TABLE>
If to the Management Members, at his or her address set forth on the
signature pages hereto.
Any party may give any notice, instruction or communication in connection
with this Agreement using any other means (including personal delivery, telecopy
or ordinary mail), but no such notice, instruction or communication shall be
deemed to have been delivered unless and until it is actually received by the
party to whom it was sent. Any party may change the address to which notices,
instructions or communications are to be delivered by giving the other parties
to this Agreement notice thereof in the manner set forth in this Section 10.
11. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by
delivering a resignation to the parties to this Escrow Agreement, not less than
60 days prior to the date when such resignation shall take effect. The Buyer may
appoint a successor Escrow Agent without the consent of the Escrow
Representatives so long as such successor is a bank with assets of at least
$500 million, and may appoint any other successor Escrow Agent with the consent
of the Escrow Representatives, which shall not be unreasonably withheld. If,
within such notice period, the Buyer provides to the Escrow Agent written
instructions with respect to the appointment of a successor Escrow Agent and
directions for the transfer of any Escrow Shares then held by the Escrow Agent
to such successor, the Escrow Agent shall act in accordance with such
instructions and promptly transfer such Escrow Shares to such designated
successor. If no successor Escrow Agent is named as provided in this Section 11
prior to the date on which the resignation of the Escrow Agent is to properly
take effect, the Escrow Agent may apply to a court of competent jurisdiction for
appointment of a successor Escrow Agent.
12. GENERAL.
(a) DISPUTE RESOLUTION; GOVERNING LAW; ASSIGNS. In the event of any
unresolved dispute under this Agreement with respect to either the liability
of a Holder for all or part of the Claimed Amount or with respect to the
issuance of the Milestone Escrow Shares, the parties shall follow the
procedures for alternative dispute resolution set forth in Section 6.2(d) of
the Merger Agreement. This Agreement shall be governed by and construed in
accordance with the internal
Exhibit A-6
<PAGE>
laws of the State of Delaware without regard to conflict-of-law principles
and shall be binding upon, and inure to the benefit of, the parties hereto
and their respective successors and assigns.
(b) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(c) ENTIRE AGREEMENT. Except for those provisions of the Merger
Agreement referenced herein, this Agreement constitutes the entire
understanding and agreement of the parties with respect to the subject
matter of this Agreement and supersedes all prior agreements or
understandings, written or oral, between the parties with respect to the
subject matter hereof.
(d) WAIVERS. No waiver by any party hereto of any condition or of any
breach of any provision of this Escrow Agreement shall be effective unless
in writing. No waiver by any party of any such condition or breach, in any
one instance, shall be deemed to be a further or continuing waiver of any
such condition or breach or a waiver of any other condition or breach of any
other provision contained herein.
(e) AMENDMENT. This Agreement may be amended only with the written
consent of the Buyer, the Escrow Agent and the Escrow Representatives.
(f) CONSENT TO JURISDICTION AND SERVICE. The parties hereby absolutely
and irrevocably consent and submit to the jurisdiction of the courts in the
Commonwealth of Massachusetts and of any Federal court located in said
Commonwealth in connection with any actions or proceedings brought against
any party hereto by the Escrow Agent arising out of or relating to this
Escrow Agreement. In any such action or proceeding, the parties hereby
absolutely and irrevocably waive personal service of any summons, complaint,
declaration or other process and hereby absolutely and irrevocably agree
that the service thereof may be made by certified or registered first-class
mail directed to such party, at their respective addresses in accordance
with Section 10 hereof.
[Remainder of page intentionally left blank.]
Exhibit A-7
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
<TABLE>
<S> <C>
BIOTRANSPLANT INCORPORATED:
By:
----------------------------------------
Name:
-------------------------------------
Title:
--------------------------------------
ESCROW REPRESENTATIVES:
--------------------------------------------
Robert Momsen
--------------------------------------------
Pieter Schiller
THE AMERICAN STOCK TRANSFER AND TRUST
COMPANY:
By:
----------------------------------------
Name:
-------------------------------------
Title:
--------------------------------------
MANAGEMENT MEMBERS:
Name:
-------------------------------------
Tara Clark
Address:
------------------------------------
------------------------------------
------------------------------------
</TABLE>
Exhibit A-8
<PAGE>
<TABLE>
<S> <C>
Name:
-------------------------------------
David Cook
Address:
------------------------------------
------------------------------------
------------------------------------
Name:
-------------------------------------
James Embree
Address:
------------------------------------
------------------------------------
------------------------------------
Name:
-------------------------------------
Joseph Fazio
Address:
------------------------------------
------------------------------------
------------------------------------
Name:
-------------------------------------
James R. Fitzgerald, Jr.
Address:
------------------------------------
------------------------------------
------------------------------------
Name:
-------------------------------------
Connie Garrison
Address:
------------------------------------
------------------------------------
------------------------------------
Name:
-------------------------------------
Michael Jarpe
Address:
------------------------------------
------------------------------------
------------------------------------
</TABLE>
Exhibit A-9
<PAGE>
<TABLE>
<S> <C>
Name:
-------------------------------------
Nancy Jones
Address:
------------------------------------
------------------------------------
------------------------------------
Name:
-------------------------------------
Cynthia Letizia
Address:
------------------------------------
------------------------------------
------------------------------------
Name:
-------------------------------------
Rodney Monroy
Address:
------------------------------------
------------------------------------
------------------------------------
Name:
-------------------------------------
Walter C. Ogier
Address:
------------------------------------
------------------------------------
------------------------------------
Name:
-------------------------------------
Judith Snow
Address:
------------------------------------
------------------------------------
------------------------------------
</TABLE>
Exhibit A-10
<PAGE>
ATTACHMENT A
Holder Percentage
Exhibit A-11
<PAGE>
EXHIBIT B
FORM OF LOCK-UP AGREEMENT
<PAGE>
[FORM OF LOCK-UP AGREEMENT]
, 2000
BioTransplant Incorporated
Building 75
Third Avenue
Charlestown, MA 02129
Ladies and Gentlemen:
(a) The undersigned stockholder of Eligix, Inc. (the "Company") understands
that BioTransplant Incorporated (the "Buyer"), and BT/EL Acquisition Co., a
wholly-owned subsidiary of the Buyer (the "Transitory Subsidiary"), have entered
into an Agreement and Plan of Merger (the "Merger Agreement") with the Company
pursuant to which the Transitory Subsidiary will merge (the "Merger") with and
into the Company and the outstanding shares of capital stock of the Company (the
"Company Shares") will be converted into shares of common stock of the Buyer
(the "Buyer Common Stock").
(b) In order to facilitate the transactions contemplated by the Merger
Agreement, the undersigned agrees that the undersigned will not, for the period
commencing on the Effective Time (as defined in the Merger Agreement) and
terminating on the date one year subsequent to the Effective Time, sell,
transfer, pledge, hypothecate or otherwise dispose of, or reduce the
undersigned's interest in or risk relating to, any shares of Buyer Common Stock:
(i) issued to the undersigned upon the conversion of the undersigned's Company
Shares (as defined in the Merger Agreement) in accordance with the terms of the
Merger Agreement; (ii) issued to the undersigned upon the exercise or conversion
of any Company Options, Company Warrants or Company Notes (as defined in the
Merger Agreement) assumed by the Buyer in accordance with the terms of the
Merger Agreement; (iii) issued to the undersigned in the form of Management
Incentive Shares in accordance with Section 1.14 of the Merger Agreement; or
(iv) otherwise acquired or beneficially owned by the undersigned as a result of
the transactions contemplated by the Merger Agreement (collectively the
"RESTRICTED SHARES"). The provisions of the preceding sentence shall not apply:
(a) during the period beginning after the date 90 days subsequent to the
Effective Time and ending on the date 180 days subsequent to the Effective Time,
with respect to 33 1/3% of the Restricted Shares; (b) during the period
beginning on the date 181 days subsequent to the Effective Time and ending on
the date 270 days subsequent to the Effective Time, with respect to 66 2/3% of
the Restricted Shares (including the 33 1/3% of the Restricted Shares set forth
in the preceding clause (a)); and (c) during the period beginning on the date
271 days subsequent to the Effective Time and ending on the date 365 days
subsequent to the Effective Time, with respect to 90% of the Restricted Shares
(including the 66 2/3% of the Restricted Shares set forth in the preceding
clause (b)). The Company shall cause stop transfer orders to be placed with its
transfer agent with respect to the securities of the Company restricted by this
Section 2.
(c) Notwithstanding the foregoing, the undersigned agrees that, if
requested by the Buyer and the managing underwriter of any registered public
offering by the Buyer of the Buyer Common Stock or other securities of the Buyer
pursuant to a registration statement filed with the U.S. Securities and Exchange
Commission under the Securities Act of 1933, as amended ("Registration
Statement"), at any time prior to 365 days subsequent to the Effective Time, the
undersigned shall not sell, transfer, pledge, hypothecate or otherwise dispose
of any Restricted Shares for a period of time not to exceed ninety (90) days
following the effective date of such Registration Statement; PROVIDED that the
officers and directors of the Buyer who own Buyer Common Stock or other
securities of Buyer also agree, and remain subject to, such restrictions.
(d) It is understood that, if the Closing Date (as defined in the Merger
Agreement) does not occur on or before April 30, 2001, or if the Merger
Agreement shall be terminated by either party in accordance with the provisions
thereof at any time prior to the Closing Date, then this Agreement shall
terminate.
<PAGE>
(e) The Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware. This agreement may not be amended, modified,
revoked or terminated in any respect without the written consent of the
undersigned, the Company and the Buyer. This Agreement shall be binding upon the
undersigned and its heirs, successors and assigns.
Very truly yours,
--------------------------------------
Name of Stockholder
By:
--------------------------------------
Title:
Date: __________, 2000
Exhibit B-2
<PAGE>
EXHIBIT C
FORM OF AFFILIATE AGREEMENT
<PAGE>
AFFILIATE AGREEMENT
__________, 2000
BioTransplant Incorporated
Building 75
Third Avenue
Charlestown, MA 02129
Eligix, Inc.
200 Boston Avenue
Medford, MA 02155
Dear Sirs:
An Agreement and Plan of Merger dated as of December 8, 2000 (the "Merger
Agreement") has been entered into by and among BioTransplant Incorporated, a
Delaware corporation (the "Buyer"), BT/EL Acquisition Co., a Delaware
corporation and a wholly-owned subsidiary of Buyer (the "Transitory
Subsidiary"), and Eligix, Inc., a Delaware corporation (the "Company"). The
Merger Agreement provides for the merger of the Transitory Subsidiary with and
into the Company (the "Merger"). In accordance with the Merger Agreement, the
shares of each class of capital stock of the Company (collectively, the "Company
Stock") shall be converted into shares of common stock, $0.01 par value per
share, of the Buyer (the "Buyer Common Stock"), as more fully described in the
Merger Agreement.
The undersigned may be deemed to be an "affiliate" of the Company within the
meaning of the rules promulgated under the Securities Act of 1933, as amended
(the "Securities Act"). In consideration of the mutual agreements set forth in
the Merger Agreement and hereinafter in this agreement, the undersigned
represents and agrees as follows:
1. RULE 145.
(a) The undersigned will not offer, sell, transfer, pledge, hypothecate
or otherwise dispose of, or reduce the undersigned's interest in or risk
relating to, any shares of Buyer Common Stock (other than Management
Incentive Shares issued in accordance with Section 1.14 of the Merger
Agreement) issued to the undersigned in the Merger unless at such time
either: (i) such transaction shall be permitted pursuant to the provisions
of Rule 145 under the Securities Act; (ii) the undersigned shall have
furnished to the Buyer an opinion of counsel, satisfactory to the Buyer, to
the effect that no registration under the Securities Act would be required
in connection with the proposed offer, sale, transfer, pledge, hypothecation
or other disposition; or (iii) a registration statement under the Securities
Act covering the proposed offer, sale, transfer, pledge, hypothecation or
other disposition shall be effective under the Securities Act.
(b) The undersigned understands that all certificates representing
shares of Buyer Common Stock (other than Management Incentive Shares)
delivered to the undersigned pursuant to the Merger shall bear a legend
substantially in the form set forth below, until the earliest to occur of
(i) one of the events referred to in clauses (i), (ii) or (iii) of
Section 1(a) above or (ii) the date on which the undersigned requests
removal of such legend, provided that such request occurs at least two years
from the Effective Time and that the undersigned is not at the time of such
request, and has not been during the three-month period immediately
preceding such request, an affiliate of the Buyer:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 of the Securities Act of 1933
applies and may only be transferred in accordance with the
provisions of such rule. In addition, the shares represented by
<PAGE>
this certificate may only be transferred in accordance with the
terms of an Affiliate Agreement dated as of December 8, 2000
between the initial holder hereof and the corporation, a copy of
which agreement may be inspected by the holder of this
certificate at the principal offices of the corporation, or
furnished by the corporation to the holder of this certificate
upon written request without charge."
(c) The Buyer, in its discretion, may cause stop transfer orders to be
placed with its transfer agent with respect to the certificates for the
shares of Buyer Common Stock which are required to bear the foregoing
legend.
2. MISCELLANEOUS.
(a) This agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
(b) This agreement shall be binding on the undersigned's successors and
assigns, including his heirs, executors and administrators.
The undersigned has carefully read this agreement and discussed its
requirements, to the extent the undersigned believed necessary, with its counsel
or counsel for the Company.
Very truly yours,
Signature
--------------------------------------
Print Name
Accepted:
BIOTRANSPLANT INCORPORATED
---------------------------------------------
(signature)
---------------------------------------------
(print name and title)
---------------------------------------------
(date)
ELIGIX, INC.
---------------------------------------------
(signature)
---------------------------------------------
(print name and title)
---------------------------------------------
(date)
Exhibit C-2
<PAGE>
EXHIBIT D
OPINION OF MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.
<PAGE>
FORM OF OPINION OF COUNSEL TO THE COMPANY
1. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware. The Company has all
requisite corporate power and authority to carry on the businesses in which, to
our knowledge, it is engaged and to own and use the properties which, to our
knowledge, are owned and used by it.
2. As of the date hereof, the authorized capital stock of the Company
consists of (a) 66,000,000 Common Shares, of which 196,969 shares are of record
issued and outstanding and no shares were of record held in the treasury of the
Company and (b) 57,200,000 Preferred Shares, of which (i) 11,100,000 shares have
been designated as Series A Convertible Preferred Stock, of which 10,911,332
shares are of record issued and outstanding, (ii) 12,500,000 shares have been
designated as Series B Convertible Preferred Stock, of which 11,214,755 shares
are of record issued and outstanding, (iii) 10,000,000 shares have been
designated as Series C-1 Convertible Preferred Stock, of which no shares are of
record issued and outstanding, (iv) 11,100,000 shares have been designated as
Series C-2 Convertible Preferred Stock, of which no shares are of record issued
and outstanding, and (v) 12,500,000 shares have been designated as Series C-3
Convertible Preferred Stock, of which no shares are of record issued and
outstanding. To the best of such counsel's knowledge, all of the issued and
outstanding shares of capital stock of the Company are duly authorized, validly
issued, fully paid, nonassessable and free of all preemptive rights. Except as
set forth in the Company Disclosure Schedule, to such counsel's knowledge, there
are no outstanding or authorized options, warrants, rights, agreements or
commitments to which the Company is a party or which are binding upon the
Company providing for the issuance or redemption of any of its capital stock.
3. The Company has all requisite corporate power and authority to execute
and deliver the Agreement and to perform its obligations thereunder. The
execution and delivery by the Company of the Agreement and the consummation by
the Company of the transactions contemplated thereby have been duly and validly
authorized by all necessary corporate action (including the Requisite Company
Stockholder Approval) on the part of the Company. The Agreement has been duly
and validly executed and delivered by the Company. Assuming the due
authorization, execution and delivery by the Buyer, the Agreement constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to bankruptcy, insolvency and similar laws
affecting the rights of creditors generally, general equitable principles and
other customary exceptions.
4. Except as set forth in Section 2.4 of the Agreement or Section 2.4 of
the Company Disclosure Schedule, neither the execution and delivery by the
Company of the Agreement, nor the consummation by the Company of the
transactions contemplated thereby, (i) conflicts with or violates any provision
of the Certificate of Incorporation or By-laws of the Company, (ii) requires on
the part of the Company or any Subsidiary any filing with, or permit,
authorization, consent or approval of, any Governmental Entity, (iii) conflicts
with, results in a breach of, constitutes (with or without due notice or lapse
of time or both) a default under, results in the acceleration of obligations
under, creates in any party the right to terminate, modify or cancel, or
requires any notice, consent or waiver under, any contract or instrument to
which the Company is a party set forth in Section 2.13 or Section 2.15 of the
Company Disclosure Schedule, (iv) to the best of such counsel's knowledge,
results in the imposition of any Security Interest upon any assets of the
Company, (v) violates any Massachusetts state statute, or United States federal
rule or regulation applicable to the Company, or (vi) violates any order, writ,
injunction or decree known to such counsel and specifically naming the Company
or any of its properties or assets, excluding from the foregoing clauses (iii),
(iv) and (v) any exceptions to the foregoing that, in the aggregate, would not
have a material adverse effect on the Company or on the ability of the Company
to consummate the transactions contemplated by the Agreement.
5. The Certificate of Amendment of Certificate of Incorporation has been
duly authorized by all necessary corporate action on the part of the Company.
6. To such counsel's knowledge, except as set forth in the Company
Disclosure Schedule, there are no actions, suits, investigations or claims or
legal, administrative or arbitration proceedings pending or threatened against
the Company.
7. Upon the filing and acceptance of the Certificate of Merger with the
Secretary of State of Delaware, the Merger will be effective under the Delaware
General Corporation Law statute.
<PAGE>
EXHIBIT E
FORM OF VOTING AND TRANSFER RESTRICTION AGREEMENT
<PAGE>
VOTING AND TRANSFER RESTRICTION AGREEMENT
DECEMBER , 2000
BioTransplant Incorporated
Building 75
Third Avenue
Charlestown, MA 02129
Eligix, Inc.
200 Boston Avenue
Medford, MA 02155
Ladies and Gentlemen:
An Agreement and Plan of Merger dated as of December 8, 2000 (the "MERGER
AGREEMENT") is being or has been entered into by and among BioTransplant
Incorporated, a Delaware corporation (the "BUYER"), BT/EL Acquisition Co., a
Delaware corporation and a wholly owned subsidiary of the Buyer (the "TRANSITORY
SUBSIDIARY"), and Eligix, Inc., a Delaware corporation (the "COMPANY"). The
Merger Agreement provides for the merger of the Transitory Subsidiary with and
into the Company (the "MERGER"). In accordance with the Merger Agreement, the
shares of each class of capital stock of the Company (collectively, the "COMPANY
STOCK") shall be converted into shares of common stock, $0.01 par value per
share, of the Buyer (the "BUYER COMMON STOCK"), as more fully described in the
Merger Agreement.
The undersigned is the record holder and beneficial owner of such number of
shares of Company Stock (the "SHARES") as is indicated on the final page of this
Voting and Transfer Restriction Agreement (this "AGREEMENT").
The undersigned may be deemed to be an Affiliate (as defined in the Merger
Agreement) of the Company.
In consideration of the mutual agreements set forth in the Merger Agreement
and hereinafter in this Agreement, the undersigned represents and agrees as
follows:
1. VOTING.
(a) At every meeting of the stockholders of the Company called with
respect to any of the matters set forth in clauses (i) or (ii) of this
Section 1(a), and at every adjournment thereof, and on every action or
approval by written consent of the stockholders of the Company with respect
to any of the matters set forth in clauses (i) or (ii) of this
Section 1(a), the undersigned shall (i) vote the Shares and any New Shares
(as defined in Section 1(b) of this Agreement) in favor of the adoption of
the Merger Agreement and the approval of the Merger and any matter that
could reasonably be expected to facilitate the Merger, including without
limitation approval of the proposed Certificate of Amendment to the
Company's Amended and Restated Certificate of Incorporation in the form
attached as Exhibit F to the Merger Agreement, and as specified by the Buyer
with respect to any matter that would be inconsistent with or make it more
difficult or less desirable for the Buyer to complete the transactions
contemplated by the Merger Agreement and (ii) not vote the Shares nor any
New Shares in favor of any other acquisition (whether by way of merger,
consolidation, share exchange, stock purchase, asset purchase or otherwise)
of all or a majority of the outstanding capital stock or assets of the
Company (a "Competing Transaction"). The undersigned further agrees not to
solicit, encourage or recommend to other stockholders of the Company that
they (a) vote their shares of Company Stock or any other securities in any
contrary manner, (b) do not vote their shares of Company Stock at all,
(c) tender, exchange or otherwise dispose of their shares of Company Stock
pursuant to a Competing Transaction or (d) attempt to exercise any statutory
appraisal or other similar rights they may have.
(b) The undersigned agrees that any shares of Company Stock that the
undersigned purchases or with respect to which the undersigned otherwise
acquires beneficial ownership after
<PAGE>
the execution of this Agreement and prior to the termination of this
Agreement in accordance with Section 7 of this Agreement ("NEW SHARES")
shall be subject to the terms and conditions of this Agreement to the same
extent as if they constituted Shares.
(c) Concurrently with the execution of this Agreement, the undersigned
agrees to deliver to the Buyer a proxy in the form attached hereto as
Appendix A (the "PROXY"), which shall be irrevocable, with respect to the
Shares.
2. TRANSFER RESTRICTIONS.
(a) During the term of this Agreement, except pursuant to the Merger,
the undersigned agrees not to sell, transfer, pledge, hypothecate or
otherwise dispose of, or reduce the undersigned's interest in or risk
relating to, any securities of the Company; provided that the undersigned
may sell or otherwise dispose of any of his or her shares of Company Stock
provided that the transferee of such Shares of Company Stock agrees to be
bound by and subject to the terms and conditions of this Agreement.
(b) During the period commencing on the Effective Time (as defined in
the Merger Agreement) and terminating on the date one year subsequent to the
Effective Time, the undersigned agrees not to sell, transfer, pledge,
hypothecate or otherwise dispose of, or reduce the undersigned's interest in
or risk relating to, any shares of Buyer Common Stock: (i) issued to the
undersigned upon the conversion of the undersigned's shares of Company Stock
in accordance with the terms of the Merger Agreement; (ii) issued to the
undersigned upon the exercise or conversion of any Company Options, Company
Warrants or Company Notes (each as defined in the Merger Agreement) assumed
by the Buyer in accordance with the terms of the Merger Agreement;
(iii) issued to the undersigned in the form of Management Incentive Shares
in accordance with Section 1.14 of the Merger Agreement; or (iv) otherwise
acquired or beneficially owned by the undersigned as a result of the
transactions contemplated by the Merger Agreement (collectively with the
shares of Buyer Common Stock described in the preceding clauses (i),
(ii) and (iii), the "RESTRICTED SHARES"). The provisions of the preceding
sentence shall not apply: (a) during the period beginning after the date
90 days subsequent to the Effective Time and ending on the date 180 days
subsequent to the Effective Time, with respect to 33 1/3% of the Restricted
Shares; (b) during the period beginning on the date 181 days subsequent to
the Effective Time and ending on the date 270 days subsequent to the
Effective Time, with respect to 66 2/3% of the Restricted Shares (including
the 33 1/3% of the Restricted Shares set forth in the preceding
clause (a)); and (c) during the period beginning on the date 271 days
subsequent to the Effective Time and ending on the date 365 days subsequent
to the Effective Time, with respect to 90% of the Restricted Shares
(including the 66 2/3% of the Restricted Shares set forth in the preceding
clause (b)). The Company shall cause stop transfer orders to be placed with
its transfer agent with respect to the securities of the Company restricted
by this Section 2.
(c) Notwithstanding the foregoing, the undersigned agrees that, if
requested by the Buyer and the managing underwriter of any registered public
offering by the Buyer of Buyer Common Stock or other securities of the Buyer
pursuant to a registration statement filed with the U.S. Securities and
Exchange Commission under the Securities Act of 1933, as amended
("Registration Statement"), at any time prior to one year subsequent to the
Effective Time, the undersigned shall not sell, transfer, pledge,
hypothecate or otherwise dispose of any Restricted Shares for a period of
time not to exceed ninety (90) days following the effective date of such
Registration Statement; provided that the officers and directors of the
Buyer who own Buyer Common Stock or other securities of Buyer also agree,
and remain subject to, such restrictions.
Exhibit E-2
<PAGE>
3. RULE 145.
(a) The undersigned will not offer, sell, transfer, pledge, hypothecate
or otherwise dispose of, or reduce the undersigned's interest in or risk
relating to, any shares of Buyer Common Stock (other than the Management
Incentive Shares) issued to the undersigned in connection with the
transaction contemplated by the Merger Agreement unless at such time either:
(i) such transaction shall be permitted pursuant to the provisions of
Rule 145 under the Securities Act of 1933, as amended (the "SECURITIES
ACT"); (ii) the undersigned shall have furnished to the Buyer an opinion of
counsel, satisfactory to the Buyer, to the effect that no registration under
the Securities Act would be required in connection with the proposed offer,
sale, transfer, pledge, hypothecation or other disposition; or (iii) a
registration statement under the Securities Act covering the proposed offer,
sale, transfer, pledge, hypothecation or other disposition shall be
effective under the Securities Act.
(b) The undersigned understands that all certificates representing
shares of Buyer Common Stock (other than the Management Incentive Shares)
delivered to the undersigned pursuant to the transactions contemplated by
the Merger Agreement shall bear a legend substantially in the form set forth
below, until the earliest to occur of (i) one of the events referred to in
clauses (i), (ii) or (iii) of Section 3(a) or (ii) the date on which the
undersigned requests removal of such legend, provided that such request
occurs at least two years from the Effective Time and that the undersigned
is not at the time of such request, and has not been during the three-month
period immediately preceding such request, an affiliate of the Buyer:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 of the Securities Act of 1933
applies and may only be transferred in accordance with the
provisions of such rule. In addition, the shares represented by
this certificate may only be transferred in accordance with the
terms of a Voting and Transfer Restriction Agreement dated as of
December 8, 2000 between the initial holder hereof and the
corporation, a copy of which agreement may be inspected by the
holder of this certificate at the principal offices of the
corporation, or furnished by the corporation to the holder of this
certificate upon written request without charge."
Notwithstanding the foregoing, in no event shall such legend be removed
prior to the expiration of the transfer restrictions set forth in Section 2 of
this Agreement.
(c) The Buyer, in its discretion, may cause stop transfer orders to be
placed with its transfer agent with respect to the certificates for the
shares of Buyer Common Stock which are required to bear the foregoing
legend.
4. REPRESENTATIONS AND WARRANTIES. The undersigned represents and warrants
that he, she or it: (i) is the beneficial owner of the Shares, which at the date
hereof are free and clear of any liens, claims, options, charges, restrictions
on voting or other encumbrances; (ii) does not beneficially own any shares of
capital stock of the Company other than the Shares; and (iii) has full power and
authority to make, enter into and carry out the terms of this Agreement.
5. ADDITIONAL DOCUMENTS. The undersigned hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of the Buyer, to carry out the intent of this Agreement.
6. CONSENTS AND WAIVERS. The undersigned hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreements to which the undersigned is a party or pursuant to
any rights the undersigned may have.
Exhibit E-3
<PAGE>
7. TERMINATION. The provisions of Section 1 of this Agreement, including
the Proxy, shall terminate and shall have no further force or effect on the
earlier to occur of (i) the date and time the Merger Agreement is terminated in
accordance with its terms and (ii) the date and time on which the Merger shall
become effective in accordance with the terms and provisions of the Merger
Agreement. The provisions of Section 2 of this Agreement shall terminate if
either (i) the Closing Date (as defined in the Merger Agreement) does not occur
on or before April 30, 2001 or (ii) the Merger Agreement is terminated by either
party in accordance with the provisions thereof at any time prior to the Closing
Date.
8. GENERAL.
(a) Entire Agreement. Except for the Merger Agreement and the Escrow
Agreement (as defined in the Merger Agreement), this Agreement constitutes
the entire agreement among the parties hereto and supersedes any prior
understandings, agreements or representations by or among the parties
hereto, written or oral, with respect to the subject matter hereof.
(b) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
(c) Counterparts and Facsimile Signature. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same instrument. This
Agreement may be executed by facsimile signature.
(d) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(e) Notices. All notices, instructions and other communications
hereunder shall be in writing. Any notice, instruction or other
communication hereunder shall be deemed duly delivered four business days
after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent for next business day
delivery via a reputable nationwide overnight courier service, in each case
to the intended recipient as set forth below:
<TABLE>
<S> <C>
IF TO THE BUYER: COPY TO:
BioTransplant Incorporated Hale and Dorr LLP
Building 75 60 State Street
Third Avenue Boston, Massachusetts 02109
Charlestown, MA 02129 Attention: Steven D. Singer, Esq.
</TABLE>
Attention: Chief Executive Officer
IF TO THE UNDERSIGNED:
At the address set forth on the signature page to this Agreement.
<TABLE>
<S> <C>
IF TO THE COMPANY: COPY TO:
Eligix, Inc. Mintz, Levin, Cohn, Ferris, Glovsky
200 Boston Avenue and Popeo, P.C.
Medford, MA 02155 One Financial Center
Attention: President Boston, MA 02111
Attention: William T. Whelan, Esq.
</TABLE>
Any party hereto may give any notice, instruction or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail or electronic mail), but no
such notice, instruction or other communication shall be deemed to
Exhibit E-4
<PAGE>
have been duly given unless and until it actually is received by the party to
whom it is intended. Any party hereto may change the address to which notices,
instructions, or other communications hereunder are to be delivered by giving
the other parties hereto notice in the manner set forth in this Section 8(e).
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts
without giving effect to any choice or conflict of law provision or rule
(whether of the Commonwealth of Massachusetts or any other jurisdiction)
that would cause the application of laws of any jurisdiction other than
those of the Commonwealth of Massachusetts.
(g) Amendments and Waivers. This Agreement may be amended only with the
written consent of the Buyer and the undersigned. No waiver of any right or
remedy hereunder shall be valid unless the same shall be in writing and
signed by the party giving such waiver. No waiver by any party hereto with
respect to any condition, default or breach of covenant hereunder shall be
deemed to extend to any prior or subsequent condition, default or breach of
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(h) Submission to Jurisdiction. Each of the parties hereto (a) submits
to the jurisdiction of any state or federal court sitting in the
Commonwealth of Massachusetts in any action or proceeding arising out of or
relating to this Agreement, (b) agrees that all claims in respect of such
action or proceeding may be heard and determined in any such court, and
(c) agrees not to bring any action or proceeding arising out of or relating
to this Agreement in any other court. Each of the parties hereto waives any
defense of inconvenient forum to the maintenance of any action or proceeding
so brought and waives any bond, surety or other security that might be
required of any other party with respect thereto. Any party hereto may make
service on another party hereto by sending or delivering a copy of the
process to the party hereto to be served at the address and in the manner
provided for the giving of notices in Section 8(e). Nothing in this
Section 8(h), however, shall affect the right of any party to serve legal
process in any other manner permitted by law.
(i) Severability. If any provisions of this Agreement is declared
invalid or unenforceable by any tribunal, then such provision shall be
deemed automatically adjusted to conform to the requirements for validity
and enforceability as declared at such time and, as so adjusted, shall be
deemed a provision of this Agreement as though originally included herein.
If the provision that is declared invalid or unenforceable is of such a
nature that it cannot be so adjusted, the provision shall be deleted from
this Agreement as though the provision had never been included herein. In
either case, all other provisions of this Agreement shall remain in full
force and effect.
(j) Specific Performance; Injunctive Relief. The parties hereto
acknowledge that it will be impossible to measure in money the damage to the
Buyer if the undersigned fails to comply with the obligations imposed by
this Agreement and that the Buyer will be irreparably harmed and there will
be no adequate remedy at law for a violation of any of the covenants or
agreements of the undersigned set forth herein. Therefore, it is agreed
that, in addition to any other remedies that may be available to the Buyer
upon any such violation, the Buyer shall have the right to seek to enforce
such covenants and agreements by specific performance, injunctive relief or
by any other means available to the Buyer at law or in equity. The
undersigned agrees not to seek, and agrees to waive any requirement for, the
securing or posting of a bond in connection with the Buyer seeking or
obtaining such equitable relief.
(k) No Voting Trusts. The undersigned hereby revokes any and all proxies
and voting instructions with respect to the Shares previously given by the
undersigned, and the undersigned agrees that it will not grant or give any
other proxies or voting instructions with respect to the voting of the
Shares, enter into any voting trust or other arrangement or agreement with
respect to
Exhibit E-5
<PAGE>
the voting of the Shares (and, if given or executed, such proxies, voting
instructions, voting trust or other arrangement or agreement shall not be
effective) in matters which directly relate to the Merger.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
Exhibit E-6
<PAGE>
The undersigned has carefully read this agreement and discussed its
requirements, to the extent the undersigned believed necessary, with its
counsel.
<TABLE>
<S> <C>
Very truly yours,
------------------------------------
Print Name:
Number of Shares Beneficially
Owned: ----------------------------
Address: ---------------------------
---------------------------
---------------------------
Accepted:
BIOTRANSPLANT INCORPORATED
------------------------------------
(signature)
------------------------------------
(print name and title)
------------------------------------
(date)
ELIGIX, INC.
------------------------------------
(signature)
------------------------------------
(print name and title)
------------------------------------
(date)
</TABLE>
Exhibit E-7
<PAGE>
APPENDIX A
IRREVOCABLE PROXY
The undersigned securityholder of Eligix, Inc., a Delaware corporation (the
"COMPANY"), hereby irrevocably appoints the members of the Board of Directors of
BioTransplant Incorporated, a Delaware corporation (the "BUYER"), and each of
them, as the sole and exclusive attorneys and proxies of the undersigned, with
full power of substitution and resubstitution, to the full extent of the
undersigned's rights with respect to the securities of the Company beneficially
owned by the undersigned, which securities are listed on the final page of this
Irrevocable Proxy, and any and all other securities of the Company that the
undersigned purchases or with respect to which the undersigned otherwise
acquires beneficial ownership on or after the date hereof and prior to the date
this proxy terminates (collectively, the "SHARES"), until the earlier to occur
of (i) the date and the time on which the Merger (as defined in the Agreement
and Plan of Merger dated as of December 8, 2000 (the "MERGER AGREEMENT") by and
among the Buyer, a wholly owned subsidiary of the Buyer and the Company) shall
become effective in accordance with the terms and provisions of the Merger
Agreement and (ii) the date that the Merger Agreement is terminated in
accordance with its terms (which such other securities shall be deemed Shares
for purposes of this proxy) (such earlier date, the "PROXY TERMINATION"). Upon
the execution hereof, all prior proxies given by the undersigned with respect to
the Shares are hereby revoked and no subsequent proxies will be given until such
time as this proxy shall be terminated in accordance with its terms.
This proxy is irrevocable, is granted pursuant to the Voting and Transfer
Restriction Agreement dated as of December 8, 2000 between the Buyer and the
undersigned stockholder (the "VOTING AGREEMENT"), and is granted in
consideration of the Buyer entering into the Merger Agreement. The Buyer and the
undersigned stockholder agree and acknowledge that the grant of this irrevocable
proxy is a material inducement for the Buyer to enter into the Merger Agreement,
and is therefore coupled with an interest and irrevocable. The attorneys and
proxies named above will be empowered at any time prior to the Proxy Termination
to exercise all voting and other rights (including, without limitation, the
power to execute and deliver written consents with respect to the Shares) of the
undersigned (a) in favor of the adoption of the Merger Agreement and the
approval of the Merger (as defined in the Merger Agreement) and any matter that
could reasonably be expected to facilitate the Merger, including without
limitation approval of the proposed Certificate of Amendment of the Company's
Amended and Restated Certificate of Incorporation in the form attached as
EXHIBIT F to the Merger Agreement, (b) as such attorneys and proxies deem
appropriate with respect to any matter that would be inconsistent with or make
it more difficult or less desirable for the Buyer to complete the transactions
contemplated by the Merger Agreement and (c) against any other acquisition
(whether by way of merger, consolidation, share exchange, stock purchase, asset
purchase or otherwise) of all or a majority of the outstanding capital stock or
assets of the Company at every annual, special or adjourned meeting of the
Company stockholders, and in every written consent in lieu of such a meeting, or
otherwise. This proxy will terminate upon the Proxy Termination.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares at any time prior to the Proxy Termination at every annual, special
or adjourned meeting of the stockholders of the Company and in every written
consent in lieu of such meeting, (a) in favor of the adoption of the Merger
Agreement and the approval of the Merger and any matter than could reasonably be
expected to facilitate the Merger, (b) as such attorneys and proxies deem
appropriate with respect to any matter that would be inconsistent with or make
it more difficult or less desirable for the Buyer to complete the transactions
contemplated by the Merger Agreement and (c) against any other acquisition
(whether by way of merger, consolidation, share exchange, stock purchase, asset
purchase or otherwise) of all or a majority of the outstanding capital stock or
assets of the Company. The undersigned securityholder may vote the Shares on all
other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
<PAGE>
Dated: December , 2000
Name of Stockholder:
-------------------------
By:
-----------------------------------------
Print Name of Signatory:
----------------------
Title of Signatory:
----------------------------
Number of Shares of Common Stock Beneficially Owned:
-------------------
Number of Shares of Preferred Stock Beneficially Owned:
-------------------
<PAGE>
EXHIBIT F
AMENDMENT TO THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF ELIGIX, INC.
<PAGE>
AMENDMENT TO THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF ELIGIX, INC.
1. Sections 3(e)(i)(A) and 3(e)(i)(B) of Article IV of the Amended and
Restated Certificate of Incorporation of Eligix, Inc. are hereby amended and
restated to read in their entirety as follows:
"(A) If traded on a securities exchange or the Nasdaq National
Market, the value shall be deemed to be the average of the closing
sale prices for a share of the security to be delivered to the
holders of the Series Preferred and/or Common Stock (the
"Liquidation Security"), as quoted on the Nasdaq National Market
("Nasdaq"), as reported by Nasdaq, for the thirty (30) trading
days immediately preceding the date which is three (3) calendar
days prior to the date of the agreement relating to such
Acquisition or Asset Transfer (subject to equitable adjustment in
the event of any stock split, stock dividend, reverse stock split
or similar event affecting the Liquidation Security since the
beginning of such thirty-day period) (the "Thirty-Day Period");
and
(B) If actively traded over-the-counter, the value shall be deemed
to be the average of the closing bid prices for a share of the
Liquidation Security, as quoted in the over-the-counter market,
for the Thirty-Day Period."
2. Section 3(f) of Article IV of the Amended and Restated Certificate of
Incorporation is hereby amended and restated to read in its entirety as follows:
"(f) If, upon any liquidation, distribution or winding up, the
assets of the Company shall be insufficient to make payment in
full to all holders of Series Preferred, then such assets shall be
distributed first among the holders of Senior Series C Preferred
at the time outstanding, ratably in proportion to the full amounts
to which they would otherwise be respectively entitled. If after
payment in full to the holders of Senior Series C Preferred the
remaining assets of the Company shall be insufficient to make
payment in full to the holders of Junior Series Preferred, then
such remaining assets shall be distributed to the holders of
Junior Series Preferred at the time outstanding, ratably in
proportion to the full amounts to which they would otherwise be
entitled."
<PAGE>
EXHIBIT G
FORM OF EMPLOYMENT OFFER LETTER
<PAGE>
[FORM OF EMPLOYMENT OFFER LETTER]
Date
XXXXXXXXX
XXXXXXXXX
XXXXXXXXX
Dear XXXXX:
I am writing to confirm our offer to you for a position as , reporting
to . We are pleased to offer you a starting salary of $ per
month (equivalent to $ per year), to be paid semi-monthly and
reviewed annually. The monthly salary includes an allowance to help offset
contributions to certain benefits should you elect them. You are also eligible
for an annual cash bonus and to participate in our annual merit-based stock
option program, provided that any award of options will be subject to the
approval of our Board of Directors. You are also entitled to receive shares of
BTI common stock in accordance with the terms and conditions of the
Eligix, Inc. Management Equity Incentive Plan. In addition, you will receive
medical and dental insurance, 15% of the cost of which is contributed by the
employee. Term life insurance, equivalent to one times your annual salary, and
parking will be provided by the company without employee contribution. Long-term
disability insurance is provided, 100% of the cost is contributed by the
employee (your annual premium would be approximately $ ). You will also be
entitled to three weeks paid vacation accrued on an annual basis and 10 paid
holidays per year.
Your employment is subject to your signing an Invention, Non-Disclosure and
Non-Compete Agreement with BioTransplant, in the form previously provided to
you, and review of any agreement you may have with others to insure that your
employment with BioTransplant is not in conflict with any such agreements.
Also, this offer is contingent upon your ability to provide proof of your
legal right to work in the United States, as defined by Federal regulations.
By signing this letter below, you acknowledge that the foregoing offered
terms of your employment with BioTransplant do not constitute (i) a significant
diminution of your duties, responsibilities, power, title or office in effect at
Eligix, Inc. immediately prior to your acceptance of this offer or (ii) a
material reduction in your compensation (including without limitation, salary,
bonuses, options and benefits) or material change in your manner of compensation
(including without limitation, the timing of any salary or bonus payments) in
effect for you at Eligix, Inc. immediately prior to your acceptance of this
offer.
If you agree to the terms outlined above, please sign both copies of this
letter and return one copy using the enclosed, stamped envelope.
We look forward to your joining BioTransplant. We are confident that you
will make a significant contribution to BioTransplant's future success.
Sincerely,
Elliot Lebowitz, Ph.D.
President and CEO
Accepted and Agreed to:
<TABLE>
<S> <C>
------------------------------------------------------------ ------------------------
Name: Date:
</TABLE>
<PAGE>
EXHIBIT H
FORM OF NON-COMPETITION AND NON-SOLICITATION AGREEMENT
<PAGE>
INVENTION, NON-DISCLOSURE AND NON-COMPETITION AGREEMENT
This Agreement is made between BioTransplant Incorporated, a Delaware
corporation (hereinafter referred to collectively with its subsidiaries as the
"Company"), and (the "Employee").
In consideration of the employment or continued employment of the Employee
by the Company, the Employee and the Company agree as follows:
1. PROPRIETARY INFORMATION.
(a) The Employee agrees that all information, whether or not in writing,
of a private, secret or confidential nature concerning the Company's
business, business relationships, technology or financial affairs
(collectively, "Proprietary Information") is and shall be the exclusive
property of the Company. By way of illustration, but not limitation,
Proprietary Information may include inventions, products, processes,
methods, techniques, formulas, compositions, compounds, projects,
developments, plans, research data, clinical data, financial data, personnel
data, computer programs, customer and supplier lists, and contacts at or
knowledge of customers or prospective customers of the Company. The Employee
will not disclose any Proprietary Information to any person or entity other
than employees of the Company or use the same for any purposes (other than
in the performance of his/her duties as an employee of the Company) without
written approval by an officer of the Company, either during or after his/
her employment with the Company, unless and until such Proprietary
Information has become public knowledge without fault by the Employee.
(b) The Employee agrees that all files, letters, memoranda, reports,
records, data, sketches, drawings, laboratory notebooks, program listings,
or other written, photographic, or other tangible material containing
Proprietary Information, whether created by the Employee or others, which
shall come into his/her custody or possession, shall be and are the
exclusive property of the Company to be used by the Employee only in the
performance of his/her duties for the Company. All such materials or copies
thereof and all tangible property of the Company in the custody or
possession of the Employee shall be delivered to the Company, upon the
earlier of (i) a request by the Company or (ii) termination of his/her
employment. After such delivery, the Employee shall not retain any such
materials or copies thereof or any such tangible property.
(c) The Employee agrees that his/her obligation not to disclose or to
use information and materials of the types set forth in paragraphs (a) and
(b) above, and his/her obligation to return materials and tangible property,
set forth in paragraph (b) above, also extends to such types of information,
materials and tangible property of customers of the Company or suppliers to
the Company or other third parties who may have disclosed or entrusted the
same to the Company or to the Employee.
2. DEVELOPMENTS.
(a) The Employee will make full and prompt disclosure to the Company of
all inventions, improvements, discoveries, methods, developments, software,
and works of authorship, whether patentable or not, which are created, made,
conceived or reduced to practice by him/her or under his/her direction or
jointly with others during his/her employment by the Company, whether or not
during normal working hours or on the premises of the Company (all of which
are collectively referred to in this Agreement as "Developments").
(b) The Employee agrees to assign and does hereby assign to the Company
(or any person or entity designated by the Company) all his/her right, title
and interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications. However, this
paragraph 2(b) shall not apply to Developments which do not relate to the
present or planned business or research and development of the Company and
which are made and conceived by the Employee not during normal working
hours, not on the Company's premises and not using the Company's tools,
devices, equipment or Proprietary Information. The Employee understands
that, to the extent this Agreement shall be construed in accordance with the
laws of any state which
<PAGE>
precludes a requirement in an employee agreement to assign certain classes
of inventions made by an employee, this paragraph 2(b) shall be interpreted
not to apply to any invention which a court rules and/or the Company agrees
falls within such classes. The Employee also hereby waives all claims to
moral rights in any Developments.
(c) The Employee agrees to cooperate fully with the Company, both during
and after his/her employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights, patents and other
intellectual property rights (both in the United States and foreign
countries) relating to Developments. The Employee shall sign all papers,
including, without limitation, copyright applications, patent applications,
declarations, oaths, formal assignments, assignments of priority rights, and
powers of attorney, which the Company may deem necessary or desirable in
order to protect its rights and interests in any Development. The Employee
further agrees that if the Company is unable, after reasonable effort, to
secure the signature of the Employee on any such papers, any executive
officer of the Company shall be entitled to execute any such papers as the
agent and the attorney-in-fact of the Employee, and the Employee hereby
irrevocably designates and appoints each executive officer of the Company as
his/her agent and attorney-in-fact to execute any such papers on his/her
behalf, and to take any and all actions as the Company may deem necessary or
desirable in order to protect its rights and interests in any Development,
under the conditions described in this sentence.
3. NON-COMPETITION.
(a) While the Employee is employed by the Company and for a period of
two (2) years after the termination or cessation of such employment for any
reason, the Employee will not directly or indirectly:
(i) as an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, consultant, or in
any other capacity whatsoever (other than as the holder of not more than
one percent of the combined voting power of the outstanding stock of a
publicly held company), develop, design, produce, market, sell or render
(or assist any other person in developing, designing, producing,
marketing, selling or rendering) products or services competitive with
those being developed, designed, produced, marketed, sold or rendered by
the Company while the Employee was employed by the Company; or
(ii) solicit, divert or take away, or attempt to divert or to take
away, the business or patronage of any of the clients, customers or
accounts, or prospective clients, customers or accounts, of the Company
which were contacted, solicited or served by the Employee while employed
by the Company.
(b) If the Employee violates the provisions of Section 3(a), the
Employee shall continue to be bound by the restrictions set forth in
Section 3(a) until a period of two (2) years has expired without any
violation of such provisions.
4. NON-SOLICITATION.
(a) While the Employee is employed by the Company and for a period of
two (2) years after the termination or cessation of such employment for any
reason, the Employee will not directly or indirectly recruit, solicit or
hire any employee of the Company, or induce or attempt to induce any
employee of the Company to terminate his/her employment with, or otherwise
cease his/her relationship with, the Company.
(b) If the Employee violates the provisions of Section 4(a), the
Employee shall continue to be bound by the restrictions set forth in
Section 4(a) until a period of two (2) years has expired without any
violation of such provisions.
Exhibit H-2
<PAGE>
5. OTHER AGREEMENTS.
The Employee hereby represents that, except as the Employee has disclosed in
writing to the Company, the Employee is not bound by the terms of any agreement
with any previous employer or other party to refrain from using or disclosing
any trade secret or confidential or proprietary information in the course of
his/her employment with the Company or to refrain from competing, directly or
indirectly, with the business of such previous employer or any other party. The
Employee further represents that his/her performance of all the terms of this
Agreement and as an employee of the Company does not and will not breach any
agreement to keep in confidence proprietary information, knowledge or data
acquired by the Employee in confidence or in trust prior to his/her employment
with the Company, and the Employee will not disclose to the Company or induce
the Company to use any confidential or proprietary information or material
belonging to any previous employer or others.
6. UNITED STATES GOVERNMENT OBLIGATIONS.
The Employee acknowledges that the Company from time to time may have
agreements with other persons or with the United States Government, or agencies
thereof, which impose obligations or restrictions on the Company regarding
inventions made during the course of work under such agreements or regarding the
confidential nature of such work. The Employee agrees to be bound by all such
obligations and restrictions, which are made known to the Employee and to, take
all action necessary to discharge the obligations of the Company under such
agreements.
7. OTHER ACKNOWLEDGEMENTS.
The Employee recognizes that his or her willingness to enter into the
restrictive covenants contained in this Agreement was a critical condition
precedent to the Company's willingness to enter into and perform under this
Agreement and the Agreement and Plan of Merger, dated December 8, 2000, among
the Company, BT/EL Acquisition Co., a wholly-owned subsidiary of the Company,
and Eligix, Inc. The Employee also acknowledges that the restrictions contained
in this Agreement will not materially or unreasonably interfere with the
Employee's ability to earn a living.
8. MISCELLANEOUS.
(a) NO CONFLICT. The Employee represents that the execution and
performance by him/her of this Agreement does not and will not conflict with
or breach the terms of any other agreement by which the Employee is bound.
(b) NOT EMPLOYMENT CONTRACT. The Employee acknowledges that this
Agreement does not constitute a contract of employment and does not imply
that the Company will continue his/her employment for any period of time.
(c) INTERPRETATION. If any restriction set forth in Sections 3 or 4 is
found by any court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too great a range of
activities or in too broad a geographic area, it shall be interpreted to
extend only over the maximum period of time, range of activities or
geographic area as to which it may be enforceable.
(d) SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(e) WAIVER OF RIGHTS. No delay or omission by the Company in exercising
any right under this Agreement will operate as a waiver of that or any other
right. A waiver or consent given by the Company on any one occasion is
effective only in that instance and will not be construed as a bar to or
waiver of any right on any other occasion.
Exhibit H-3
<PAGE>
(f) EQUITABLE REMEDIES. The restrictions contained in this Agreement are
necessary for the protection of the business and goodwill of the Company and
are considered by the Employee to be reasonable for such purpose. The
Employee agrees that any breach of this Agreement is likely to cause the
Company substantial and irrevocable damage and therefore, in the event of
any such breach, the Employee agrees that the Company, in addition to such
other remedies which may be available, shall be entitled to specific
performance and other injunctive relief.
(g) PRIOR AGREEMENTS. This Agreement supersedes all prior agreements,
written or oral, between the Employee and the Company relating to the
subject matter of this Agreement. This Agreement may not be modified,
changed or discharged in whole or in part, except by an agreement in writing
signed by the Employee and the Company. The Employee agrees that any change
or changes in his/ her duties, salary or compensation after the signing of
this Agreement shall not affect the validity or scope of this Agreement.
(h) ASSIGNABILITY. The Company may assign this Agreement to any other
corporation or entity which acquires (whether by purchase, merger,
consolidation or otherwise) all or substantially all of the business and/or
assets of the Company. Sections 1 and 2 of this Agreement will be binding
upon the Employee's heirs, executors and administrators and the entire
Agreement will inure to the benefit of the Company and its successors and
assigns.
(i) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts. Any action,
suit, or other legal proceeding which is commenced to resolve any matter
arising under or relating to any provision of this Agreement shall be
commenced only in a court of the Commonwealth of Massachusetts (or, if
appropriate, a federal court located within Massachusetts), and the Company
and the Employee each consents to the jurisdiction of such a court.
Exhibit H-4
<PAGE>
THE EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS CAREFULLY READ THIS AGREEMENT AND
UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
EXECUTED as a sealed instrument as of the dates indicated below.
<TABLE>
<S> <C>
BIOTRANSPLANT INCORPORATED
Date: ------------------------ By: ----------------------------------------
Date: ------------------------ By: ----------------------------------------
Employee Name
</TABLE>
Exhibit H-5
<PAGE>
EXHIBIT I
OPINION OF HALE AND DORR LLP
<PAGE>
FORM OF OPINION OF COUNSEL TO THE BUYER AND THE TRANSITORY SUBSIDIARY
1. Each of the Buyer and the Transitory Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation. The Buyer has all requisite corporate power and authority
to carry on the business in which it, to our knowledge, is engaged and to own
and use the properties which, to our knowledge, are owned and used by it.
2. The authorized capital stock of the Buyer consists of (a) 50,000,000
shares of Buyer Common Stock, of which 11,710,793 shares were of record issued
and outstanding as of September 30, 2000, and (b) 2,000,000 shares of Preferred
Stock, $0.01 par value per share, of which no shares are issued or outstanding.
All of the Merger Shares and Management Incentive Shares will be, when issued in
accordance with the Agreement, duly authorized, validly issued, fully paid and
nonassessable.
3. Each of the Buyer and the Transitory Subsidiary has all requisite
corporate power and authority to execute and deliver the Agreement and (in the
case of the Buyer) the Escrow Agreement and to perform its obligations
thereunder. The execution and delivery by the Buyer and the Transitory
Subsidiary of the Agreement and (in the case of the Buyer) the Escrow Agreement
and the consummation by the Buyer and the Transitory Subsidiary of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action on the part of the Buyer and the Transitory
Subsidiary, respectively. The Agreement and (in the case of the Buyer) the
Escrow Agreement have been duly and validly executed and delivered by the Buyer
and the Transitory Subsidiary and constitute the valid and binding obligations
of the Buyer and the Transitory Subsidiary, enforceable against the Buyer and
the Transitory Subsidiary in accordance with their respective terms, subject to
bankruptcy, insolvency and similar laws affecting the rights of creditors
generally, general equitable principles and other customary exceptions.
4. Except as set forth in Section 3.4 of the Agreement, neither the
execution and delivery by the Buyer or the Transitory Subsidiary of the
Agreement, nor the consummation by the Buyer or the Transitory Subsidiary of the
transactions contemplated thereby, (i) conflicts with or violates any provision
of the charter or by-laws of the Buyer or the Transitory Subsidiary,
(ii) requires on the part of the Buyer or the Transitory Subsidiary any filing
with, or permit, authorization, consent or approval of, any Governmental Entity,
(iii) conflicts with, results in a breach of, constitutes (with or without due
notice or lapse of time or both) a default under, results in the acceleration of
obligations under, creates in any party the right to terminate, modify or
cancel, or requires any notice, consent or waiver under, any contract or
instrument to which the Buyer is a party which is filed as an Exhibit to any of
the Buyer Reports, (iv) violates any Massachusetts state statute or United
States federal rule or regulation applicable to the Buyer or the Transitory
Subsidiary, or (v) violates any order, writ, injunction or decree known to such
counsel and specifically naming the Buyer or the Transitory Subsidiary or any of
their respective properties or assets, excluding from the foregoing clauses
(iii) or (iv) any exceptions to the foregoing that, in the aggregate, would not
have a material adverse effect on the Buyer or on the ability of the Buyer to
consummate the transactions contemplated by the Agreement.
5. Upon the filing and acceptance of the Certificate of Merger with the
Secretary of State of Delaware, the Merger will be effective under the Delaware
General Corporation Law statute.
6. The Registration Statement has become effective under the Securities Act
and, to our knowledge, no stop order suspending the effectiveness of the
Registration Statement or preventing the use of the Prospectus/Proxy Statement
has been issued and no proceedings for that purpose have been instituted or are
pending or threatened.
7. The Merger Shares and the Management Incentive Shares to be issued to
the Company Stockholders pursuant to the Agreement have been registered under
the Securities Act pursuant to the Registration Statement.
8. To our knowledge, except as disclosed in the Registration Statement or
the Buyer Reports, there are no actions, suits, investigations or claims or
legal, administrative or arbitration proceedings pending or threatened against
the Buyer.
<PAGE>
ANNEX B
AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
ELIGIX, INC.
1. Sections 3(e)(i)(A) and 3(e)(i)(B) of Article IV of the Amended and
Restated Certificate of Incorporation of Eligix, Inc. are hereby amended and
restated to read in their entirety as follows:
"(A) If traded on a securities exchange or the Nasdaq National
Market, the value shall be deemed to be the average of the closing
sale prices for a share of the security to be delivered to the
holders of the Series Preferred and/or Common Stock (the
"Liquidation Security"), as quoted on the Nasdaq National Market
("Nasdaq"), as reported by Nasdaq, for the thirty (30) trading
days immediately preceding the date which is three (3) calendar
days prior to the date of the agreement relating to such
Acquisition or Asset Transfer (subject to equitable adjustment in
the event of any stock split, stock dividend, reverse stock split
or similar event affecting the Liquidation Security since the
beginning of such thirty-day period) (the "Thirty-Day Period");
and
(B) If actively traded over-the-counter, the value shall be deemed
to be the average of the closing bid prices for a share of the
Liquidation Security, as quoted in the over-the-counter market,
for the Thirty-Day Period."
2. Section 3(f) of Article IV of the Amended and Restated Certificate of
Incorporation is hereby amended and restated to read in its entirety as follows:
"(f) If, upon any liquidation, distribution or winding up, the
assets of the Company shall be insufficient to make payment in
full to all holders of Series Preferred, then such assets shall be
distributed first among the holders of Senior Series C Preferred
at the time outstanding, ratably in proportion to the full amounts
to which they would otherwise be respectively entitled. If after
payment in full to the holders of Senior Series C Preferred the
remaining assets of the Company shall be insufficient to make
payment in full to the holders of Junior Series Preferred, then
such remaining assets shall be distributed to the holders of
Junior Series Preferred at the time outstanding, ratably in
proportion to the full amounts to which they would otherwise be
entitled."
B-1
<PAGE>
ANNEX C
<TABLE>
<S> <C>
LAZARD LAZARD FRERES & CO. LLC
30 ROCKEFELLER PLAZA
NEW YORK, NY 10020
PHONE 212-632-6000
FAX 212-632-6060
www.lazard.com
December 8, 2000
</TABLE>
The Board of Directors
BioTransplant Incorporated
Charlestown Navy Yard
(Building 75)
Third Avenue
Charlestown, MA 02129
Dear Members of the Board:
We understand that BioTransplant Incorporated (the "Company"), Eligix, Inc.
(the "Subject Company") and a wholly owned subsidiary of the Company ("Sub")
have entered into an Agreement and Plan of Merger dated as of December 8, 2000
(the "Merger Agreement"), pursuant to which Sub will merge with and into the
Subject Company (the "Merger") with the Subject Company being the surviving
corporation of the Merger. Pursuant to the Merger Agreement, the Company has
agreed to issue an aggregate of 6.60 million shares (the "Total Consideration")
of its common stock, par value $0.01 per share (the "Company Common Stock"),
(i) in exchange for all of the shares of (a) common stock, par value $0.001 per
share, of the Subject Company (the "Subject Company Common Stock") issued and
outstanding immediately prior to the effective time of the Merger (the
"Effective Time"), other than shares of Subject Company Common Stock that are
owned beneficially by the Company and Sub, held in the treasury of the Subject
Company and Dissenting Shares (as defined in the Merger Agreement),
(b) Series A preferred stock, par value $0.001 per share, of the Subject Company
(the "Series A Preferred Stock") issued and outstanding immediately prior to the
Effective Time, other than shares of Series A Preferred Stock that are owned
beneficially by the Company and Sub, held in the treasury of the Subject Company
and Dissenting Shares, (c) Series B preferred stock, par value $0.001 per share,
of the Subject Company (the "Series B Preferred Stock") issued and outstanding
immediately prior to the Effective Time, other than shares of Series B Preferred
Stock that are owned beneficially by the Company and Sub, held in the treasury
of the Subject Company and Dissenting Shares, (d) Series C-1 preferred stock,
par value $0.001 per share, of the Subject Company (the "Series C-1 Preferred
Stock") issued and outstanding immediately prior to the Effective Time, other
than shares of Series C-1 Preferred Stock that are owned beneficially by the
Company and Sub, held in the treasury of the Subject Company and Dissenting
Shares, (e) Series C-2 preferred stock, par value $0.001 per share, of the
Subject Company (the "Series C-2 Preferred Stock") issued and outstanding
immediately prior to the Effective Time, other than shares of Series C-2
Preferred Stock that are owned beneficially by the Company and Sub, held in the
treasury of the Subject Company and Dissenting Shares, and (f) Series C-3
preferred stock, par value $0.001 per share, of the Subject Company (the
"Series C-3 Preferred Stock") issued and outstanding immediately prior to the
Effective Time, other than shares of Series C-3 Preferred Stock that are owned
beneficially by the Company and Sub, held in the treasury of the Subject Company
and Dissenting Shares; (ii) in satisfaction of the Subject Company's management
incentive liability as set forth in the Merger Agreement and (iii) upon exercise
or conversion, as the case may be, of all the Subject Company's options,
warrants and notes, whether vested or unvested, outstanding immediately prior to
the Effective Time.
C-1
<PAGE>
You have requested our opinion as to the fairness, from a financial point of
view, to the Company of the Total Consideration to be paid in the Merger. In
connection with this opinion, we have:
(i) Reviewed the financial terms and conditions contained in the Merger
Agreement and the form of escrow agreement appended thereto;
(ii) Analyzed certain historical business and financial information
relating to the Company and the Subject Company;
(iii) Reviewed various financial forecasts and other data provided to us by
the Company and the Subject Company relating to their respective
businesses;
(iv) Held discussions with members of the senior managements of the Company
and the Subject Company with respect to the businesses and prospects
of the Company and the Subject Company, respectively, the strategic
objectives of each, and possible benefits which might be realized
following the Merger;
(v) Reviewed public information with respect to certain other companies in
lines of businesses we believe to be generally comparable to the
businesses of the Company and the Subject Company;
(vi) Reviewed the financial terms of certain business combinations
involving companies in lines of businesses we believe to be generally
comparable to those of the Company and the Subject Company;
(vii) Reviewed the historical stock prices and trading volumes of the
Company Common Stock; and
(viii) Conducted such other financial studies, analyses and investigations as
we deemed appropriate.
We have relied upon the accuracy and completeness of the foregoing
information, and have not assumed any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company or the Subject Company, or
concerning the solvency or fair value of either of the foregoing entities. With
respect to financial forecasts, we have assumed that they have been reasonably
prepared on bases reflecting the best current available estimates and judgments
of the managements of the Company and the Subject Company as to the future
financial performance of the Company and the Subject Company, respectively. We
assume no responsibility for and express no view as to such forecasts or the
assumptions on which they are based.
Further, our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us, as
of the date hereof.
In rendering our opinion, we have assumed that the Merger will be
consummated on the terms described in the Merger Agreement, without any waiver
of any material terms or conditions by the Company and that obtaining the
necessary regulatory approvals, if any, for the Merger will not have an adverse
effect on the Company. We have further assumed that the Merger will be accounted
for as a purchase under U.S. generally accepted accounting principles and that
it will qualify as a tax-free reorganization for U.S. federal income tax
purposes.
Lazard Freres & Co. LLC is acting as investment banker to the Company in
connection with the Merger and will receive a fee for our services, a
substantial portion of which is contingent upon the consummation of the Merger.
In addition, in the ordinary course of business, we may actively trade shares of
Company Common Stock and other 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.
C-2
<PAGE>
Our engagement and the opinion expressed herein are solely for the benefit
of the Company's Board of Directors and are not on behalf of, and are not
intended to confer rights or remedies upon, the Subject Company, any
stockholders of the Company or the Subject Company or any other person. Our
opinion does not address the merits of the underlying decision by the Company to
engage in the Merger and does not constitute a recommendation to any stockholder
of the Company as to how such stockholder should vote on the Merger. In
addition, we express no opinion as to the price at which the Company Common
Stock will trade following the announcement or the consummation of the Merger,
as the case may be. It is understood that this letter may not be disclosed or
otherwise referred to without our prior consent, except as may otherwise be
required by law or by a court of competent jurisdiction.
Based on and subject to the foregoing, we are of the opinion that the Total
Consideration to be paid in the Merger is fair to the Company from a financial
point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By: /s/ STEPHEN H. SANDS
--------------------------------------
Stephen H. Sands
Managing Director
C-3
<PAGE>
ANNEX D
DELAWARE GENERAL CORPORATION LAW
SEC. 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 sec. 228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of the stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the work
"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 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 Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257,
Section 258, Section 263 or Section 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 stockholders of the surviving corporation as
provided in subsection (f) of Section 251 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
SectionSection 251, 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 in
respect thereof) 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-1
<PAGE>
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 Section 253 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 subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of such stockholder'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 stockholder's 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 Section 228
or Section 253 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 20 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
D-2
<PAGE>
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 such
stockholder's 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 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
such stockholder's 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.
D-3
<PAGE>
(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
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder 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, 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 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 such stockholder's
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.
D-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article IX of our Restated Certificate of Incorporation provides that no
director of our company shall be personally liable for any monetary damages for
any breach of fiduciary duty as a director, except to the extent that the
Delaware General Corporation Law prohibits the elimination or limitation of
liability of directors for breach of fiduciary duty.
Article X of our Restated Certificate of Incorporation provides that a
director or officer of our company (a) shall be indemnified by us against all
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement incurred in connection with any litigation or other legal proceeding
(other than an action by or in the right of our company) brought against him by
virtue of his position as a director or officer of our company if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of our company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful and
(b) shall be indemnified by us against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of our company brought against him by virtue of his position as a
director or officer of our company if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of our
company, except that no indemnification shall be made with respect to any matter
as to which such person shall have been adjudged to be liable to us, unless a
court determines that, despite such adjudication but in view of all of the
circumstances, he is entitled to indemnification of such expenses.
Notwithstanding the foregoing, to the extent that a director or officer has been
successful, on the merits or otherwise, he will be indemnified by us against all
expenses (including attorneys' fees) incurred in connection therewith. Expenses
shall be advanced to a director or officer at his request, provided that he
undertakes to repay the amount advanced if it is ultimately determined that he
is not entitled to indemnification for such expenses.
Indemnification is required to be made unless we determine that the
applicable standard of conduct required for indemnification has not been met. In
the event of a determination by us that the director or officer did not meet the
applicable standard of conduct required for indemnification, or if we fail to
make an indemnification payment within 60 days after such payment is claimed by
such person, such person is permitted to petition the court to make an
independent determination as to whether such person is entitled to
indemnification. As a condition precedent to the right of indemnification, the
director or officer must give us notice of the action for which indemnity is
sought and we have the right to participate in such action or assume the defense
thereof.
Article X of our Restated Certificate of Incorporation further provides that
the indemnification provided therein is not exclusive, and provides that in the
event that the Delaware General Corporation Law is amended to expand the
indemnification permitted to directors or officers we must indemnify those
persons to the fullest extent permitted by such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee, or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the
II-1
<PAGE>
corporation unless and only to the extent that the adjudicating court determines
that such indemnification is proper under the circumstances.
We maintain a general liability insurance policy which covers certain
liabilities of directors and officers of our company arising out of claims based
on acts or omissions in their capacities as directors or officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S> <C>
(A) EXHIBITS
*2.1(1) Agreement and Plan of Merger, dated as of December 8, 2000,
by and among the Registrant, BT/EL Acquisition Co. and
Eligix, Inc.
3.1(2) Amended and Restated Certificate of Incorporation of the
Registrant, as amended to date.
3.2(3) Amended and Restated By-laws of the Registrant, as amended
to date.
4.1(3) Specimen certificate for shares of common stock, $.01 par
value per share, of the Registrant.
5.1 Opinion of Hale and Dorr LLP.
8.1 Form of Opinion of Hale and Dorr LLP as to tax matters.
8.2 Form of Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C. as to tax matters.
10.1(3) Research and License Agreement between the Registrant and
the General Hospital Corporation, dated January 1, 1991 as
amended by Agreements dated November 10, 1993, June 28, 1995
and January 31, 1996 (the "1991 MGH Agreement").
10.2(3) Research and License Agreement between the Registrant and
the General Hospital Corporation dated December 8, 1992.
10.3(3) Research and License Agreement between the Registrant and
the General Hospital Corporation dated August 1, 1994.
10.4(3) Alliance Agreement between the Registrant and MedImmune,
Inc. dated October 2, 1995.
10.5(3) Research and Supply Agreement between the Registrant and
Charles River Laboratories, Inc., dated March 1, 1991, as
supplemented by letter dated April 10, 1992.
10.6(3) Amended and Restated Collaboration Agreement between the
Registrant and Novartis Pharma, Inc. dated September 7,
1995.
+10.7(3) Shareholders' Agreement by and among the Registrant,
Castella Research, Secure Sciences and Stem Cell Sciences
Pty. Ltd. dated April 5, 1994, as amended.
+10.8(3) Research and License Agreement between the Registrant and
Stem Cell Sciences Pty. Ltd. dated April 5, 1994.
10.9(3) Form of Common Stock Warrant issued to affiliates of
BioLease, Inc., in June 1994 and Schedule of Warrantholders.
10.10(3) Common Stock Warrant issued to Aberlyn Capital Management
dated June 16, 1993.
10.12(3) Common Stock Warrant issued to Aberlyn Capital Management
Limited Partnership dated November 18, 1994.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S> <C>
10.13(3) Form of Common Stock Warrant issued to certain investors in
August 1994 and Schedule of Warrantholders.
10.14(3) Form of Common Stock Warrant issued to certain investors in
October 1994 and Schedule of Warrantholders.
10.15(3) Form of Common Stock Warrant issued to certain investors in
August 1995 and Schedule of Warrantholders.
10.16(3) Convertible Promissory Note and Warrant Purchase Agreement
by and among the Registrant, HealthCare Ventures II, L.P.
and Everest Trust dated December 20, 1991.
10.17(3) Preferred Stock Warrant Agreement between the Registrant and
Comdisco, Inc., dated December 12, 1991, as clarified by a
Letter Agreement dated May 15, 1992.
10.18(3) Convertible Promissory Note and Warrant Purchase Agreement
by and among the Registrant and the parties signatory
thereto dated October 31, 1994.
10.19(3) Third Amended and Restated Stockholders Agreement by and
among the Registrant and the parties signatory thereto, as
amended by a Consent, Waiver and Amendment dated January 23,
1996.
10.20(3) Form of Consent, Waiver and Amendment Agreement to the Third
Amended and Restated Stockholders' Agreement by and among
the Registrant and the parties signatory thereto.
10.21(3) Amended 1991 Stock Option Plan.
10.22(3) 1994 Directors' Equity Plan.
10.23(3) Consulting Agreement between the Registrant and Dr. David H.
Sachs dated January 1, 1991.
10.24(4) Amendment to Consulting Agreement between the Registrant and
Dr. David H. Sachs dated December 1, 1998 and January 5,
2000.
10.25(3) Master Lease Agreement between the Registrant and Aberlyn
Capital Management Limited Partnership dated May 12, 1993.
10.26(3) Master Lease Agreement between the Registrant and Comdisco,
Inc. dated December 12, 1991.
10.27(3) Lease between the Registrant and BioLease, Inc. dated March
17, 1994.
10.28(4) Amendment to Lease between the Registrant and BioLease, Inc.
dated November 17, 1998.
10.29(4) Development and Supply Agreement between the Registrant and
Dendreon Corporation (formerly, Activated Cell Therapy),
dated August 22, 1996.
10.30(4) Agreement to further vary Shareholder's Agreement among the
Registrant and C.R., S.S. and Stem Cell Sciences Pty., Ltd.,
dated December 20, 1996.
10.31(4) Agreement to further vary Shareholder's Agreement among the
Registrant and C.R., S.S. and Stem Cell Sciences Pty., Ltd.,
dated March 16, 1997, as amended.
10.32(4) Collaboration and License Agreement between the Registrant
and Novartis Pharma AG, dated October 6, 1997.
10.33(4) Letter Agreement, Security Agreement and Promissory Note
between the Registrant and Fleet National Bank, dated August
10, 1999.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S> <C>
10.34(4) Miniature Swine Transfer and Maintenance Agreement dated
January 1, 1998 by and between Charles River Laboratories,
Inc., Wilmington Partners, L.P. and the Registrant.
**10.35(5) Shareholder Agreement dated September 24, 2000 by and
between the Registrant, Novartis AG and Immerge
BioTherapeutics AG (formerly known as Loxo AG), together
with exhibits.
+10.36(6) Patent License Agreement (MEDI-507), dated July 17, 1997 by
and between Protein Design Labs and MedImmune, Inc.
23.1 Consent of Hale and Dorr LLP (included in Exhibits 5.1 and
8.1).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. (included in Exhibit 8.2).
23.5 Consent of Lazard Freres & Co. LLC.
24.1 Power of Attorney with respect to the Registrant (included
on page II-7).
99.1(7) Fairness Opinion of Lazard Freres & Co. LLC.
99.2(8) Form of Escrow Agreement to be entered into by and among the
Registrant, the Management Members and Robert Momsen and
Pieter Schiller, as representatives of the security holders
of Eligix, Inc., and The American Stock Transfer and Trust
Company.
99.3 Form of Proxy Card of the Registrant.
99.4 Form of Proxy Card of Eligix, Inc.
</TABLE>
------------------------
+ Confidential treatment granted as to certain portions.
* The Registrant agrees to furnish supplementally a copy of any omitted
schedules to this agreement to the Securities and Exchange Commission upon
its request.
** Confidential treatment requested as to certain portions.
(1) Attached as Annex A to the Joint Proxy Statement/Prospectus.
(2) Incorporated by reference from the Registrant's Form 8-K dated July 18,
2000.
(3) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1, as amended (File No. 333-02144).
(4) Incorporated herein by reference to the Registrant's Form 10-K for the year
ended December 31, 1999.
(5) Incorporated herein by reference to the Registrant's Form 10-Q for the
quarter ended September 30, 2000.
(6) Incorporated by reference to the exhibit filed with MedImmune, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
(7) Attached as Annex C to the Joint Proxy Statement/Prospectus.
(8) Attached as Exhibit A to Annex A to the Joint Proxy Statement/Prospectus.
II-4
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are not applicable, and, therefore, have been omitted.
ITEM 22. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represents a fundamental change in the information set forth
in the Registration Statements. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b), if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. The registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to this registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
II-5
<PAGE>
C. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
D. The registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this registration statement through the date
of responding to the request.
E. The registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Charlestown, Commonwealth
of Massachusetts on the 8th day of January 2001.
<TABLE>
<S> <C> <C>
BIOTRANSPLANT INCORPORATED
By: /s/ ELLIOT LEBOWITZ
-----------------------------------------
Elliot Lebowitz
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below on this Registration Statement hereby constitutes and appoints Elliot
Lebowitz, Richard V. Capasso and Steven D. Singer, their true and lawful
attorneys-in-fact and agents, will full power of substitution and
resubstitution, for them and in their name, place and stead, in any and all
capacities (unless revoked in writing) to sign and any all amendments to this
Registration Statement to which this power of attorney is attached, including
any post-effective amendments as well as any related registration statement (or
amendment thereto) filed in reliance upon Rule 462(b) under the Securities Act
of 1933, as amended, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting to such attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in connection therewith, as fully to all intents and purposes as they
might and could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitute or substitutes,
may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ELLIOT LEBOWITZ
------------------------------------------- President, Chief Executive January 8, 2001
Elliot Lebowitz Officer and Director
Vice President, Finance and
/s/ RICHARD V. CAPASSO Treasurer (Principal
------------------------------------------- Financial Officer and January 8, 2001
Richard V. Capasso Principal Accounting
Officer)
------------------------------------------- Director
Donald R. Conklin
/s/ WILLIAM W. CROUSE
------------------------------------------- Director January 8, 2001
William W. Crouse
/s/ JAMES C. FOSTER
------------------------------------------- Director January 8, 2001
James C. Foster
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DANIEL O. HAUSER
------------------------------------------- Director January 8, 2001
Daniel O. Hauser
/s/ MICHAEL S. PERRY
------------------------------------------- Director January 8, 2001
Michael S. Perry
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S> <C>
*2.1(1) Agreement and Plan of Merger, dated as of December 8, 2000,
by and among the Registrant, BT/EL Acquisition Co. and
Eligix, Inc.
3.1(2) Amended and Restated Certificate of Incorporation of the
Registrant, as amended to date.
3.2.(3) Amended and Restated By-laws of the Registrant, as amended
to date.
4.1(3) Specimen certificate for shares of common stock, $.01 par
value per share, of the Registrant.
5.1 Opinion of Hale and Dorr LLP.
8.1 Form of Opinion of Hale and Dorr LLP as to tax matters.
8.2 Form of Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C. as to tax matters.
10.1(3) Research and License Agreement between the Registrant and
the General Hospital Corporation, dated January 1, 1991 as
amended by Agreements dated November 10, 1993, June 28, 1995
and January 31, 1996 (the "1991 MGH Agreement").
10.2(3) Research and License Agreement between the Registrant and
the General Hospital Corporation dated December 8, 1992.
10.3(3) Research and License Agreement between the Registrant and
the General Hospital Corporation dated August 1, 1994.
10.4(3) Alliance Agreement between the Registrant and MedImmune,
Inc. dated October 2, 1995.
10.5(3) Research and Supply Agreement between the Registrant and
Charles River Laboratories, Inc., dated March 1, 1991, as
supplemented by letter dated April 10, 1992.
10.6(3) Amended and Restated Collaboration Agreement between the
Registrant and Novartis Pharma, Inc. dated September 7,
1995.
+10.7(3) Shareholders' Agreement by and among the Registrant,
Castella Research, Secure Sciences and Stem Cell Sciences
Pty. Ltd. dated April 5, 1994, as amended.
+10.8(3) Research and License Agreement between the Registrant and
Stem Cell Sciences Pty. Ltd. dated April 5, 1994.
10.9(3) Form of Common Stock Warrant issued to affiliates of
BioLease, Inc., in June 1994 and Schedule of Warrantholders.
10.10(3) Common Stock Warrant issued to Aberlyn Capital Management
dated June 16, 1993.
10.12(3) Common Stock Warrant issued to Aberlyn Capital Management
Limited Partnership dated November 18, 1994.
10.13(3) Form of Common Stock Warrant issued to certain investors in
August 1994 and Schedule of Warrantholders.
10.14(3) Form of Common Stock Warrant issued to certain investors in
October 1994 and Schedule of Warrantholders.
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10.15(3) Form of Common Stock Warrant issued to certain investors in
August 1995 and Schedule of Warrantholders.
10.16(3) Convertible Promissory Note and Warrant Purchase Agreement
by and among the Registrant, HealthCare Ventures II, L.P.
and Everest Trust dated December 20, 1991.
10.17(3) Preferred Stock Warrant Agreement between the Registrant and
Comdisco, Inc., dated December 12, 1991, as clarified by a
Letter Agreement dated May 15, 1992.
10.18(3) Convertible Promissory Note and Warrant Purchase Agreement
by and among the Registrant and the parties signatory
thereto dated October 31, 1994.
10.19(3) Third Amended and Restated Stockholders Agreement by and
among the Registrant and the parties signatory thereto, as
amended by a Consent, Waiver and Amendment dated January 23,
1996.
10.20(3) Form of Consent, Waiver and Amendment Agreement to the Third
Amended and Restated Stockholders' Agreement by and among
the Registrant and the parties signatory thereto.
10.21(3) Amended 1991 Stock Option Plan.
10.22(3) 1994 Directors' Equity Plan.
10.23(3) Consulting Agreement between the Registrant and Dr. David H.
Sachs dated January 1, 1991.
10.24(4) Amendment to Consulting Agreement between the Registrant and
Dr. David H. Sachs dated December 1, 1998 and January 5,
2000.
10.25(3) Master Lease Agreement between the Registrant and Aberlyn
Capital Management Limited Partnership dated May 12, 1993.
10.26(3) Master Lease Agreement between the Registrant and Comdisco,
Inc. dated December 12, 1991.
10.27(3) Lease between the Registrant and BioLease, Inc. dated March
17, 1994.
10.28(4) Amendment to Lease between the Registrant and BioLease, Inc.
dated November 17, 1998.
10.29(4) Development and Supply Agreement between the Registrant and
Dendreon Corporation (formerly, Activated Cell Therapy),
dated August 22, 1996.
10.30(4) Agreement to further vary Shareholder's Agreement among the
Registrant and C.R., S.S. and Stem Cell Sciences Pty., Ltd.,
dated December 20, 1996.
10.31(4) Agreement to further vary Shareholder's Agreement among the
Registrant and C.R., S.S. and Stem Cell Sciences Pty., Ltd.,
dated March 16, 1997, as amended.
10.32(4) Collaboration and License Agreement between the Registrant
and Novartis Pharma AG, dated October 6, 1997.
10.33(4) Letter Agreement, Security Agreement and Promissory Note
between the Registrant and Fleet National Bank, dated August
10, 1999.
10.34(4) Miniature Swine Transfer and Maintenance Agreement dated
January 1, 1998 by and between Charles River Laboratories,
Inc., Wilmington Partners, L.P. and the Registrant.
**10.35(5) Shareholder Agreement dated September 24, 2000 by and
between the Registrant, Novartis AG and Immerge
BioTherapeutics AG (formerly known as Loxo AG), together
with exhibits.
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
+10.36(6) Patent License Agreement (MEDI-507), dated July 17, 1997 by
and between Protein Design Labs and MedImmune, Inc.
23.1 Consent of Hale and Dorr LLP (included in Exhibits 5.1 and
8.1).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. (included in Exhibit 8.2).
23.5 Consent of Lazard Freres & Co. LLC.
24.1 Power of Attorney with respect to the Registrant (included
on page II-7).
99.1(7) Fairness Opinion of Lazard Freres & Co. LLC.
99.2(8) Form of Escrow Agreement to be entered into by and among the
Registrant, the Management Members and Robert Momsen and
Pieter Schiller, as representatives of the security holders
of Eligix, Inc., and The American Stock Transfer and Trust
Company.
99.3 Form of Proxy Card of the Registrant.
99.4 Form of Proxy Card of Eligix, Inc.
</TABLE>
------------------------
+ Confidential treatment granted as to certain portions.
* The Registrant agrees to furnish supplementally a copy of any omitted
schedules to this agreement to the Securities and Exchange Commission upon
its request.
** Confidential treatment requested as to certain portions.
(1) Attached as Annex A to the Joint Proxy Statement/Prospectus.
(2) Incorporated by reference from the Registrant's Form 8-K dated July 18,
2000.
(3) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1, as amended (File No. 333-2144).
(4) Incorporated herein by reference to the Registrant's Form 10-K for the year
ended December 31, 1999.
(5) Incorporated herein by reference to the Registrant's Form 10-Q for the
quarter ended September 30, 2000.
(6) Incorporated by reference to the exhibit filed with MedImmune, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
(7) Attached as Annex C to the Joint Proxy Statement/Prospectus.
(8) Attached as Exhibit A to Annex A to the Joint Proxy Statement/Prospectus.
