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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule #14a-11(c) or Rule #14a-12
</TABLE>
DNX CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, par value $0.01 per share
(2) Aggregate number of securities to which transaction applies: 2,632,600
shares of Common Stock
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $5.75
(closing price on 10/1/96)
(4) Proposed maximum aggregate value of transaction: $15,137,450
(5) Total fee paid: $3,028
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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DNX CORPORATION
575 ROUTE 28
RARITAN, NEW JERSEY 08869
TELEPHONE: (908) 722-7900
November 11, 1996
Dear Stockholder:
You are cordially invited to attend the 1996 Annual Meeting of Stockholders
(the "Annual Meeting") of DNX Corporation (the "Company") to be held on December
18, 1996, at 10:00 a.m., at the Swissotel New York -- The Drake, New York, New
York.
This year, your Board of Directors is recommending that you:
1. Approve the issuance by the Company of an aggregate of 2,632,600 shares
of common stock, par value $0.01 per share (the "Common Stock"), of the Company,
in connection with the acquisition (the "Proposed Transaction") by the Company
of all of the outstanding capital stock of, and equity interests in, BioClin,
Inc., a Delaware corporation ("BioClin U.S."), BioClin Europe AG, a Swiss
corporation ("BioClin Europe"), BioClin GmbH, a German corporation ("BioClin
Germany"), Kilmer N.V., a Netherlands Antilles corporation ("Kilmer"), and
BioClin Institute of Clinical Pharmacology GmbH, a German corporation ("BioClin
Institute" and, together with BioClin U.S., BioClin Europe, BioClin Germany and
Kilmer, collectively, the "BioClin Group");
2. Elect two Class II Directors for a new three-year term;
3. Approve an amendment to the Second Amended and Restated Certificate of
Incorporation of the Company (the "Certificate") in order to change the name of
the Company to "Chrysalis International Corporation" in the event that the
Proposed Transaction is consummated;
4. Approve certain amendments to the Company's 1991 Stock Option Plan and
ratify certain grants of options thereunder;
5. Approve the adoption of the Company's 1996 Stock Option Plan; and
6. Ratify the appointment of the independent certified public accountants
of the Company for the current fiscal year.
A notice of the Annual Meeting, form of proxy and proxy statement
containing information about the matters to be acted upon at the Annual Meeting
are enclosed herewith. In addition, we have enclosed the Annual Report on Form
10-K of the Company (the "Form 10-K") for the fiscal year ended December 31,
1995. These materials are being mailed to stockholders commencing on or about
November 11, 1996. If you would like another copy of the Form 10-K, please
contact Investor Relations at the Company's executive offices at the above
address and telephone number.
Please read the enclosed information carefully before completing and
returning the proxy card. Returning your proxy card as soon as possible will
assure your representation at the meeting, whether or not you plan to attend.
Because the approval of the amendment to the Certificate requires approval
by a majority of the outstanding shares of Common Stock, the Board of Directors
urges all stockholders to attend and vote at the Annual Meeting and to complete
and return the enclosed proxy card so that a sufficient number of shares are
voted in connection with such matter.
We are very excited about the future of the Company and are looking forward
to the 1996 Annual Meeting of Stockholders.
Sincerely,
/S/ Paul J. Schmitt
PAUL J. SCHMITT
President, Chief Executive Officer and
Chairman of the Board of Directors
<PAGE> 3
DNX CORPORATION
575 ROUTE 28
RARITAN, NEW JERSEY 08869
NOTICE OF ANNUAL MEETING
The 1996 Annual Meeting of Stockholders (the "Annual Meeting") of DNX
Corporation (the "Company") will be held on December 18, 1996, at 10:00 a.m., at
the Swissotel New York -- The Drake, 440 Park Avenue, New York, New York 10022,
for the following purposes:
1. To consider and vote upon the issuance by the Company of an aggregate of
2,632,600 shares of common stock, par value $0.01 per share (the "Common
Stock"), of the Company, in connection with the acquisition (the "Proposed
Transaction") by the Company of all of the outstanding capital stock of, and
equity interests in, BioClin, Inc., a Delaware corporation ("BioClin U.S."),
BioClin Europe AG, a Swiss corporation ("BioClin Europe"), BioClin GmbH, a
German corporation ("BioClin Germany"), Kilmer N.V., a Netherlands Antilles
corporation ("Kilmer"), and BioClin Institute of Clinical Pharmacology GmbH, a
German corporation ("BioClin Institute" and, together with BioClin U.S., BioClin
Europe, BioClin Germany and Kilmer, collectively, the "BioClin Group");
2. To elect two Class II Directors for a new three-year term;
3. To consider and vote upon a proposal to amend the Second Amended and
Restated Certificate of Incorporation of the Company in order to change the name
of the Company to "Chrysalis International Corporation" in the event that the
Proposed Transaction is consummated;
4. To consider and vote upon a proposal to amend the Company's 1991 Stock
Option Plan and to ratify certain grants of options thereunder;
5. To consider and vote upon a proposal to adopt the Company's 1996 Stock
Option Plan;
6. To ratify the appointment of the independent certified public
accountants of the Company for the current fiscal year; and
7. To transact such other business as may properly come before the Annual
Meeting.
The Company's Board of Directors has fixed the close of business on
November 1, 1996 as the record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting. A list of such
stockholders will be available at the place of the Annual Meeting both during
the Annual Meeting and during the ten days prior to the Annual Meeting.
/S/ John G. Cooper
JOHN G. COOPER
Secretary
November 11, 1996
------------------------
The Annual Report on Form 10-K of the Company for the fiscal year ended December
31, 1995 is enclosed. The Annual Report on Form 10-K contains financial and
other information about the Company, but is not incorporated into the Proxy
Statement.
------------------------
PLEASE PROMPTLY FILL OUT, SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD WHETHER OR
NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING. A SELF-ADDRESSED ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
<PAGE> 4
DNX CORPORATION
575 ROUTE 28
RARITAN, NEW JERSEY 08869
------------------------
PROXY STATEMENT FOR THE 1996 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 18, 1996
------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of DNX Corporation, a Delaware corporation (the "Company"
or "DNX"), of proxies to be used at the annual meeting of stockholders of the
Company to be held at 10:00 a.m., on December 18, 1996, at the Swissotel New
York -- The Drake, New York, New York (the "Annual Meeting").
At the Annual Meeting, the Company's stockholders will be asked:
1. To consider and vote upon the issuance by the Company of an aggregate of
2,632,600 shares of common stock, par value $0.01 per share (the "Common
Stock"), of the Company, in connection with the acquisition (the "Proposed
Transaction") by the Company of all of the outstanding capital stock of, and
equity interests in, BioClin, Inc., a Delaware corporation ("BioClin U.S."),
BioClin Europe AG, a Swiss corporation ("BioClin Europe"), BioClin GmbH, a
German corporation ("BioClin Germany"), Kilmer N.V., a Netherlands Antilles
corporation ("Kilmer"), and BioClin Institute of Clinical Pharmacology GmbH, a
German corporation ("BioClin Institute" and, together with BioClin U.S., BioClin
Europe, BioClin Germany and Kilmer, collectively, the "BioClin Group");
2. To elect two Class II Directors for a new three-year term;
3. To consider and vote upon a proposal to amend the Second Amended and
Restated Certificate of Incorporation of the Company (the "Certificate") in
order to change the name of the Company to "Chrysalis International Corporation"
in the event that the Proposed Transaction is consummated;
4. To consider and vote upon a proposal to amend the Company's 1991 Stock
Option Plan and to ratify certain grants of options thereunder;
5. To consider and vote upon a proposal to adopt the Company's 1996 Stock
Option Plan;
6. To ratify the appointment of the independent certified public
accountants of the Company for the current fiscal year; and
7. To transact such other business as may properly come before the Annual
Meeting.
If a stockholder properly executes and returns the enclosed form of proxy
it will be voted, and where the stockholder specifies a choice with respect to
any matter to be acted upon at the Annual Meeting or any adjournments or
postponements thereof, it will be voted in accordance with his or her
instructions. If no instructions are given, the proxy will be voted "FOR" the
proposal for the Company to issue 2,632,600 shares of Common Stock in connection
with the Company's acquisition of all of the outstanding capital stock of, and
equity interests in, the BioClin Group; "FOR" the election as Class II Directors
of the two nominees identified in this Proxy Statement; "FOR" the proposal to
amend the Certificate in order to change the name of the Company to "Chrysalis
International Corporation" in the event that the Proposed Transaction is
consummated; "FOR" the proposal to amend the Company's 1991 Stock Option Plan
and to ratify certain grants of options thereunder; "FOR" the adoption of the
Company's 1996 Stock Option Plan; "FOR" the ratification of the appointment of
KPMG Peat Marwick LLP as the Company's independent certified public accountants
for the current fiscal year; and in the discretion of the proxies with respect
to any other matter that may come before the Annual Meeting or any adjournments
or postponements thereof. Any proxy may be revoked at any time prior to its use
by: (1) delivering to the Secretary of the Company a signed notice of revocation
or a later dated signed proxy; (2) attending the Annual Meeting and voting in
person; or (3) giving notice of revocation of the proxy at the Annual Meeting.
Attendance at the Annual Meeting will not in and of
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itself constitute revocation of a proxy. No appraisal rights in favor of the
stockholders of the Company exist for any action proposed to be taken at the
Annual Meeting.
The Company will bear the costs of soliciting proxies from its
stockholders. In addition to the use of the mails, proxies may be solicited by
the Directors, officers and employees of the Company by personal interview,
telephone or telegram. Such Directors, officers and employees will not be
additionally compensated for such solicitation, but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. Arrangements will also
be made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of solicitation material to the beneficial owners of Common Stock
held of record by such persons, and the Company will reimburse such brokerage
houses, custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses incurred in connection therewith. The Company has retained Shareholder
Communications Corporation, New York, New York ("Shareholder Communications"),
at an estimated cost of $5,000, plus expenses incurred by Shareholder
Communications, to assist the Company in soliciting proxies for the Annual
Meeting.
This Proxy Statement and the accompanying form of proxy are being mailed to
stockholders commencing on or about November 11, 1996.
2
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TABLE OF CONTENTS
<TABLE>
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SUMMARY............................................................................... 7
The Annual Meeting.................................................................. 7
The Proposed Transaction............................................................ 8
Other Proposals..................................................................... 14
SUMMARY FINANCIAL DATA -- THE COMPANY................................................. 16
SUMMARY FINANCIAL DATA -- THE BIOCLIN GROUP........................................... 17
UNAUDITED PRO FORMA COMBINED CONDENSED SUMMARY FINANCIAL DATA......................... 18
PER SHARE DATA........................................................................ 19
THE ANNUAL MEETING.................................................................... 20
Date, Time and Place................................................................ 20
The Proposals....................................................................... 20
Record Date; Voting................................................................. 21
Proxies and Effects of Abstentions and Non-Votes.................................... 21
Solicitation of Proxies............................................................. 22
PROPOSAL 1: THE PROPOSED TRANSACTION.................................................. 23
Background of the Proposed Transaction.............................................. 23
Reasons for the Proposed Transaction; Recommendation of the Board of Directors...... 27
Opinion of Financial Advisor........................................................ 28
Certain Effects of the Proposed Transaction......................................... 32
Accounting Treatment................................................................ 33
Certain Federal Income Tax Consequences............................................. 33
Dissenter's Appraisal Rights........................................................ 33
Regulatory Approvals................................................................ 34
Expenses............................................................................ 34
TRANSACTION AGREEMENTS................................................................ 34
General............................................................................. 34
Representations and Warranties of the Company....................................... 35
Representations and Warranties of the BioClin Group................................. 35
Covenants of the Company............................................................ 36
Covenants of the BioClin Group...................................................... 36
Conditions to Closing............................................................... 37
Indemnification..................................................................... 37
Termination......................................................................... 37
Employment Agreements............................................................... 38
THE STOCKHOLDERS' AGREEMENT........................................................... 39
General............................................................................. 39
Director Designation................................................................ 39
Registration Rights................................................................. 39
Indemnification Provisions.......................................................... 40
</TABLE>
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<TABLE>
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THE COMPANY........................................................................... 41
General............................................................................. 41
Business Strategy................................................................... 42
Pharmakon Research International.................................................... 43
DNX Transgenics..................................................................... 44
Licensing........................................................................... 46
Nextran............................................................................. 46
Marketing........................................................................... 47
Customers........................................................................... 47
Backlog............................................................................. 47
Patents and Proprietary Technology.................................................. 47
Government Regulation............................................................... 48
Competition......................................................................... 49
Service or Product Liability........................................................ 49
Research and Development Expenses................................................... 49
Employees........................................................................... 50
Business Segment Information........................................................ 50
Properties.......................................................................... 50
Legal Proceedings................................................................... 50
THE BIOCLIN GROUP..................................................................... 51
General............................................................................. 51
Drug Development.................................................................... 51
Services............................................................................ 52
Clients and Marketing............................................................... 55
Contractual Arrangements............................................................ 55
Backlog............................................................................. 56
Competition......................................................................... 56
Government Regulation............................................................... 57
Intellectual Property............................................................... 57
Potential Liability and Insurance................................................... 57
Employees........................................................................... 58
Facilities.......................................................................... 58
Legal Proceedings................................................................... 58
SELECTED FINANCIAL DATA -- THE COMPANY................................................ 60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- THE COMPANY........................................................... 62
General Summary..................................................................... 62
Results of Operations............................................................... 63
Liquidity and Capital Requirements.................................................. 67
Exchange Rate Fluctuations.......................................................... 69
Accumulated Deficit................................................................. 70
New Accounting Pronouncement........................................................ 70
Inflation........................................................................... 70
SELECTED COMBINED FINANCIAL DATA -- THE BIOCLIN GROUP................................. 71
</TABLE>
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<TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- THE BIOCLIN GROUP..................................................... 72
Overview............................................................................ 72
Results of Operations............................................................... 74
Liquidity and Capital Requirements.................................................. 76
Exchange Rate Fluctuations.......................................................... 77
Inflation........................................................................... 78
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.......................... 79
MARKET PRICE AND DIVIDEND DATA........................................................ 87
PROPOSAL 2: ELECTION OF DIRECTORS..................................................... 88
General............................................................................. 88
Information Concerning Nominees..................................................... 88
Directors Meetings and Committees................................................... 90
Compensation Committee Interlocks and Insider Participation......................... 90
Compensation of Directors........................................................... 91
Compliance with Section 16(a) of the Exchange Act by Officers,
Directors and 10% Stockholders................................................... 91
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 92
EXECUTIVE COMPENSATION................................................................ 94
Compensation of Executive Officers.................................................. 94
Comparative Stock Performance Graph................................................. 97
Summary Compensation Table.......................................................... 97
Stock Options....................................................................... 99
Option Exercises and Holdings....................................................... 99
Employment Agreements............................................................... 99
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 100
PROPOSAL 3: APPROVAL OF NAME CHANGE................................................... 101
PROPOSAL 4: APPROVAL OF AMENDMENTS TO 1991 STOCK OPTION PLAN.......................... 102
General............................................................................. 102
Nonemployee Directors............................................................... 103
Amendments to 1991 Plan............................................................. 103
Grants Subject to Stockholder Approval.............................................. 104
PROPOSAL 5: APPROVAL OF ADOPTION OF 1996 STOCK OPTION PLAN............................ 105
General............................................................................. 105
Nonemployee Directors............................................................... 106
Federal Income Tax Consequences for 1991 Plan and 1996 Plan......................... 107
PROPOSAL 6: RATIFICATION OF APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS... 108
SUBMISSION OF STOCKHOLDERS' PROPOSALS................................................. 109
OTHER BUSINESS........................................................................ 109
FINANCIAL STATEMENTS -- THE COMPANY................................................... F-1
FINANCIAL STATEMENTS -- THE BIOCLIN GROUP............................................. X-1
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<S> <C>
APPENDIX A: Opinion of Vector Securities International, Inc., dated October 1, 1996
APPENDIX B: Merger Agreement, dated August 19, 1996
APPENDIX C: Share Exchange Agreement, dated August 19, 1996
APPENDIX D: Share Acquisition Agreement, dated August 19, 1996
APPENDIX E: Form of Stockholders' Agreement
APPENDIX F: 1991 Stock Option Plan, as amended
Exhibit I: Form of Nonqualified Stock Option
Agreement for Nonemployee Directors
APPENDIX G: 1996 Stock Option Plan
Exhibit I: Form of Nonqualified Stock Option
Agreement for Nonemployee Directors
</TABLE>
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<PAGE> 10
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to, and this Summary is qualified in its
entirety by, the more detailed information contained in this Proxy Statement and
the Appendices attached hereto. Stockholders are urged to read this Proxy
Statement and the Appendices attached hereto in their entirety.
THE ANNUAL MEETING
Date, Time and Place....... The Annual Meeting will be held on December 18,
1996, at 10:00 a.m., at the Swissotel New
York -- The Drake, New York, New York. See "THE
ANNUAL MEETING -- Date, Time and Place."
Record Date;
Shares Outstanding;
Shares Entitled to
Vote..................... Holders of record of shares of Common Stock at the
close of business on November 1, 1996 (the "Record
Date") are entitled to notice of and to vote at the
Annual Meeting. As of the close of business on the
Record Date, there were 8,720,858 shares of Common
Stock issued and outstanding, each of which is
entitled to one vote on each matter to be voted
upon at the Annual Meeting or any adjournments or
postponements thereof. See "THE ANNUAL
MEETING -- Record Date; Voting."
Vote Required.............. The presence at the Annual Meeting, in person or by
proxy, of the holders of a majority of the issued
and outstanding shares of Common Stock entitled to
vote will constitute a quorum for the transaction
of business. Pursuant to Section 242(b) of the
Delaware General Corporation Law (the "DGCL"),
approval of the proposal to amend the Certificate
requires the affirmative vote, in person or by
proxy, of a majority of the outstanding shares of
Common Stock. In all other matters, other than the
election of Directors, the affirmative vote of the
holders of a majority of the issued and outstanding
shares of Common Stock present, entitled to vote
and actually voting at the Annual Meeting in person
or by proxy on such matter is required to approve
each proposal to be considered at the Annual
Meeting or any adjournments or postponements
thereof. Directors will be elected by a plurality
of the votes cast in person or by proxy at the
Annual Meeting. See "THE ANNUAL MEETING -- Record
Date; Voting."
Proxies.................... If a stockholder properly executes and returns the
enclosed proxy card, it will be voted according to
his or her instructions. If no instructions are
given, the proxy will be voted "FOR" the proposal
for the Company to issue 2,632,600 shares of Common
Stock in connection with the Company's acquisition
of all of the outstanding capital stock of, and
equity interests in, the BioClin Group; "FOR" the
election as Class II Directors of the two nominees
identified in this Proxy Statement; "FOR" the
proposal to amend the Certificate in order to
change the name of the Company to "Chrysalis
International Corporation" in the event that the
Proposed Transaction is consummated; "FOR" the
proposal to amend the Company's 1991 Stock Option
Plan and to ratify certain grants of options
thereunder; "FOR" the adoption of the Company's
1996 Stock Option Plan; "FOR" the ratification of
the appointment of KPMG Peat Marwick LLP as the
Company's independent certified public accountants
for the current fiscal year; and in the discretion
of the proxies with respect to any other matter
that may properly come before the Annual
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Meeting or any adjournments or postponements
thereof. See "THE ANNUAL MEETING -- Proxies and
Effects of Abstentions and Non-Votes."
THE PROPOSED TRANSACTION
The Company................ The Company is a contract research organization
("CRO") whose principal activities consist of
preclinical drug development services conducted
through its wholly-owned subsidiaries, Pharmakon
Research International, Inc., a Pennsylvania
corporation ("Pharmakon"), and DNX Biotherapeutics,
Inc., an Ohio corporation ("DNX Biotherapeutics"),
doing business as DNX Transgenics ("DNX
Transgenics"). Additionally, the Company has an
exclusive commercial license to a U.S. patent
covering DNA microinjection, which is a method of
gene transfer widely employed for the development
of transgenic animals in several mammalian species.
Pharmakon is a CRO providing preclinical drug
development and safety assessment services,
including in vitro and in vivo toxicological,
pharmacological and pharmacokinetics testing
services, to pharmaceutical, biotechnology,
chemical and other industries through its United
States operations and its European subsidiary
("Pharmakon Europe"). Pharmakon also offers drug
screening and evaluation services utilizing DNX
Transgenics' proprietary animal models. DNX
Transgenics is a specialty contract research
organization using its proprietary and other
transgenic animal technology in providing
preclinical drug development services to the
pharmaceutical, biotechnology and medical
communities.
The Company was incorporated in Delaware in March
1988. The Company's principal executive offices are
located at 575 Route 28, Raritan, New Jersey 08869;
telephone number: (908) 722-7900. See "THE
COMPANY."
The BioClin Group.......... The BioClin Group is a privately owned contract
research organization serving the pharmaceutical,
biotechnology and medical device industries. The
BioClin Group designs, monitors and manages
clinical drug development involving Phase I to
Phase IV trials, including design of testing
protocols, monitoring of test participants, data
management, quality assurance and report writing.
In addition, it has the capability to manage entire
clinical development programs, and offers product
registration services in North America, Europe, the
Middle East and Australia. The BioClin Group
generates substantially all of its revenue from the
clinical testing of new pharmaceutical and
biotechnology products.
The BioClin Group was founded in 1979 by Dr. Jack
Barbut. It has been active in international
clinical drug development since 1982, initially in
European-based Phase II and Phase III trials
focused on cardiovascular therapeutics, and
maintains its European headquarters in Cham,
Switzerland. In 1988, the BioClin Group established
its U.S. Phase I operation in Richmond, Virginia
and, in 1992, the BioClin Group expanded clinical
operations throughout Europe and established a
Phase I facility at its Institute of Clinical
Pharmacology in Dusseldorf, Germany. Additionally,
in Dusseldorf, the BioClin Group established an
information systems and data management capability.
In 1993, the BioClin Group established its
U.S.-based Phase II through IV data
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management services and clinical operations in
Austin, Texas. In 1995, the BioClin Group elected
to discontinue its services for Phase I trials in
the United States and expanded its U.S.-based Phase
II through IV services. In connection with this
decision, the BioClin Group began to focus on
providing all Phase I studies in Dusseldorf,
Germany.
Today, the BioClin Group operates in North America
in the United States and Canada; in Europe in
Austria, Belgium, Denmark, Estonia, Finland,
France, Germany, Greece, Italy, Latvia, Lithuania,
Netherlands, Norway, Spain, Sweden, Switzerland and
the United Kingdom; in the Middle East in Israel
and Turkey; and in Australia. See "THE BIOCLIN
GROUP."
Although the companies that comprise the BioClin
Group are each controlled by the BioClin Interest
Holders (as defined in " -- Transaction
Agreements -- Merger Agreement"), each of such
companies has historically been operated as a
separate and independent legal entity. Because the
Company will operate the BioClin Group as
consolidated wholly-owned subsidiaries upon
consummation of the Proposed Transaction, the
BioClin Group is presented on a combined financial
and business description basis in this Proxy
Statement. See "THE BIOCLIN GROUP."
Proposed Transaction --
General.................. Pursuant to the Transaction Agreements (as defined
in "-- Transaction Agreements -- Share Acquisition
Agreement"), the Company will issue 2,632,600
shares of Common Stock in connection with the
acquisition by the Company of all of the
outstanding capital stock of, or equity interests
in, BioClin U.S., BioClin Europe, BioClin Germany,
Kilmer and BioClin Institute. Although the Company
and the BioClin Group entered into three separate
Transaction Agreements in connection with the
Proposed Transaction, the closing (the "Closing")
of each Transaction Agreement is conditioned upon
the concurrent Closing of all three Transaction
Agreements. See "THE PROPOSED TRANSACTION" and
"TRANSACTION AGREEMENTS."
Transaction Agreements --
Merger Agreement......... On August 19, 1996, the Company, DNX Acquisition
Corporation, a Delaware corporation and a
wholly-owned subsidiary of the Company
("Acquisition"), Mr. Alec Hackel ("Hackel"), Dr.
Jack Barbut ("Barbut"), Dr. John Christian Jensen
("Jensen" and, together with Hackel and Barbut,
collectively, the "BioClin Interest Holders"),
Sherby N.V., a Netherlands Antilles corporation
("Sherby"), and BioClin U.S. entered into a Merger
Agreement (the "Merger Agreement"). The Merger
Agreement provides for the acquisition by the
Company of all of the outstanding capital stock of
BioClin U.S. in consideration and exchange for an
aggregate of 658,150 shares of Common Stock.
Pursuant to the Merger Agreement, Acquisition will
be merged with and into BioClin U.S., with BioClin
U.S. as the surviving corporation and a
wholly-owned subsidiary of the Company (the
"Merger"). See "TRANSACTION
AGREEMENTS -- General -- Merger Agreement."
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Transaction
Agreements -- Share
Exchange Agreement....... On August 19, 1996, the Company, Manfred Wissmann,
acting solely in his capacity as trustee
("Wissmann"), pursuant to a Trust Agreement among
Wissmann, Barbut and Hackel (the "Wissmann Trust
Agreement"), the BioClin Interest Holders, Dr.
Gerald Rittershaus, acting solely in his capacity
as trustee ("Employee Trustee"), pursuant to a
Trust Agreement (the "Employee Trust Agreement")
between Employee Trustee and Ms. Christine
Dune-Kraatz ("Kraatz"), Ms. Bettina Donhardt
("Donhardt"), Kraatz, BioClin Germany, Kilmer and
BioClin Europe entered into a Share Exchange
Agreement (the "Share Exchange Agreement"). The
Share Exchange Agreement provides for the
acquisition by the Company of all of the
outstanding equity interests in BioClin Europe and,
with respect to its non-wholly-owned subsidiaries,
all outstanding equity interests in such
subsidiaries held by persons or entities not
wholly-owned, directly or indirectly, by BioClin
Europe, in consideration and exchange for an
aggregate of 1,158,344 shares of Common Stock. See
"TRANSACTION AGREEMENTS -- General -- Share
Exchange Agreement."
Transaction
Agreements -- Share
Acquisition Agreement.... On August 19, 1996, the Company, Dr. Gerald
Rittershaus, acting solely in his capacity as
trustee ("Rittershaus" and, together with Wissmann,
collectively, the "Trustees"), pursuant to a Trust
Agreement among Rittershaus, Barbut and Hackel (the
"Rittershaus Trust Agreement" and, together with
the Wissmann Trust Agreement, collectively, the
"Trust Agreements"), the BioClin Interest Holders
and BioClin Institute entered into a Share
Acquisition Agreement (the "Share Acquisition
Agreement" and, together with the Merger Agreement
and the Share Exchange Agreement, collectively, the
"Transaction Agreements"). The Share Acquisition
Agreement provides for the acquisition by the
Company of all outstanding equity interests in
BioClin Institute in consideration and exchange for
an aggregate of 816,106 shares of Common Stock. See
"TRANSACTION AGREEMENTS -- General -- Share
Acquisition Agreement."
Certain Effects of the
Proposed Transaction....... Following the consummation of the Proposed
Transaction, the Company believes that based on
publicly reported revenues for fiscal 1995 the
combined company will be one of the ten largest
publicly traded contract research organizations.
Following the consummation of the Proposed
Transaction, each of the members of the BioClin
Group will become wholly-owned subsidiaries of the
Company. See "THE PROPOSED TRANSACTION -- Certain
Effects of the Proposed Transaction" and
"TRANSACTION AGREEMENTS -- General."
Following the consummation of the Proposed
Transaction and the filing of an amendment to the
Certificate with the Secretary of State of the
State of Delaware immediately following the
Closing, the Company will be renamed "Chrysalis
International Corporation." See "APPROVAL OF NAME
CHANGE." In the event that the Proposed Transaction
is not consummated, the name of the Company will
remain "DNX Corporation."
Following the Closing, the Company will be owned
approximately 23.2% by the BioClin Interest Holders
and other holders of capital stock or
10
<PAGE> 14
equity interests of the BioClin Group and the
remainder of the outstanding Common Stock will be
held by the existing stockholders of the Company.
Accordingly, consummation of the Proposed
Transaction will have the effect of diluting the
ownership interests of the existing stockholders of
the Company. See "THE PROPOSED
TRANSACTION -- Certain Effects of the Proposed
Transaction."
Employment Agreements...... Pursuant to the Transaction Agreements, at the
Closing the Company will enter into an employment
agreement and a consulting agreement with Dr.
Barbut and an employment agreement with Dr. Jensen
(collectively, the "Employment Agreements"). See
"TRANSACTION AGREEMENTS -- Employment Agreements."
Stockholders' Agreement.... At the Closing, the Company, the BioClin Interest
Holders, Sherby, the Trustees, Ms. Martha Lee
Reynolds ("Reynolds"), Dr. Barry Dvorchik
("Dvorchik"), the Employee Trustee, Kraatz and
Donhardt (Donhardt, Kraatz, Reynolds and Dvorchik
being collectively referred to herein as the
"BioClin Employee Stockholders") will enter into a
Stockholders' Agreement (the "Stockholders'
Agreement").
Pursuant to the Stockholders' Agreement, within
five business days after the Closing, the Company
will take all actions reasonably necessary to elect
to the Board of Directors of the Company (the
"Board of Directors") one member designated by the
BioClin Interest Holders reasonably acceptable to
the Company. The BioClin Interest Holders have
informed the Company that Dr. Barbut will be such
designee. Accordingly, in accordance with the
Company's Second Amended and Restated Bylaws (the
"Bylaws"), it is contemplated that immediately
following the Closing, the Company will increase
its Board of Directors by one member and elect Dr.
Barbut, as the nominee of the BioClin Interest
Holders, as a Class I Director of the Company.
Upon the earlier to occur of the next vacancy on
the Board of Directors or March 31, 1997, the
BioClin Interest Holders have the right to
designate one additional member reasonably
acceptable to the Company to the Board of
Directors. The BioClin Interest Holders have
informed the Company that Dr. Jensen will be such
designee. At such time, the Company will, if
necessary and in accordance with its Bylaws,
increase its Board of Directors by one member, and
elect Dr. Jensen as a Class III Director of the
Company, or as a Director of the class in which the
vacancy occurred, as the case may be. The
Stockholders' Agreement provides that Dr. Barbut
and Dr. Jensen are acceptable nominees to the
Company. See "THE STOCKHOLDERS'
AGREEMENT -- Director Designation." See "ELECTION
OF DIRECTORS -- Information Concerning Nominees"
for biographical information regarding Dr. Barbut
and Dr. Jensen.
Pursuant to the Stockholders' Agreement, the
Company will grant to Sherby, the BioClin Interest
Holders and the BioClin Employee Stockholders
certain registration rights with respect to the
shares of Common Stock issued in connection with
the Proposed Transaction (the "Registerable
Securities") and, in particular, will grant Sherby
and the BioClin Interest Holders two demand
registration rights. See "THE STOCKHOLDERS'
AGREEMENT -- Registration Rights."
11
<PAGE> 15
The Stockholders' Agreement also contains certain
provisions pursuant to which the Company and the
BioClin Interest Holders (and related parties of
each) agree to indemnify each other with respect to
certain matters in connection with the Proposed
Transaction and the Transaction Agreements. See
"THE STOCKHOLDERS' AGREEMENT -- Indemnification
Provisions."
Conditions to Closing...... The Closing of the Proposed Transaction is subject
to the satisfaction or waiver of certain
conditions, including (i) the receipt of certain
consents and approvals, including the approval by
the stockholders of the Company for the issuance of
Common Stock pursuant to the Transaction Agreements
and the approval by the stockholders of BioClin
U.S. of the Merger and the Merger Agreement; (ii)
the absence of litigation or governmental orders
enjoining the consummation of the Proposed
Transaction; (iii) delivery by KPMG Peat Marwick
LLP of letters to the effect that the Proposed
Transaction qualifies for "pooling-of-interests"
accounting treatment; (iv) the execution and
delivery of the Stockholders' Agreement and the
Employment Agreements; (v) the Company having
received an opinion from its financial advisor,
which it received on October 1, 1996, with respect
to the fairness, from a financial point of view, to
the Company of the consideration to be paid by the
Company pursuant to the Transaction Agreements;
(vi) the continuing accuracy of the representations
and warranties of and compliance with the covenants
by the Company, the BioClin Interest Holders and
the BioClin Group; and (vii) the acquisition by the
Company of all of the capital stock of, or equity
interests in, all of the members of the BioClin
Group and the concurrent Closing of each
Transaction Agreement. See " -- Opinion of
Financial Advisor" and "TRANSACTION
AGREEMENTS -- Conditions to Closing."
Certain Federal Income Tax
Consequences............. Under the Internal Revenue Code of 1986, as amended
(the "Code"), neither the Company nor any existing
stockholder of the Company will be required to
recognize any gain or loss as a result of the
Company's issuance of Common Stock pursuant to the
Transaction Agreements. See "THE PROPOSED
TRANSACTION -- Certain Federal Income Tax
Consequences."
Accounting Treatment....... The Proposed Transaction is expected to be recorded
using the "pooling-of-interests" method of
accounting for financial reporting purposes.
Consummation of the Proposed Transaction is
conditioned upon receipt by the Company and the
BioClin Group of letters from KPMG Peat Marwick LLP
to the effect that the Proposed Transaction
qualifies for "pooling-of-interests" accounting
treatment. See "THE PROPOSED
TRANSACTION -- Accounting Treatment."
Opinion of Financial
Advisor.................... Vector Securities International, Inc. ("Vector
Securities") has rendered an opinion, dated October
1, 1996, regarding the fairness, from a financial
point of view, to the Company of the consideration
to be paid by the Company for the BioClin Group
pursuant to the Transaction Agreements. See "THE
PROPOSED TRANSACTION -- Opinion of Financial
Advisor."
Dissenter's Appraisal
Rights..................... No dissenter's appraisal rights in favor of the
existing stockholders of the Company exist with
respect to the Proposed Transaction or any other
12
<PAGE> 16
proposal to be considered and voted upon at the
Annual Meeting. In connection with the Merger, any
stockholder of BioClin U.S. who does not vote in
favor of the Merger may elect to forego his or her
right to receive shares of Common Stock pursuant to
the Merger Agreement and may instead assert his or
her statutory appraisal rights under the DGCL. See
"THE PROPOSED TRANSACTION -- Dissenter's Appraisal
Rights" and "TRANSACTION AGREEMENTS -- General --
Merger Agreement."
Recent Trading Prices of
the Common Stock........... The reported closing price of the Common Stock on
the NASDAQ National Market ("NASDAQ") on August 16,
1996, the last full trading day prior to the public
announcement of the Proposed Transaction, was
$5 7/8 per share. On November 7, 1996, the reported
closing price of the Common Stock on NASDAQ was
$4 5/8 per share. See "MARKET PRICE AND DIVIDEND
DATA."
Reasons for the Proposed
Transaction;
Recommendation of the
Board of Directors....... On October 1, 1996, Vector Securities rendered an
opinion to the Board of Directors as to the
fairness, from a financial point of view, to the
Company of the consideration to be paid by the
Company in the Proposed Transaction and,
thereafter, the Board of Directors unanimously
approved the issuance by the Company of 2,632,600
shares of Common Stock pursuant to the Transaction
Agreements as well as the submission to the
Company's stockholders of such matter for their
consideration and approval. See "THE PROPOSED
TRANSACTION -- Background of the Proposed
Transaction" and "-- Reasons for the Proposed
Transaction; Recommendation of the Board of
Directors."
The decision of the Board of Directors to approve
the issuance by the Company of 2,632,600 shares of
Common Stock pursuant to the Transaction Agreements
was based upon a variety of factors. The Board of
Directors believes that the Proposed Transaction
represents a unique opportunity to combine the
Company's international preclinical drug
development services with the international
clinical drug development expertise and experience
of the BioClin Group to provide for a more rapid
transition for a client's drug through various
preclinical to clinical stages of development
thereby minimizing certain delays which typically
occur before a new drug is introduced to the
market. The Board of Directors also believes that
the Proposed Transaction offers the opportunity to
leverage its existing preclinical client base to
utilize the combined company's full range of drug
development services. In addition, the Proposed
Transaction offers the opportunity to leverage
investments in information systems and software and
to realize economies of scale through
centralization of management and administrative
functions.
The Board of Directors believes that the Proposed
Transaction is advisable and in the best interests
of the Company and its stockholders. ACCORDINGLY,
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE IN FAVOR OF THE PROPOSED
TRANSACTION AND THE ISSUANCE BY THE COMPANY OF
2,632,600 SHARES OF COMMON STOCK IN CONNECTION
THEREWITH. See "THE PROPOSED TRANSACTION -- Reasons
for the Proposed Transaction; Recommendation of the
Board of Directors."
13
<PAGE> 17
OTHER PROPOSALS
Election of Directors...... The Company has nominated Messrs. Clarke and
O'Connell to stand for re-election as Class II
Directors for a new three-year term. Mr. Roj has
submitted his resignation from the Board of
Directors, effective September 6, 1996. As a
result, and pursuant to the Bylaws, the Board of
Directors has reduced the number of Directors
comprising the Board of Directors to six members.
See "ELECTION OF DIRECTORS -- General" and "--
Information Concerning Nominees." Pursuant to the
Bylaws, it is contemplated that immediately
following the Closing, the Board of Directors will
be increased to seven members and Dr. Barbut will
be elected as a Class I Director.
Upon the earlier of March 31, 1997 or the next
vacancy to occur, it is contemplated that Dr.
Jensen will be elected as a Class III Director, or
as a Director of the class in which the vacancy
occurred, as the case may be. Although Dr. Treu has
not formally tendered his resignation as a Director
of the Company, Dr. Treu has informed the Company
that he presently intends to resign as a Director
of the Company immediately after the consummation
of the Proposed Transaction. Pursuant to the
Stockholders' Agreement, upon such resignation of
Dr. Treu, if any, the Board of Directors will, in
accordance with the Bylaws, elect Dr. Jensen as a
Class III Director to fill the vacancy created on
the Board of Directors as a result of the
resignation of Dr. Treu. No such resignation will
become effective until the Chairman of the Board
receives a written resignation from Dr. Treu. There
can be no assurance that Dr. Treu will submit such
a written resignation. See "THE STOCKHOLDERS'
AGREEMENT -- Director Designation" and "ELECTION OF
DIRECTORS -- Information Concerning Nominees."
Name Change................ On October 1, 1996, the Board of Directors of the
Company approved a change in the name of the
Company to "Chrysalis International Corporation" in
the event that the Proposed Transaction is
consummated, subject to stockholder approval at the
Annual Meeting. In the event that the Proposed
Transaction is not consummated, the name of the
Company will remain "DNX Corporation."
Pursuant to the DGCL and assuming stockholder
approval thereof, in order to effect such name
change, the Company would file an amendment to the
Company's Certificate with the Secretary of State
of the State of Delaware immediately following the
Closing of the Proposed Transaction. Alternatively,
the Company may file a Third Amended and Restated
Certificate of Incorporation of the Company
reflecting such name change. See "APPROVAL OF NAME
CHANGE."
Amendments to 1991 Stock
Option Plan.............. In August 1995, March 1996 and October 1996, the
Board of Directors approved amendments to the
Company's 1991 Stock Option Plan to, among other
things, increase the maximum number of shares
authorized under the 1991 Stock Option Plan by
150,000 shares to an aggregate of 1,500,000 shares
of Common Stock. These amendments are subject to
stockholder approval at the Annual Meeting. In
addition, certain grants pursuant to the August
1995 amendments and certain grants following the
March 1996 amendments are subject to stockholder
approval at the
14
<PAGE> 18
Annual Meeting. See "APPROVAL OF AMENDMENTS TO 1991
STOCK OPTION PLAN."
Adoption of 1996 Stock
Option Plan................ On October 1, 1996, the Board of Directors approved
adoption of the Company's 1996 Stock Option Plan,
subject to stockholder approval at the Annual
Meeting. See "APPROVAL OF ADOPTION OF 1996 STOCK
OPTION PLAN."
Independent Auditors....... The Board of Directors has appointed KPMG Peat
Marwick LLP as the Company's independent certified
public accountants for the Company's current fiscal
year, subject to stockholder ratification at the
Annual Meeting. See "RATIFICATION OF APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS."
Board Recommendation of
Other Proposals............ The Board of Directors unanimously recommends that
stockholders vote "FOR" the election of the Messrs.
Clarke and O'Connell as Class II Directors, "FOR"
the proposal to amend the Certificate in order to
change the name of the Company to "Chrysalis
International Corporation" in the event that the
Proposed Transaction is consummated; "FOR" the
proposal to amend the Company's 1991 Stock Option
Plan and to ratify certain grants thereunder; "FOR"
the adoption of the 1996 Stock Option Plan; and
"FOR" the ratification of the appointment of the
independent certified public accountants for the
current fiscal year. Because the approval of the
amendment to the Certificate requires approval by a
majority of the outstanding shares of Common Stock,
the Board of Directors urges all stockholders to
attend and vote at the Annual Meeting and to
complete and return the enclosed proxy card.
15
<PAGE> 19
SUMMARY FINANCIAL DATA -- THE COMPANY
The following summary historical consolidated financial information of the
Company has been derived from and should be read in conjunction with the
information appearing in "SELECTED FINANCIAL DATA -- THE COMPANY," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- THE
COMPANY" and "FINANCIAL STATEMENTS -- THE COMPANY," which is included elsewhere
in this Proxy Statement. See "MARKET PRICE AND DIVIDEND DATA" for historical
trading prices with respect to the Company's Common Stock.
HISTORICAL CONSOLIDATED SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ -----------------
1995(1) 1994 1993(2) 1992 1991(4) 1996 1995(1)
------- ------- -------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical statement of operations data:
Revenues..................... $25,323 $26,529 $ 23,719 $ 7,450 $ 3,093 $21,957 $19,101
Income (loss) from
operations................ (2,601) (5,048) (19,659) (7,350) (6,577) 132 (1,801)
Net income (loss)............ 12,566 (6,679) (19,389) (5,970) (6,328) 296 12,917
Earnings (loss) per share.... 1.39 (0.76) (2.23) (0.69) (1.07) 0.03 1.43
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------ SEPTEMBER 30,
1995(1) 1994 1993 1992(3) 1991(4) 1996
------- ------- -------- ------- ------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Historical balance sheet data:
Cash, cash equivalent,
investments and restricted
cash...................... $21,820 $ 6,128 $ 14,710 $29,684 $38,672 $ 21,149
Total assets................. 48,847 36,473 42,171 56,027 43,017 46,250
Total debt................... 9,973 9,286 9,822 7,002 278 7,677
</TABLE>
- ---------------
(1) On August 29, 1994, DNX Biotherapeutics entered into a Joint Venture
Agreement with Baxter (as defined in the "THE COMPANY -- Nextran") to form
Nextran (as defined in the "THE COMPANY -- Nextran"), a partnership in which
DNX Biotherapeutics had a 30% partnership interest. On September 22, 1995,
DNX Biotherapeutics consummated the sale of its 30% partnership interest in
Nextran to Transplant Acquisition Inc. for a cash purchase price of $18
million. As a result of the sale of its partnership interest in Nextran, the
Company recorded a non-recurring gain, net of expenses, income taxes and
related accruals, of $17.3 million. See Note 6 of the Notes to Consolidated
Financial Statements included in "FINANCIAL STATEMENTS -- THE COMPANY."
(2) In the third quarter of 1993, the Company initiated a plan to suspend
research and development efforts on its hemoglobin blood substitute program
and thereby downsized and reorganized its DNX Biotherapeutics operations. In
accordance with this decision, the Company recorded a special charge of $7.1
million. See Note 4 of the Notes to Consolidated Financial Statements
included in "FINANCIAL STATEMENTS -- THE COMPANY."
(3) Financial information as of December 31, 1992 gives effect to the
acquisition of Pharmakon Europe, using the purchase method of accounting
from December 31, 1992.
(4) Financial information as of and for the year ended December 31, 1991 gives
effect to the acquisition of Pharmakon, using the purchase method of
accounting from August 28, 1991.
16
<PAGE> 20
SUMMARY FINANCIAL DATA -- THE BIOCLIN GROUP
The following historical combined summary financial information of the
BioClin Group has been derived from and should be read in conjunction with the
information appearing in "SELECTED FINANCIAL DATA -- THE BIOCLIN GROUP,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- THE BIOCLIN GROUP" and "FINANCIAL STATEMENTS -- THE BIOCLIN
GROUP," which is included elsewhere in this Proxy Statement.
HISTORICAL COMBINED SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ------------------
1995 1994 1993 1996 1995
------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Historical statement of operations data:
Net revenues............................ $14,286 $ 9,659 $ 7,175 $9,155 $11,032
Income (loss) from operations........... 918 (1,772) (1,958) 313 281
Net income (loss)....................... (141) (2,385) (2,437) 14 (483)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- ------- SEPTEMBER 30, 1996
(UNAUDITED) ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Historical balance sheet data:
Cash and marketable debt securities..... $ 2,059 $ 1,830 $ 1,312 $1,873
Total assets............................ 6,577 5,662 4,417 8,109
Total debt.............................. 10,160 9,876 8,145 9,983
</TABLE>
17
<PAGE> 21
UNAUDITED PRO FORMA COMBINED CONDENSED
SUMMARY FINANCIAL DATA
The following unaudited pro forma combined condensed summary financial data
gives effect to the Proposed Transaction, including the issuance by the Company
of 2,632,600 shares of Common Stock in connection with the acquisition by the
Company of all of the outstanding capital stock of, and equity interests in, the
BioClin Group, using the "pooling-of-interests" method of accounting, as if such
Proposed Transaction had occurred at the beginning of the earliest period
presented, but without giving effect to costs and expenses associated with the
Proposed Transaction, which currently are estimated to range between $2.0
million and $2.5 million. The consummation of the Proposed Transaction is
subject to a number of conditions. There can be no assurance as to when, if at
all, the conditions with respect to the Proposed Transaction will be satisfied
or waived. See "TRANSACTION AGREEMENTS -- Conditions to Closing." The unaudited
pro forma combined condensed summary financial data are not necessarily
indicative of the results of operations or the financial condition that would
have been reported had the Proposed Transaction been in effect during those
periods, or as of those dates, or that may be reported in the future. The
unaudited pro forma combined condensed summary financial data should be read in
conjunction with the information appearing in "UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "FINANCIAL STATEMENTS" for
each of the Company and the BioClin Group included elsewhere in this Proxy
Statement.
UNAUDITED PRO FORMA COMBINED CONDENSED SUMMARY FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- -------------------
1995 1994 1993 1996 1995
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Pro forma DNX and the BioClin Group
combined condensed statement of
operations data:
Net revenues.......................... $39,609 $36,188 $ 30,894 $31,112 $30,133
Income (loss) from operations......... (1,683) (6,820) (21,617) 445 (1,520)
Net income (loss)..................... 12,425 (9,064) (21,826) 310 12,434
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1995 1994 1993 SEPTEMBER 30, 1996
------- ------- -------- ------------------
<S> <C> <C> <C> <C>
Pro forma DNX and the BioClin Group
combined condensed balance sheet data:
Cash, cash equivalents, investments,
restricted cash and marketable debt
securities......................... $23,879 $ 7,958 $ 16,022 $ 23,022
Total assets.......................... 55,424 42,135 46,588 54,359
Total debt............................ 20,133 19,162 17,967 17,660
</TABLE>
18
<PAGE> 22
PER SHARE DATA
The following table sets forth certain historical per share data of the
Company and pro forma per share data for the Company. The pro forma data gives
effect to the Proposed Transaction for the twelve month periods ended December
31, 1993, 1994 and 1995 and the nine months ended September 30, 1996. The pro
forma information gives effect to the Proposed Transaction under the
"pooling-of-interests" method of accounting. The pro forma per share data gives
effect to the Proposed Transaction as if it had occurred at the beginning of the
period presented. The consummation of the Proposed Transaction is subject to a
number of conditions. There can be no assurance as to when, if at all, the
conditions with respect to the Proposed Transaction will be satisfied or waived.
See "TRANSACTION AGREEMENTS -- Conditions to Closing."
The pro forma per share data does not purport to represent what the
financial position or results of operations would actually have been had the
Proposed Transaction occurred at the beginning of the periods presented or to
project the financial position or results of operations for any future date or
period. This pro forma data should be read in conjunction with the information
appearing in "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and "FINANCIAL STATEMENTS" for each of the Company and the BioClin
Group included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
--------------------------- SEPTEMBER 30,
1995 1994 1993 -----------------
----- ------ ------ 1996
-----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
HISTORICAL -- DNX
Net income (loss) per common share............ $1.39 $(0.76) $(2.23) $0.03
Book value per common share at end of
period..................................... 3.18 1.62 2.25 3.14
Cash dividends per share...................... 0.00 0.00 0.00 0.00
PRO FORMA COMBINED --
PER DNX COMMON SHARE (UNAUDITED)
Net income (loss) per common share............ $1.06 $(0.80) $(1.93) $0.03
Book value per common share at end of
period..................................... 1.51 0.33 1.04 1.52
Cash dividends per share...................... 0.00 0.00 0.00 0.00
</TABLE>
19
<PAGE> 23
THE ANNUAL MEETING
DATE, TIME AND PLACE
The 1996 Annual Meeting of the Stockholders of the Company will be held on
December 18, 1996, at 10:00 a.m., at the Swissotel New York -- The Drake, 440
Park Avenue, New York, New York 10022.
THE PROPOSALS
At the Annual Meeting, the Company's stockholders will be asked: (i) to
consider and vote upon the issuance by the Company of an aggregate of 2,632,600
shares of Common Stock in connection with the Company's acquisition of all of
the outstanding capital stock of, or equity interests in, the BioClin Group
pursuant to the Transaction Agreements; (ii) to elect two Class II Directors for
a new three-year term; (iii) to consider and vote upon a proposal to amend the
Company's Certificate in order to change the name of the Company to "Chrysalis
International Corporation" in the event that the Proposed Transaction is
consummated; (iv) to consider and vote upon a proposal to amend the Company's
1991 Stock Option Plan and to ratify certain grants of options thereunder; (v)
to consider and vote upon a proposal to adopt the Company's 1996 Stock Option
Plan; and (vi) to ratify the appointment of the Company's independent certified
public accountants for the current fiscal year.
The proposal to issue 2,632,600 shares of Common Stock pursuant to the
Transaction Agreements is being submitted to the Company's stockholders in
accordance with Rule 4460(i) of the National Association of Securities Dealers,
Inc. (the "NASD") Company Manual. The relevant portion of such Rule requires
stockholder approval for the issuance of shares of common stock in a transaction
or series of transactions if (i) the common stock has or will have upon issuance
voting power equal to or in excess of 20% of the voting power outstanding before
the issuance of such stock, or (ii) the number of shares of common stock to be
issued is or will be equal to or in excess of 20% of the number of shares of
common stock outstanding before the issuance of such stock. The 2,632,600 shares
of Common Stock to be issued pursuant to the Transaction Agreements represents
approximately 30.2% of the Common Stock issued and outstanding prior to such
issuance, and represents in the aggregate approximately 30.2% of the Company's
voting power outstanding prior to such issuance. See "THE PROPOSED TRANSACTION"
and "TRANSACTION AGREEMENTS" for a detailed discussion of the proposal to issue
2,632,600 shares of Common Stock pursuant to the Transaction Agreements.
At the Annual Meeting, the Company's stockholders will be asked to elect,
as Class II Directors, Messrs. Clarke and O'Connell for new three-year terms.
Pursuant to the Stockholders' Agreement, within five business days after the
Closing, the Company will take all actions reasonably necessary to elect to the
Board of Directors one member designated by the BioClin Interest Holders
reasonably acceptable to the Company. The Stockholders' Agreement provides that
Dr. Barbut and Dr. Jensen are acceptable nominees to the Company. The BioClin
Interest Holders have informed the Company that Dr. Barbut will be such
designee. Accordingly, in accordance with the Company's Bylaws, it is
contemplated that immediately following the Closing, the Company will increase
its Board of Directors by one member and elect Dr. Barbut, as the nominee of the
BioClin Interest Holders, as a Class I Director of the Company.
Upon the earlier to occur of the next vacancy on the Board of Directors or
March 31, 1997, the BioClin Interest Holders have the right to designate one
additional member reasonably acceptable to the Company to the Board of
Directors. The BioClin Interest Holders have informed the Company that Dr.
Jensen will be such designee. At such time, the Company will, if necessary and
in accordance with its Bylaws, increase its Board of Directors by one member,
and elect Dr. Jensen as a Class III Director of the Company, or as a Director of
the class in which the vacancy occurred, as the case may be. Although Dr. Treu
has not formally tendered his resignation as a Director of the Company, Dr. Treu
has informed the Company that he presently intends to resign as a Director of
the Company immediately after the consummation of the Proposed Transaction.
Pursuant to the Stockholders' Agreement, upon such resignation of Dr. Treu, if
any, the Board of Directors will, in accordance with the Bylaws, elect Dr.
Jensen as a Class III Director to fill the vacancy created on the Board of
Directors as a result of the resignation of Dr. Treu. No such resignation will
become effective until
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the Chairman of the Board receives a written resignation from Dr. Treu. There
can be no assurance that Dr. Treu will submit such a written resignation. See
"THE STOCKHOLDERS' AGREEMENT -- Director Designation" and "ELECTION OF
DIRECTORS -- Information Concerning Nominees."
At the Annual Meeting, the Company's stockholders will also be asked to
consider and vote upon an amendment to the Certificate in order to change the
name of the Company to "Chrysalis International Corporation" in the event that
the Proposed Transaction is consummated. See "APPROVAL OF NAME CHANGE."
At the Annual Meeting, the Company's stockholders will also be asked to
consider and vote upon a proposal to amend the Company's 1991 Stock Option Plan
and to ratify certain grants of options thereunder. See "APPROVAL OF AMENDMENTS
TO 1991 STOCK OPTION PLAN." In addition, the Company's stockholders will be
asked to consider and vote upon the adoption of the Company's 1996 Stock Option
Plan. See "APPROVAL OF ADOPTION OF 1996 STOCK OPTION PLAN."
At the Annual Meeting, the Company's stockholders will also be asked to
ratify the appointment of KPMG Peat Marwick LLP as the Company's independent
auditors for the current fiscal year. See "RATIFICATION OF APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" EACH OF THESE PROPOSALS.
RECORD DATE; VOTING
The Board of Directors has fixed the close of business on November 1, 1996
as the Record Date for determining the holders of Common Stock entitled to
notice of and to vote at the Annual Meeting. As of the Record Date, there were
outstanding 8,720,858 shares of the Common Stock, all of one class, and all of
which are entitled to be voted at the Annual Meeting. Holders of issued and
outstanding shares of Common Stock are entitled to one vote for each share held.
In accordance with the DGCL, the Certificate and the Bylaws, the Company may, if
necessary, convene and, by a vote of the stockholders, adjourn the Annual
Meeting to a later date or dates, without changing the Record Date. If the
Company were to determine that an adjournment were desirable, the appointed
proxies would use the discretionary authority granted pursuant to the proxy card
to vote in favor of such an adjournment.
The presence at the Annual Meeting, in person or by proxy, of the holders
of a majority of the issued and outstanding shares of Common Stock entitled to
vote will constitute a quorum for the transaction of business. Pursuant to
Section 242(b) of the DGCL, approval of the proposal to amend the Certificate in
order to change the name of the Company to "Chrysalis International Corporation"
in the event that the Proposed Transaction is consummated requires the
affirmative vote, in person or by proxy, of a majority of the outstanding shares
of Common Stock. In all other matters, other than the election of Directors, the
affirmative vote of the holders of a majority of the issued and outstanding
shares of Common Stock present, entitled to vote and actually voting at the
Annual Meeting in person or by proxy on such matter is required to approve each
proposal to be considered at the Annual Meeting or any adjournments or
postponements thereof. Directors will be elected by a plurality of the votes
cast in person or by proxy at the Annual Meeting. At the Annual Meeting, the
results of stockholder voting will be tabulated by the inspector of elections
appointed for the Annual Meeting.
As of the Record Date, the Directors and executive officers of the Company
as a group beneficially owned in the aggregate approximately 15.9% of the then
outstanding shares of Common Stock. Such Directors and executive officers have
advised the Company that they intend to vote, or direct the vote, of all shares
of Common Stock over which they possess voting power in favor of each of the
proposals to be voted on at the Annual Meeting, subject to and consistent with
any fiduciary obligations they may have.
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PROXIES AND EFFECTS OF ABSTENTIONS AND NON-VOTES
This Proxy Statement is being furnished to the Company's stockholders in
connection with the solicitation of proxies by and on behalf of the Board of
Directors for use at the Annual Meeting or any adjournments or postponements
thereof. The proposals described above under "-- The Proposals" will be
considered and voted upon at the Annual Meeting.
If a stockholder properly executes and returns the enclosed proxy card, it
will be voted according to his or her instructions. If no instructions are
given, the proxy will be voted "FOR" the proposal for the Company to issue
2,632,600 shares of Common Stock pursuant to the Transaction Agreements; "FOR"
the election as Class II Directors of the two nominees identified in this Proxy
Statement; "FOR" the proposal to amend the Certificate in order to change the
name of the Company to "Chrysalis International Corporation" in the event that
the Proposed Transaction is consummated; "FOR" the proposal to amend the
Company's 1991 Stock Option Plan and to ratify certain grants of options
thereunder; "FOR" the adoption of the Company's 1996 Stock Option Plan; "FOR"
the ratification of the appointment of KPMG Peat Marwick LLP as the Company's
independent certified public accountants for the current fiscal year; and in the
discretion of the proxies with respect to any other matter that may properly
come before the Annual Meeting or any adjournments or postponements thereof. A
properly executed proxy marked "abstain," or required to be treated as a "broker
non-vote," although counted for purposes of determining whether there is a
quorum at the Annual Meeting or any adjournments or postponements, will not be
voted.
A "broker non-vote" occurs when a nominee holding shares for a beneficial
owner votes on one proposal, but does not vote on another proposal because the
nominee does not have discretionary voting power and has not received
instructions from the beneficial owner. Because the approval of the amendment to
the Certificate in order to change the name of the Company to "Chrysalis
International Corporation" in the event that the Proposed Transaction is
consummated requires approval by a majority of the outstanding shares of Common
Stock, any such "broker non-vote" will effectively be treated as a vote
"AGAINST" such amendment to the Certificate.
A holder of shares of Common Stock may revoke his or her proxy at any time
prior to its use by: (1) delivering to the Secretary of the Company a signed
notice of revocation or a later dated signed proxy; (2) attending the Annual
Meeting and voting in person; or (3) giving notice of revocation of the proxy at
the Annual Meeting. Attendance at the Annual Meeting will not in and of itself
constitute revocation of a proxy. Prior to the Annual Meeting, any written
notice of revocation should be sent to DNX Corporation, 575 Route 28, Raritan,
New Jersey 08869, Attention: Corporate Secretary, or hand delivered to the
Corporate Secretary of the Company, at such address, at or before the taking of
the vote or at the Annual Meeting. A stockholder may also be requested to
present such documents as shall be reasonably requested for the purpose of
establishing such stockholder's identity.
The Board of Directors is not currently aware of any business to be acted
upon at the Annual Meeting or any adjournments or postponements thereof other
than as described herein. If, however, other matters are properly brought before
the Annual Meeting, or any adjournments or postponements thereof, the persons
appointed as proxies will have discretion to vote or act thereon according to
their best judgment.
SOLICITATION OF PROXIES
The Company will bear the costs of soliciting proxies from its
stockholders. In addition to the use of the mails, proxies may be solicited by
the Directors, officers and employees of the Company by personal interview,
telephone or telegram. Such Directors, officers and employees will not be
additionally compensated for such solicitation, but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. Arrangements will also
be made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of solicitation material to the beneficial owners of Common Stock
held of record by such persons, and the Company will reimburse such brokerage
houses, custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses incurred in connection therewith. The Company has retained Shareholder
Communications at an estimated cost of $5,000, plus expenses incurred by
Shareholder Communications, to assist the Company in soliciting proxies for the
Annual Meeting.
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<PAGE> 26
PROPOSAL 1: THE PROPOSED TRANSACTION
BACKGROUND OF THE PROPOSED TRANSACTION
Two of the most critical stages in the development of new drugs are
preclinical and clinical testing. In preclinical testing, the sponsor of the new
drug conducts laboratory analyses and animal tests to determine the basic
biological activity and safety of the drug. After successfully completing the
preclinical phase, the drug undergoes a series of clinical tests in humans,
typically progressing from dosing studies in healthy volunteers to testing in
patients with the targeted disease. Clinical trials often represent the most
expensive and time-consuming part of the overall drug development process. The
information generated during these trials is critical for gaining marketing
approval from the U.S. Food and Drug Administration (the "FDA") or other
regulatory agencies. In the United States, preclinical and clinical testing must
comply with the requirements of Good Laboratory Practice and Good Clinical
Practice and other standards promulgated by the FDA and other federal and state
governmental authorities. See "THE COMPANY -- General" and "THE BIOCLIN
GROUP -- Drug Development."
The Company believes that worldwide expenditures for drug development and
medical devices by the pharmaceutical, biotechnology and medical device
industries will reach $35 billion in 1996, approximately $10 billion of which
will be spent on preclinical and clinical trials, with approximately $2.5
billion of that amount being outsourced to CROs.
The Company believes that certain industry trends will continue to increase
the need for pharmaceutical and biotechnology companies to outsource the design
and management of their clinical trials. These trends include: (i) the desire of
many pharmaceutical companies to respond to cost containment pressures and
reduce the high fixed costs associated with peak-load staffing for drug
development by relying on a combination of internal resources and CROs; (ii) the
attempt by pharmaceutical and biotechnology companies to globalize clinical
research and development to maximize profits from a given drug by pursuing
regulatory approvals in multiple countries simultaneously by outsourcing to CROs
with global capabilities; (iii) the maturation of the biotechnology industry and
the resulting increase in the demand for expertise and services provided by
outside sources, including CROs; (iv) the desire by pharmaceutical and
biotechnology companies to reduce the time required to develop and bring a new
drug to market by outsourcing preclinical and clinical trials to CROs that
provide a full range of services; (v) the efforts by pharmaceutical and
biotechnology companies to confront the increasingly complex and stringent
regulatory requirements in many jurisdictions by taking advantage of the data
management expertise, technological capabilities and global presence of CROs;
(vi) the escalation of worldwide research and development expenditures for new
drugs, including amounts spent on services of the type provided by CROs,
resulting from pressures to develop new drugs for the treatment of chronic
disorders and life-threatening diseases; and (vii) the efforts by pharmaceutical
companies to reserve their internal resources for the development of new drugs
by using CROs to manage and conduct preclinical and clinical trials.
In response to these trends, the CRO industry has begun to experience
consolidation, including the formation of strategic alliances. Pharmaceutical
companies have begun to utilize a smaller pool of CROs and have sought to
transform their contractual relationships with CROs from "vendor" to "strategic
partner." Biotechnology companies have also begun to take a more global,
long-term perspective on their CRO contracting activities.
The Company was founded as a transgenic animal company using its technology
to genetically engineer rodents to more accurately exhibit human pathological
responses to disease. The Company expanded the use of its technology to
genetically engineer pigs to produce human blood proteins and xenografts.
Beginning in 1991 in connection with the acquisition of Pharmakon, the Company
began to devote resources to the development of a business providing preclinical
testing services to the biotechnology and pharmaceutical industries and
incorporated transgenic technology for these services. In August 1994, the
Company decided to focus its efforts on opportunities as a provider of drug
development services. As a result, the Company formed Nextran in 1994 to finance
development of xenograft and blood substitute products and eventually sold its
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<PAGE> 27
interest in Nextran in 1995 based on the parameters established in the 1994
joint venture documentation. See "THE COMPANY -- Nextran."
As a result of the Company's decision to take advantage of opportunities as
a provider of drug development services, the Company had discussions during the
second half of 1994 and during early 1995 with several financial advisors and
consultants with respect to possible growth strategies and opportunities. In
April 1995, the Company retained Vector Securities to identify potential
strategic acquisition opportunities and to assist in the negotiation and
consummation of one or more business combinations. Over the next few months, the
Company and Vector Securities worked together to develop criteria for the
"ideal" strategic acquisition opportunity. See "-- Opinion of Financial
Advisor."
From May 1995 through March 1996, Vector Securities, Mr. Schmitt, the
Company's Chairman, President and Chief Executive Officer, Mr. Cooper, the
Company's Senior Vice President and Chief Financial Officer, and Dr. Modeweg,
President of Pharmakon, had informal meetings and discussions with several of
the potential strategic acquisition candidates identified by Vector Securities,
other than the BioClin Group. None of these informal discussions ever progressed
beyond the preliminary stage.
On August 18, 1995, Vector Securities and Mr. Schmitt and Dr. Modeweg met
in Dusseldorf, Germany with Dr. Barbut, Dr. Jensen and Mr. Phil Davies of the
BioClin Group. At this meeting, the Company presented its strategy for acquiring
a clinical drug development company and presented criteria for its "ideal"
strategic acquisition candidate. The BioClin Group represented that it met such
criteria. The parties each agreed to consider the opportunity and contact each
other for further discussions.
On October 3, 1995, Dr. Barbut and Dr. Jensen visited the Company's
facilities at Pharmakon and met with Pharmakon North American management,
Messrs. Schmitt and Cooper, and Messrs. Clarke and O'Connell, members of the
Company's Board of Directors. On October 4, 1995, Vector Securities and Messrs.
Schmitt, Cooper and Craig Coffman, Pharmakon's Director of Business Development,
met with Dr. Barbut and Dr. Jensen at the BioClin Group's Austin, Texas
facilities. On October 5, 1995, Vector Securities and Messrs. Schmitt and Cooper
met in Austin, Texas with Dr. Barbut and Dr. Jensen to preliminarily discuss a
proposed post-transaction business organizational structure, ongoing business
strategy and synergy opportunities.
During late October and early November 1995, Messrs. Schmitt and Cooper
participated in several conference calls with Vector Securities to discuss other
potential strategic acquisition candidates. Based upon their reviews of such
other candidates, Messrs. Schmitt and Cooper concluded that the BioClin Group
was an attractive acquisition candidate. On November 2, 1995, Messrs. Schmitt
and Cooper participated in a conference call with Messrs. Clarke, O'Connell and
Paulson and Dr. Treu of the Company's Board of Directors to discuss the BioClin
Group and other potential strategic acquisition candidates.
On November 8 through 10, 1995, Vector Securities and Mr. Cooper met in
Miami, Florida with Dr. Barbut, Dr. Jensen and Mr. Carl Caron, the Chief
Financial Officer of BioClin U.S., to review and develop financial information
for the BioClin Group. On November 13, 1995, Vector Securities and Messrs.
Schmitt, Cooper, Clarke and Paulson met at the offices of Vector Securities in
Chicago with Dr. Barbut and Dr. Jensen to discuss possible transaction
structures and valuation analyses.
On December 7, 1995, Vector Securities and Messrs. Schmitt and Cooper
participated in a conference call to review financial models and business
combination alternatives to present to the BioClin Group. On December 11, 1995,
Vector Securities and Mr. Schmitt met in New York City with Dr. Barbut and
discussed the Company's proposal to acquire the BioClin Group. Dr. Barbut
indicated interest in such proposal, subject to further review and discussion
with the BioClin Group's boards of directors and its financial and legal
advisors.
On December 18, 1995, Messrs. Schmitt and Cooper and Dr. Modeweg met at the
Company's executive offices with Dr. Barbut and Dr. Jensen to discuss the short-
and long-term strategic vision of the proposed combined company. At this
meeting, the Company and the BioClin Group discussed that the proposed combined
company should adopt a new name and corporate identity program.
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<PAGE> 28
On December 19, 1995, Messrs. Schmitt and Cooper discussed the BioClin
Group acquisition proposal during a regularly scheduled meeting of the Company's
Board of Directors and answered questions about the BioClin Group and the
acquisition proposal.
On January 19, 1996, Vector Securities visited the BioClin Group's
Richmond, Virginia corporate office to meet with Dr. Barbut to discuss the
BioClin Group's reaction to the Company's acquisition proposal. During late
January 1996, Messrs. Schmitt and Cooper participated in several conference
calls with Vector Securities to discuss the BioClin Group's reaction to the
Company's proposal and the BioClin Group's counterproposals.
On February 14, 1996, Mr. Schmitt and Dr. Modeweg met with Dr. Barbut at
Pharmakon Europe in Lyon, France in order to enable Dr. Barbut to tour Pharmakon
Europe's facilities and meet with members of its staff. In addition, Dr. Barbut
and Mr. Schmitt also discussed the parameters for the Company's proposal to
acquire the BioClin Group.
On February 27, 1996, Vector Securities and Messrs. Schmitt and Cooper met
in Baltimore, Maryland with Dr. Barbut and Dr. Jensen to further discuss the
financial terms of the acquisition.
On March 8, 1996, Vector Securities attended a regularly scheduled meeting
of the Board of Directors and discussed with the Board of Directors the
structure of the then-current transaction.
During March 1996, Messrs. Schmitt and Cooper met and participated in
conference calls with its independent auditors and financial and legal advisors
to coordinate the financial and legal due diligence process and the preparation
of audited financial statements for the BioClin Group.
During the week of March 18, 1996, in a continuation of the December 18,
1995 session, Messrs. Schmitt and Cooper and Dr. Modeweg met at the Pharmakon
Europe facility in Lyon, France with Dr. Barbut and Dr. Jensen to discuss the
short- and long-term strategic vision of the proposed combined company.
During April 1996, the Company's legal and financial advisors and
independent auditors conducted legal and financial due diligence. On April 11,
1996, Mr. Cooper visited the Richmond, Virginia corporate offices of the BioClin
Group to conduct due diligence regarding the financial management and operations
of the BioClin Group.
On April 18, 1996, Dr. Barbut and Dr. Jensen visited the Company's
executive offices to meet with the Company's Board of Directors. Messrs. Schmitt
and Cooper discussed the BioClin Group acquisition proposal during a regularly
scheduled meeting of the Board of Directors and answered questions regarding
such proposal. In addition, Messrs. Schmitt and Cooper discussed the financial
and legal due diligence process and the Board of Directors provided advice and
counsel on such process.
During the last half of April 1996, Vector Securities and the Company's
technical and clinical consultants conducted due diligence reviews of the
BioClin Group's clinical, data management/statistical information technology
systems, and business operations for the BioClin Group's U.S. and European
operations.
During the week of May 6, 1996, Messrs. Schmitt and Cooper and the
Company's legal, accounting and financial advisors met in New York City with Dr.
Barbut and Dr. Jensen and the BioClin Group's legal advisors to discuss the
structure of the Proposed Transaction. During these meetings, the Company, the
BioClin Group and their respective advisors discussed the terms of the Proposed
Transaction to determine whether it would qualify for "pooling-of-interests"
accounting treatment. At these meetings, the Proposed Transaction was structured
as an exchange of Common Stock by the Company for the outstanding capital stock
and equity interests of the BioClin Group and it was concluded that the Proposed
Transaction, as structured, would qualify for "pooling-of-interests" accounting
treatment.
On May 9, 1996, Vector Securities and Messrs. Schmitt and Cooper
participated in a conference call with the Company's technical and clinical
consultants to discuss the results of the business due diligence process
conducted during late April 1996. On May 15, 1996, Mr. Caron visited the
Company's executive offices to review the status of the Company's financial due
diligence process with Mr. Cooper. On May 31, 1996, Messrs. Schmitt and Cooper
and the Company's independent auditors and legal advisors participated in
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<PAGE> 29
a conference call with Dr. Barbut and Dr. Jensen and the BioClin Group's legal
advisors to discuss the status of the financial and legal due diligence and the
proposed schedule for final negotiation and consummation of the Proposed
Transaction.
On June 6, 1996, Vector Securities, Messrs. Schmitt and Cooper and the
Company's legal advisors met in New York City with Dr. Barbut and Dr. Jensen and
the BioClin Group's legal advisors to negotiate the terms of the Proposed
Transaction. Terms of the Proposed Transaction and the Transaction Agreements
were discussed in detail at such meeting. In particular, the parties discussed
the aggregate number of shares of Common Stock to be issued by the Company in
the Proposed Transaction, the financial performance standards of the BioClin
Group for fiscal 1995 and the potential impact of the financial results of the
BioClin Group on the Proposed Transaction. The parties agreed that final
resolution of these issues was subject to the preparation and review of audited
financial statements for the BioClin Group for fiscal 1995.
On June 17, 1996, Mr. Cooper visited the BioClin Group's European
operations to review financial due diligence results and the status of the
preparation of audited financial statements for the BioClin Group as well as the
BioClin Group's ongoing financial reporting capabilities. During this visit, Mr.
Cooper identified specific resources required to develop financial reporting
processes for the BioClin Group's European operations that would comply with
Securities and Exchange Commission (the "Commission") requirements and U.S.
generally accepted accounting principles so that consolidated financial
statements could be prepared on an ongoing basis following the Closing.
On June 24, 1996, Messrs. Schmitt and Cooper discussed the Proposed
Transaction during a regularly scheduled meeting of the Board of Directors. The
Board of Directors approved the general structure and terms of the Proposed
Transaction, subject to (i) negotiation of definitive Transaction Agreements,
(ii) the receipt by the Company of a fairness opinion from the Company's
financial advisor and (iii) negotiation of acceptable consideration terms based
on the BioClin Group's financial performance criteria discussed at the June 6,
1996 meeting. On June 25, 1996, Mr. Schmitt met with the senior management of
the Company to discuss the Proposed Transaction.
On July 19, 1996, the Company and the BioClin Group agreed that the Company
would issue 2,632,600 shares of Common Stock in connection with the Company's
acquisition of the outstanding capital stock and equity interests of the BioClin
Group pursuant to the Transaction Agreements, subject to resolution of certain
outstanding issues under the Transaction Agreements, including verification by
the Company of certain material contractual arrangements of the BioClin Group.
On July 19, 1996, the Company and the BioClin Group agreed on the allocation of
the 2,632,600 shares of Common Stock among the various BioClin Group entities
and interest holders thereof.
At a regularly scheduled meeting of the Board of Directors on July 22,
1996, the Board of Directors authorized the Company to enter into the
Transaction Agreements, subject to receiving a fairness opinion from the
Company's financial advisor and resolution of certain outstanding issues under
the Transaction Agreements, including verification by the Company of certain
material contractual arrangements of the BioClin Group.
During July and early August 1996, Messrs. Schmitt and Cooper and the
Company's independent auditors and legal advisors participated in a series of
conference calls to discuss the final terms of the Transaction Agreements (as
well as the Stockholders' Agreement and the Employment Agreements with Dr.
Barbut and Dr. Jensen) and to discuss a schedule for the consummation of the
Proposed Transaction. Most significantly, during this period the Company
required, as a condition of entering into the Transaction Agreements, receipt by
the BioClin Group of a written confirmation of an amendment to one of the
BioClin Group's contracts that was satisfactory to the Company and consistent
with the financial models used to determine the consideration to be paid in the
Proposed Transaction. This contract represents a significant percentage of the
revenues of the BioClin Group. On July 29, 1996, Mr. Cooper visited the BioClin
Group's European operations and met with Dr. Jensen and Mr. Stephane Bulle of
the Company to review the financial reporting capabilities of the BioClin Group
and the status of the preparation of audited financial statements for the
BioClin Group.
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On August 16, 1996, the BioClin Group received the written confirmation of
the amendment of such contract and on August 17, 1996 the Company, its
independent auditors and its financial advisors reviewed such confirmation. On
August 19, 1996, the Company entered into the Transaction Agreements and
publicly announced the Proposed Transaction.
REASONS FOR THE PROPOSED TRANSACTION; RECOMMENDATION OF THE BOARD OF DIRECTORS
On October 1, 1996, the Board of Directors unanimously approved the
issuance by the Company of 2,632,600 shares of Common Stock pursuant to the
Transaction Agreements as well as the submission to the Company's stockholders
of such matter for their consideration and approval. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THE PROPOSED
TRANSACTION.
The decision of the Board of Directors to approve the issuance by the
Company of 2,632,600 shares of Common Stock pursuant to the Transaction
Agreements was based upon a variety of factors. The following summarizes the
material factors considered by the Board of Directors in reaching its decision.
See "THE PROPOSED TRANSACTION -- Background of the Proposed Transaction."
In the course of its deliberations, the Board of Directors reviewed with
the Company's management a number of factors relevant to the Proposed
Transaction. In particular, the Board of Directors considered, among other
things: (i) information concerning the Company's and the BioClin Group's
respective business, prospects, historical and projected financial performances,
financial condition and operations; (ii) analyses of the respective projected
contributions to net revenues, operating profits and the incomes of each
company; (iii) reports from management on the Company's business, financial and
legal due diligence investigation of the BioClin Group; (iv) the business
reputation and capabilities of the management of the BioClin Group, as well as
the compatibility of the managements, and corporate cultures of the Company and
the BioClin Group; (v) the opinion of Vector Securities to the effect that the
consideration proposed to be paid by the Company pursuant to the Transaction
Agreements is fair, from a financial point of view, to the Company, including
the presentation given by Vector Securities to the Board of Directors in
connection with such opinion; (vi) the anticipated accounting and tax treatment
of the Proposed Transaction; (vii) multiples of earnings for publicly traded
companies with businesses comparable to the BioClin Group; and (viii) multiples
paid in other CRO merger and acquisition transactions.
In its deliberations concerning the Proposed Transaction, the Board of
Directors also considered a variety of additional considerations and risk
factors, including: (i) the historical financial performance of the BioClin
Group; (ii) the percentage ownership dilution to the Company's stockholders
resulting from the issuance by the Company of Common Stock in the Proposed
Transaction; (iii) the risk that the public market price of the Common Stock
might initially be adversely affected by the Proposed Transaction; (iv) the risk
that the proposed combined company might not achieve revenues equal to the sum
of the expected revenues of the separate companies; (v) the risk that other
benefits sought in the Proposed Transaction will not be obtained; and (vi) the
cost of integration of the operations of the Company and the BioClin Group and
its impact on the combined results of the proposed combined company following
consummation of the Proposed Transaction.
Finally, the Board of Directors requested and received a written opinion
from Vector Securities, dated October 1, 1996, to the effect that, based on and
subject to the review and analyses described therein, including the various
assumptions and limitations set forth therein, the consideration proposed to be
paid by the Company pursuant to the Transaction Agreements is fair, from a
financial point of view, to the Company. See "-- Opinion of Financial Advisor."
In light of these factors, the Board of Directors concluded that the
Proposed Transaction was advisable and in the best interests of the Company and
its stockholders for the following reasons, among others:
(i) The Board of Directors believes that the Proposed Transaction
represents a unique opportunity to combine the Company's international
preclinical drug development services with the international clinical drug
development expertise and experience of the BioClin Group. The combined company
will be organized to provide for a more rapid transition for a client's drug
through various preclinical to clinical stages of development thereby minimizing
certain delays which typically occur before a new drug is introduced to the
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market. As a result, the Board of Directors believes that the combined company
will be in a stronger position to take advantage of the opportunities available
in the currently expanding market for CROs.
(ii) The Proposed Transaction with the BioClin Group offers the Company the
opportunity to leverage its existing preclinical client base to utilize the
combined company's full range of drug development services; in particular, drug
development services relating to Phase I through Phase IV trials. The Company
has provided services to over 250 clients in 16 countries during the past three
years. The BioClin Group has provided services to over 30 clinical clients in 7
countries during the past three years.
(iii) The Proposed Transaction with the BioClin Group offers the
opportunity to leverage investments in information systems and software, and to
realize economies of scale through centralization of general management and
administrative functions over a larger revenue base.
(iv) The Proposed Transaction with the BioClin Group offers the opportunity
to expand upon the Company's international operations through the BioClin
Group's existing international operations and the ability of the combined
company to expand even more broadly geographically, as demanded by the
pharmaceutical and biotechnology industry's desire to complete global drug
development projects through the conduct of simultaneous clinical trails in
multiple jurisdictions.
(v) The Board of Directors believes that based on publicly reported
revenues for fiscal 1995 the combination of the Company and the BioClin Group
will result in the combined company being one of the ten largest publicly traded
contract research organizations. The Board of Directors believes that larger
CROs will benefit as a result of the desire of many pharmaceutical and
biotechnology companies to decrease the number of CROs with whom they contract
to those capable of managing preclinical through clinical drug development on a
global basis.
(vi) The Board of Directors believes that the combined company will have
the ability to more effectively manage the capacity utilization of the Phase I
services provided by the BioClin Institute in Dusseldorf, Germany.
(vii) The opinion of Vector Securities to the Board of Directors to the
effect that as of October 1, 1996, and based upon and subject to certain
matters, the consideration to be paid in the Proposed Transaction is fair, from
a financial point of view, to the Company.
The foregoing discussion of the information and factors considered by the
Board of Directors is not intended to be exhaustive, but it does include all
material factors considered by the Board of Directors. In view of the wide
variety of factors, both positive and negative, considered by the Board of
Directors, the Board of Directors did not find it practical to, and did not,
quantify or otherwise assign relative weights to the specific factors
considered, and individual Directors may have given differing weights to
different factors. After taking into consideration all of the factors set forth
above, the Board of Directors determined that the Proposed Transaction was in
the best interests of the Company and the Company's stockholders and that the
Company should proceed with the Proposed Transaction.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE PROPOSED
TRANSACTION IS IN THE BEST INTERESTS OF THE COMPANY AND THE COMPANY'S
STOCKHOLDERS. THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ISSUANCE BY
THE COMPANY OF 2,632,600 SHARES OF COMMON STOCK PURSUANT TO THE TRANSACTION
AGREEMENTS AND UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR
APPROVAL OF THE PROPOSED TRANSACTION AND SUCH ISSUANCE OF 2,632,600 SHARES OF
COMMON STOCK.
OPINION OF FINANCIAL ADVISOR
General. As described above under the heading "-- Background of the
Proposed Transaction," the Company retained Vector Securities, pursuant to an
engagement letter, dated April 20, 1995, to provide financial advisory services
in connection with possible business combination or strategic partnership
transac-
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tions in which the Company might become involved and, if requested, to render
its opinion regarding the fairness, from a financial point of view, of the
consideration to be paid in such a transaction.
The amount of the consideration to be paid by the Company in connection
with the Proposed Transaction was determined through negotiations between the
Company and the BioClin Group. At a special meeting of the Company's Board of
Directors held on October 1, 1996, Vector Securities presented to the Board of
Directors its oral opinion, which opinion was subsequently confirmed in a
written opinion dated as of October 1, 1996, that, as of such date and subject
to the assumptions made, factors considered and limits of review undertaken as
set forth in such opinion, the consideration to be paid by the Company in the
Proposed Transaction is fair to the Company from a financial point of view.
THE COMPLETE TEXT OF THE OPINION, WHICH SETS FORTH CERTAIN ASSUMPTIONS
MADE, FACTORS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN BY VECTOR
SECURITIES IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX A AND IS INCORPORATED
HEREIN BY REFERENCE. THE SUMMARY OF THE OPINION SET FORTH IN THIS PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION. THE COMPANY'S STOCKHOLDERS ARE URGED TO READ SUCH OPINION CAREFULLY AND
IN ITS ENTIRETY. THE OPINION OF VECTOR SECURITIES WAS DIRECTED TO THE COMPANY'S
BOARD OF DIRECTORS IN CONNECTION WITH AND FOR THE PURPOSES OF THEIR EVALUATION
OF THE PROPOSED TRANSACTION AND DID NOT CONSTITUTE A RECOMMENDATION TO THE BOARD
OF DIRECTORS WITH RESPECT TO THE APPROVAL OF THE PROPOSED TRANSACTION NOR DOES
IT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF THE COMPANY AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE PROPOSED TRANSACTION.
In arriving at its opinion, Vector Securities, among other things: (i)
reviewed executed copies of the Transaction Agreements; (ii) held discussions
with certain members of the management of the Company and the BioClin Group
concerning their respective businesses, operations and prospects, as well as
other matters it believed relevant to its inquiry; (iii) visited the facilities
of the Company and the BioClin Group; (iv) reviewed certain business and
financial information of the Company and the BioClin Group, including financial
forecasts, prepared and provided by the respective managements of the Company
and the BioClin Group; (v) compared certain financial data of the Company and
the BioClin Group with such other publicly traded companies as Vector Securities
deemed reasonably comparable; (vi) compared the financial terms of the Proposed
Transaction with those of other transactions which Vector Securities deemed
reasonably comparable; (vii) reviewed the pro forma impact of the Proposed
Transaction on the Company's financial results and condition; (viii) reviewed
certain documents filed by the Company with the Commission pursuant to the
Securities Exchange Act of 1934 (the "Exchange Act"); (ix) reviewed the price
and trading history of the Common Stock; and (x) performed such other studies,
analyses and investigations as Vector Securities deemed appropriate.
In connection with its opinion, Vector Securities neither attempted
independently to verify nor assumed any responsibility for independent
verification of any information publicly available or supplied or otherwise made
available to it regarding the Company and the BioClin Group and Vector
Securities has assumed and relied on such information being accurate and
complete in all respects. Vector Securities has not made or obtained, or assumed
any responsibility for making or obtaining, any independent evaluation or
appraisal of the assets or liabilities, contingent or otherwise, of the Company
or the BioClin Group, nor has Vector Securities been furnished with any such
evaluations or appraisals. With respect to the financial projections of the
Company and the BioClin Group referred to above, Vector Securities has assumed
that they have been reasonably prepared on bases reflecting the best available
estimates and educated judgments of the management of the Company and the
BioClin Group as to the future financial performance of the Company and the
BioClin Group, respectively, and that the Company and the BioClin Group will
perform substantially in accordance with such projections. Vector Securities
assumes no responsibility for and expresses no view as to such forecasts or the
assumptions under which they are prepared. Vector Securities has also taken into
account its assessment of general economic, market and financial conditions and
its knowledge of the contract research organization (CRO) industry, as well as
its experience in connection with similar transactions and securities valuation
generally. The conclusions of Vector Securities are based solely on information
available to it on or before the date of its opinion and reflect economic,
market and other conditions as of such date. In rendering its opinion, Vector
Securities assumed that the Proposed Transaction will qualify as a "pooling-of-
interests" under United States generally accepted accounting principles. Vector
Securities has also assumed
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<PAGE> 33
that the Proposed Transaction will be consummated on the terms described in the
Transaction Agreements, without any material waiver of or modification by the
Company or the BioClin Group, and that obtaining any necessary regulatory
approvals for the Proposed Transaction will not have an adverse effect on the
Company or the BioClin Group. Vector Securities expresses no opinion as to what
the value of the Common Stock of the Company to be issued to the BioClin Group
stockholders will actually be when issued pursuant to the Proposed Transaction.
The summary set forth in this section does not purport to be a complete
description of the analyses performed by Vector Securities in arriving at its
opinion. The preparation of a fairness opinion is a complex process that
involves various determinations as to the most appropriate and relevant methods
of financial and comparative analysis and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. Furthermore, in arriving
at its fairness opinion, Vector Securities did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Vector Securities believes that its analyses must be considered as
a whole and that considering any portions of such analyses and the factors
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying its opinion. With
respect to the comparable publicly traded company analysis and comparable
transactions analysis summarized below, no public company or transaction
utilized as a comparison is identical to the Company, the BioClin Group or the
Proposed Transaction and such analyses necessarily involve complex
considerations and judgments concerning the differences in financial and
operating characteristics of the companies and other factors and could affect
the acquisition or public trading values of the companies concerned. In its
analyses, Vector Securities made numerous assumptions with respect to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of the Company and the
BioClin Group and involve the application of complex methodologies and
judgments. Any estimates and financial projections used in these analyses are
inherently uncertain and are therefore not necessarily indicative of actual
value or predictive of future results or values, which may be significantly more
or less favorable than suggested by such analyses. In addition, analyses
relating to the value of businesses and securities do not purport to be
appraisals or to reflect the prices at which the businesses or securities
actually may be sold. Accordingly, because such estimates are inherently subject
to uncertainty being based upon numerous factors and events beyond the control
of the parties or their respective advisors, neither the Company, the BioClin
Group, Vector Securities nor any other person assumes any responsibility for
their accuracy.
The following is a summary of the material financial and comparative
analyses performed by Vector Securities in arriving at its October 1, 1996
opinion.
Discounted Cash Flow Analysis. Vector Securities analyzed the equity value
of each of the Company and the BioClin Group utilizing an unlevered discounted
cash flow analysis. Each of these analyses was based solely upon information,
including certain projected financial information, prepared or provided by the
respective managements of the Company or the BioClin Group, as the case may be.
The projections were based on assumptions that were made by the respective
managements of the Company and the BioClin Group.
Vector Securities calculated a range of implied equity values for the
Common Stock by adding the present value of (i) the Company's projected
four-year stream of unlevered after-tax cash flows and (ii) its fiscal 1999
terminal value based upon a range of multiples of the Company's projected
earnings before interest and taxes ("EBIT") for fiscal 1999, assuming the
Company were to perform on a stand-alone basis (without giving effect to the
Proposed Transaction) in accordance with management's projections. Vector
Securities utilized discount rates ranging from 15% to 25% and terminal value
multiples of 1999 EBIT ranging from 15x to 25x. Vector Securities deducted the
Company's net debt (total outstanding debt less cash) from the sum of the
present values calculated above to obtain a range of implied equity values for
the Common Stock. Based on this analysis, Vector Securities indicated a range of
implied equity values for the Common Stock of $46.3 million to $83.2 million, or
$5.06 to $8.57 per share on a fully-diluted basis.
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Vector Securities calculated a range of implied equity values for the
BioClin Group by adding the present value of (i) the BioClin Group's projected
four-year stream of unlevered after-tax cash flows and (ii) its fiscal 1999
terminal value based upon a range of multiples of the BioClin Group's projected
EBIT for fiscal 1999, assuming the BioClin Group were to perform on a
stand-alone basis (without giving effect to the Proposed Transaction) in
accordance with the BioClin Group's projections. Vector Securities utilized
discount rates ranging from 25% to 35% and terminal value multiples of 1999 EBIT
ranging from 20x to 30x. Vector Securities deducted the BioClin Group's net debt
to obtain a range of implied equity values for the BioClin Group. Based on this
analysis, Vector Securities indicated a range of implied equity values for the
BioClin Group of $17.8 million to $43.2 million.
Selected Comparable Company Analysis. Using publicly available
information, Vector Securities reviewed and compared selected financial data of
the Company and the BioClin Group with similar data of selected publicly traded
companies engaged in businesses considered by Vector Securities to be reasonably
comparable to those of the Company and the BioClin Group for the purpose of its
analysis. Vector Securities included the following companies in its analysis:
Applied Bioscience International, Inc.; ClinTrials Research, Inc.; Collaborative
Clinical Research, Inc.; IBAH, Inc.; Parexel International Corporation;
Pharmaceutical Product Development, Inc.; Phoenix International Life Sciences,
Inc.; and Quintiles Transnational Corporation (collectively, the "Comparable
Companies"). For each of the Comparable Companies, Vector Securities calculated,
among other things, current market price per share as a multiple of each of the
latest 12 months ("LTM") earnings per share ("EPS"), current fiscal year EPS
estimate, next fiscal year EPS estimate and the latest reported tangible book
value per share. The current fiscal year EPS and next fiscal year EPS estimates
were based on the mean of publicly-available earnings estimates made by research
analysts as provided by Zacks Investment Research, Inc. and Nelson Publications.
Vector Securities also calculated total market value plus net debt as a multiple
of, among other things, each of LTM net revenues, LTM EBIT and LTM EBIT plus
depreciation and amortization expenses ("EBITDA"). Mean multiples of LTM EPS,
current fiscal year EPS, next fiscal year EPS, latest reported tangible book
value per share, LTM net revenues, LTM EBIT and LTM EBITDA for the Comparable
Companies were 86.3x, 58.5x, 36.9x, 5.7x, 4.1x, 60.3x and 50.7x, respectively.
The multiples derived from this analysis were applied to similar financial data
for the Company and the BioClin Group to determine a range of implied equity
values for the Company and the BioClin Group. Because the Company incurred or is
estimated to incur operating or net losses for its LTM and current fiscal year
periods and because the BioClin Group had a negative latest reported tangible
book value and an estimated current fiscal year net loss, application of certain
multiples did not provide meaningful results. The analysis of Comparable
Companies yielded a range of implied equity values of $35.9 million to $99.1
million or $4.07 to $10.09 per share on a fully-diluted basis for the Common
Stock and $24.9 million to $62.5 million for the BioClin Group. Vector
Securities noted that although the Comparable Companies were considered similar
to the Company or the BioClin Group, none of the Comparable Companies has the
same management, makeup, size or combination of business as the Company or the
BioClin Group, as the case may be. Because of the inherent differences between
the revenue growth rates and operating performance of the Company and the
BioClin Group and the Comparable Companies, Vector Securities believed that a
purely quantitative analysis of the Comparable Companies would not be
particularly meaningful in the context of the Proposed Transaction.
Selected Comparable Transaction Analysis. Vector Securities reviewed ten
recent merger and acquisition transactions occurring since 1987 involving CROs
considered by Vector Securities to be reasonably comparable to the Company and
the BioClin Group and for which information was publicly available. Vector
Securities included, among others, the following transactions in its analysis:
Applied Bioscience International, Inc./Pharmaceutical Product Development, Inc.;
BRI International, Inc./Quintiles Transnational Corporation; Bio-Research
Laboratories Ltd./ClinTrials Research, Inc.; Bio-Pharm Clinical Services,
Inc./Affinity Biotech, Inc.; International Clinical Research
Corporation/Quintiles Transnational Corporation; and Pharmaco Dynamics Research,
Inc./Applied BioScience International, Inc. (collectively, the "Comparable
Transactions"). For each of the Comparable Transactions, Vector Securities
calculated, among other things, total transaction value as a multiple of LTM net
income and latest reported tangible book value and total transaction value plus
net debt as a multiple of LTM net revenues, LTM EBIT and LTM EBITDA. Mean
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multiples of LTM net income, latest reported tangible book value, LTM net
revenues, LTM EBIT, and LTM EBITDA for the Comparable Transactions were 29.7x,
3.1x, 1.8x, 28.6x and 15.4x, respectively. The multiples derived from this
analysis were applied to similar financial data for the Company and the BioClin
Group to determine a range of implied equity values for the Company and the
BioClin Group. Because the Company incurred operating and net losses for its LTM
period and because the BioClin Group had a negative latest reported tangible
book value, application of certain multiples did not provide meaningful results.
The analysis of Comparable Transactions yielded a range of implied equity values
of $47.8 million to $92.7 million or $5.20 to $9.47 per share on a fully-diluted
basis for the Common Stock and $10.7 million to $25.6 million for the BioClin
Group. However, because the reasons for and the circumstances surrounding the
Comparable Transactions were specific to each transaction and because of the
inherent differences between the businesses, operations and the prospects of the
Company and the BioClin Group and the businesses, operations and prospects of
the companies included in the Comparable Transactions, Vector Securities
believed that it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the analysis. Accordingly, Vector Securities made
qualitative judgments concerning the differences between the characteristics of
the Comparable Transactions and the Proposed Transaction that would affect the
acquisition values of the Company, the BioClin Group and such acquired
companies.
Pro Forma Analyses. Vector Securities calculated a range of implied equity
values for the pro forma combined entity using (i) a discounted cash flow
analysis based upon the present value of the projected pro forma four-year
stream of unlevered after-tax cash flows and terminal values based upon a range
of multiples of the pro forma combined entity's projected EBIT for fiscal 1999
(assuming that the pro forma combined entity were to perform in accordance with
the stand-alone projections of the Company and the BioClin Group prepared by the
respective managements of the Company and the BioClin Group) using discount
rates ranging from 15% to 25% and terminal value multiples of 1999 EBIT of 25x
to 35x; (ii) a comparable company analysis applying the multiples derived from
the analysis of Comparable Companies described above to similar financial data
for the pro forma combined entity; and (iii) a comparable transactions analysis
applying the multiples derived from the analysis of Comparable Transactions
described above to similar financial data for the pro forma combined entity.
Based on these analyses, Vector Securities arrived at a range of implied equity
values for the pro forma combined entity of $74.4 million to $161.0 million, or
$6.19 to $12.77 per share on a fully-diluted basis. No synergies or cost savings
resulting from the Proposed Transaction were included in the foregoing analysis.
Vector Securities 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, private
placements and corporate and other purposes. The Company selected Vector
Securities to act as its financial advisor on the basis of Vector Securities'
expertise and its reputation in investment banking and mergers and acquisitions.
Pursuant to an engagement letter between the Company and Vector Securities,
the Company has agreed to pay Vector Securities a fee of approximately $520,000
for acting as its financial advisor in connection with the Proposed Transaction,
including the rendering of its opinion, all of which is contingent on the
completion of the Proposed Transaction (the Transaction Fee"). The Company also
paid Vector Securities a retainer fee of $100,000, which will not be credited
against the Transaction Fee. In addition, the Company has agreed to reimburse
Vector Securities for its reasonable out-of-pocket expenses and to indemnify
Vector Securities against certain liabilities arising out of its advisory
services and the rendering of this opinion. Vector Securities has not provided
any investment banking services to the Company or the BioClin Group in the past.
Vector Securities is a full service securities firm and in the course of its
normal trading activities may from time to time effect transactions and hold
positions in securities of the Company.
CERTAIN EFFECTS OF THE PROPOSED TRANSACTION
Following the consummation of the Proposed Transaction, the Company
believes that based on publicly reported revenues for fiscal 1995 the combined
company will be one of the ten largest publicly traded contract research
organizations. Following the consummation of the Proposed Transaction, each of
the members of the
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BioClin Group will become wholly-owned subsidiaries of the Company. As a result
of the Merger, Acquisition, a wholly-owned subsidiary of the Company, will be
merged with and into BioClin U.S., with BioClin U.S. as the surviving
corporation and a wholly-owned subsidiary of the Company. As a result of the
Merger, the capital stock of BioClin U.S. will automatically be cancelled and
cease to exist and the Rights (as defined in "TRANSACTION
AGREEMENTS -- General -- Merger Agreement") will automatically be extinguished.
See "TRANSACTION AGREEMENTS -- General -- Merger Agreement." Following the
consummation of the Proposed Transaction and the filing of an amendment to the
Company's Certificate with the Secretary of State of the State of Delaware
immediately following the Closing, the Company will be renamed "Chrysalis
International Corporation." In the event that the Proposed Transaction is not
consummated, the name of the Company will remain "DNX Corporation." See
"APPROVAL OF NAME CHANGE." Following the Closing, the Company will be owned
approximately 23.2% by the BioClin Interest Holders and other holders of capital
stock and equity interests of the BioClin Group and the remainder of the
outstanding Common Stock will be held by the existing stockholders of the
Company. Accordingly, consummation of the Proposed Transaction will have the
effect of diluting the ownership interests of the existing stockholders of the
Company.
ACCOUNTING TREATMENT
The Proposed Transaction is expected to be recorded using the
"pooling-of-interests" method of accounting for financial reporting purposes.
Consummation of the Proposed Transaction is conditioned upon receipt by the
Company and the BioClin Group of letters from KPMG Peat Marwick LLP to the
effect that the Proposed Transaction qualifies for "pooling-of-interests"
accounting treatment. See "TRANSACTION AGREEMENTS -- Conditions to Closing."
In connection with the Proposed Transaction, the combined company will
record a one-time charge of between approximately $2.0 million and $2.5 million.
This charge will consist of expenses incurred by the combined company in
connection with the consummation of the Proposed Transaction. In addition, the
combined company will incur certain costs following the consummation of the
Proposed Transaction consisting of, among others, costs relating to office and
management/employee relocations.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
consequences of the Proposed Transaction.
Under the Code, neither the Company nor any existing stockholder of the
Company will be required to recognize any gain or loss as a result of the
Company's issuance of Common Stock pursuant to the Transaction Agreements.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE INTERNAL REVENUE
CODE, EXISTING AND PROPOSED TREASURY REGULATIONS PROMULGATED THEREUNDER AND
CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE
SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF
THIS DISCUSSION. NO INFORMATION IS PROVIDED IN THIS PROXY STATEMENT WITH RESPECT
TO THE TAX CONSEQUENCES, IF ANY, OF THE PROPOSED TRANSACTION UNDER APPLICABLE
FOREIGN, STATE OR LOCAL LAWS.
DISSENTER'S APPRAISAL RIGHTS
No dissenter's appraisal rights in favor of the stockholders of the Company
exist with respect to the Proposed Transaction or any other proposal to be
considered and voted upon at the Annual Meeting.
In connection with the Merger, any stockholder of BioClin U.S. who does not
vote in favor of the Merger may elect to forego his or her right to receive
shares of Common Stock pursuant to the Merger Agreement and
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<PAGE> 37
may instead assert his or her statutory appraisal rights under the DGCL. Sherby
owns 97% of the outstanding capital stock of BioClin U.S. and has agreed
pursuant to the Merger Agreement to vote its capital stock in favor of the
Merger. In the event that a stockholder of BioClin U.S. seeks a statutory
appraisal, such holder's shares in BioClin U.S. will be valued at their fair
value in an appraisal proceeding as provided by the DGCL. Although not
determinative, the fair market value of the shares of Common Stock to which such
stockholder would have been entitled pursuant to the Merger Agreement would be
relevant to the determination of the fair value of the BioClin U.S. shares held
by such stockholder. No assurance can be given as to what value a court may
attribute to such shares of BioClin U.S. or what monetary award such court would
render in favor of such stockholder against the Company in such proceeding.
REGULATORY APPROVALS
The Company knows of no regulatory or governmental approvals which must be
obtained prior to consummation of the Proposed Transaction. However, the
Transaction Agreements condition Closing of the Proposed Transaction upon
obtaining any and all such approvals which may be required. The Transaction
Agreements obligate the Company, the BioClin Interest Holders and the BioClin
Group to cooperate to obtain any such approval.
EXPENSES
The Transaction Agreements provide that, except as otherwise provided
therein, each party will bear its own expenses, including fees and expenses of
its agents, representatives, counsel and accountants in connection with the
Proposed Transaction. See "-- Accounting Treatment" for a discussion of possible
one-time charges to be recorded in connection with the Proposed Transaction.
Pursuant to the Transaction Agreements, certain expenses incurred by the
Company in connection with assisting the BioClin Group to establish a financial
reporting capability in Europe to ensure adequate reporting of consolidated
financial results shall be reimbursed by the BioClin Group. Pursuant to a Letter
Agreement, dated as of May 16, 1996, among the Company and the BioClin Group, in
the event that the Proposed Transaction is not consummated by December 31, 1996,
the BioClin Group shall reimburse the Company for certain fees and expenses
incurred by the Company in connection with the preparation of audited financial
statements for the BioClin Group and in preparation for the change in the name
of the Company upon consummation of the Proposed Transaction.
TRANSACTION AGREEMENTS
The following summarizes certain provisions contained in the Transaction
Agreements attached hereto as Appendices B, C and D. Such summary is qualified
in its entirety by reference to the Transaction Agreements.
GENERAL
Merger Agreement. On August 19, 1996, the Company, Acquisition, the
BioClin Interest Holders, Sherby and BioClin U.S. entered into the Merger
Agreement. The Merger Agreement provides for the acquisition by the Company of
all of the outstanding capital stock of BioClin U.S. in consideration and
exchange for an aggregate of 658,150 shares of Common Stock. Pursuant to the
Merger Agreement, each share of BioClin U.S. common stock and preferred stock
will be converted into the right to receive 6,450 shares of Common Stock for a
total of 645,000 shares of Common Stock. In addition, pursuant to the Merger
Agreement, two employees (the "BioClin Employee Rightholders") of BioClin U.S.
who each possess a contractual right (the "Rights") to purchase up to one
percent of BioClin U.S. capital stock will each receive 6,575 shares of Common
Stock in consideration and exchange for their Rights for a total of 13,150
shares of Common Stock.
Pursuant to the Merger, Acquisition will be merged with and into BioClin
U.S., with BioClin U.S. as the surviving corporation. Thereafter, Acquisition's
separate corporate existence shall cease. In connection therewith, each share of
Acquisition common stock owned by the Company will be converted into one share
of
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common stock of the surviving corporation with the result that BioClin U.S. will
become a wholly-owned subsidiary of the Company. The Merger Agreement provides
that the charter, bylaws, directors and officers of the surviving corporation
shall be those of Acquisition as existing immediately prior to the Merger.
Messrs. Schmitt and Cooper are the sole directors and officers of Acquisition
and, following the Merger, will become the directors of BioClin U.S. The Merger
Agreement provides that the Merger becomes effective upon the filing with the
Secretary of State of the State of Delaware of a certificate of merger, which
BioClin U.S. has agreed to file immediately following the Closing pursuant to
the Merger Agreement.
As a result of the Merger, the capital stock of BioClin U.S. will
automatically be cancelled and cease to exist and the Rights will automatically
be extinguished. See "THE PROPOSED TRANSACTION -- Dissenter's Appraisal Rights"
for a discussion of statutory appraisal rights available to stockholders of
BioClin U.S. in connection with the Merger. Stockholders exercising such
appraisal rights will not have their shares of BioClin U.S. capital stock so
converted and cancelled.
Share Exchange Agreement. On August 19, 1996, the Company, Wissmann, the
BioClin Interest Holders, the Employee Trustee, Donhardt, Kraatz, BioClin
Germany, Kilmer and BioClin Europe entered into the Share Exchange Agreement.
The Share Exchange Agreement provides for the acquisition by the Company of all
of the outstanding equity interests in BioClin Europe and, with respect to its
non-wholly-owned subsidiaries, BioClin Germany and Kilmer, all outstanding
equity interests in such subsidiaries held by persons or entities not
wholly-owned, directly or indirectly, by BioClin Europe, in consideration and
exchange for an aggregate of 1,158,344 shares of Common Stock. Pursuant to the
Share Exchange Agreement, the BioClin Interest Holders will transfer, or cause
to be transferred, to the Company all outstanding equity interests in BioClin
Europe in consideration and exchange for 1,105,690 shares of Common Stock.
Pursuant to the Share Exchange Agreement, Mmes. Kraatz and Donhardt will
transfer, or cause to be transferred, to the Company all equity interests held
by them in BioClin Germany (the remaining equity interests of which are held
indirectly by BioClin Europe) in consideration and exchange for an aggregate of
52,652 shares of Common Stock. Pursuant to the Share Exchange Agreement, Dr.
Barbut and Mr. Hackel will transfer to the Company all outstanding equity
interests in Kilmer in consideration and exchange for an aggregate of two shares
of Common Stock.
Share Acquisition Agreement. On August 19, 1996, the Company, Rittershaus,
the BioClin Interest Holders and BioClin Institute entered into the Share
Acquisition Agreement. The Share Acquisition provides for the acquisition by the
Company of all outstanding equity interests in BioClin Institute in
consideration and exchange for an aggregate of 816,106 shares of Common Stock.
Pursuant to the Share Acquisition Agreement, the BioClin Interest Holders will
transfer (or cause to be transferred) to the Company all outstanding equity
interests in BioClin Institute in consideration and exchange for 816,106 shares
of Common Stock.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company has made certain representations and warranties in the
Transaction Agreements, including (i) certain customary corporate matters, (ii)
the absence of a conflict between the Transaction Agreements and the
transactions contemplated thereby and certain specified organic documents and
other material agreements and instruments to which the Company is a party, (iii)
certain taxation matters, (iv) the absence of material legal proceedings and
environmental liabilities or violations, (v) certain labor relations matters,
(vi) the accuracy of the Company's filings made or to be made with the
Commission, and (vii) the absence of certain material adverse changes since the
date of the Company's Form 10-Q filed with the Commission with respect to the
first quarter ended March 31, 1996.
REPRESENTATIONS AND WARRANTIES OF THE BIOCLIN GROUP
The BioClin Interest Holders, the Trustees and the relevant members of the
BioClin Group have made certain representations and warranties in the
Transaction Agreements, including: (i) certain customary corporate and
securities law matters; (ii) the absence of a conflict between the Transaction
Agreements and certain specified organic documents and other material agreements
and instruments; (iii) the absence of
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regulatory or other approvals or consents required in connection with the
Proposed Transaction; (iv) the absence of material legal proceedings; (v) title
to the capital stock of, or equity interests in, the members of the BioClin
Group to be transferred and power and authority to vote and transfer such
capital stock or equity interests; (vi) the capitalization of the relevant
members of the BioClin Group; (vii) the accuracy of certain financial statements
of the BioClin Group; (viii) various aspects of the business of the BioClin
Group, including operations in the ordinary course of business; (ix) the absence
of certain material adverse changes since the date of the last audited balance
sheet of the BioClin Group; (x) title to, and condition and sufficiency of,
assets and lack of encumbrances; (xi) existence and adequacy of intellectual
property of the BioClin Group; (xii) compliance with applicable laws, court and
governmental orders, including environmental laws; (xiii) compliance with
applicable regulatory requirements and possession of necessary permits; (xiv)
the absence of undisclosed liabilities; (xv) certain tax matters; (xvi) the
collectibility of accounts receivable; (xvii) certain contract matters; (xviii)
absence of certain illegal payments and related party transactions; and (xix)
certain employee, employee benefit and labor relations matters.
COVENANTS OF THE COMPANY
The Company has made certain pre-Closing covenants in the Transaction
Agreements, including: (i) notifying the BioClin Interest Holders and providing
the BioClin Interest Holders an opportunity to confer with the Company in the
event the Company proposes to take certain non-ordinary course actions; (ii)
cooperating with the BioClin Group to obtain any approvals or consents necessary
to consummate the Proposed Transaction or remove any obstacles preventing
consummation of the Proposed Transaction; (iii) refraining from taking any
action that would render its representations and warranties untrue or otherwise
adversely affect its ability to consummate the Proposed Transaction, subject to
the fiduciary obligations of the Company's Board of Directors; (iv) notifying
the BioClin Interest Holders if it becomes aware of the breach of any of the
representations, warranties or covenants of any party to the Transaction
Agreements; (v) refraining from taking any action which would disqualify the
Proposed Transaction for "pooling-of-interests" accounting treatment; (vi)
maintaining the confidentiality of all non-public information obtained from or
on behalf of the BioClin Group in connection with the Proposed Transaction; and
(vii) preparing this Proxy Statement and filing it with the Commission and
convening a meeting of the Company's stockholders to consider and vote upon the
issuance by the Company of 2,632,600 shares of Common Stock pursuant to the
Transaction Agreements.
COVENANTS OF THE BIOCLIN GROUP
The BioClin Interest Holders and the relevant members of the BioClin Group
have made certain pre-Closing covenants in the Transaction Agreements,
including: (i) conducting the business of the BioClin Group in the ordinary
course of business unless the prior written consent of the Company has been
obtained with respect to specified non-ordinary course actions; (ii) cooperating
with the Company to obtain any approvals or consents necessary to consummate the
Proposed Transaction or remove any obstacles preventing consummation of the
Proposed Transaction; (iii) refraining from taking any action that would render
its representations and warranties untrue or otherwise adversely affect its
ability to consummate the Proposed Transaction; (iv) providing audited financial
statements for the BioClin Group for fiscal 1994 and 1995; (v) putting into
place an adequate financial reporting capability to allow timely reporting by
the Company of consolidated financial results; (vi) providing access to the
Company to the facilities and books and records of the BioClin Group; (vii)
refraining from entering into discussions or negotiations with any other party
relating to the sale of the assets or capital stock of, or equity interests in,
the BioClin Group or any merger, consolidation, business combination or similar
transaction involving the BioClin Group; (viii) notifying the Company if they
become aware of the breach of any of the representations, warranties or
covenants of any party to the Transaction Agreements; (ix) preserving their
relationships with their customers and employees; (x) refraining from
subsequently selling the shares of Common Stock acquired pursuant to the
Transaction Agreements except in compliance with the federal securities laws
(including providing an opinion of counsel with respect to any such proposed
sale); (xi) refraining from taking any action which would disqualify the
Proposed Transaction for "pooling-of-interests" accounting treatment; (xii)
maintaining the confidentiality of all non-public information obtained from or
on behalf of the Company in connection with the Proposed
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Transaction; (xiii) in the case of Sherby, approving the Merger and the Merger
Agreement, and, in the case of the BioClin Interest Holders, causing Sherby to
approve the Merger and the Merger Agreement; and (xiv) delivering to the BioClin
Employee Rightholders and other stockholders of BioClin U.S. (A) the statutory
notice of corporate action taken without a meeting required by Section 228(d) of
the DGCL; (B) the statutory notice of the availability of dissenter's appraisal
rights required by Section 262(d)(ii) of the DGCL; and (C) any disclosure or
information statements required to be delivered under the federal securities
laws.
CONDITIONS TO CLOSING
The obligation of the Company to effect the Closing is subject to the
satisfaction or waiver of several conditions, including: (i) the receipt of
certain consents and approvals, including the approval by the stockholders of
the Company for the issuance by the Company of 2,632,600 shares of Common Stock
pursuant to the Transaction Agreements and the approval by the stockholders of
BioClin U.S. of the Merger and the Merger Agreement; (ii) the absence of
litigation or governmental orders enjoining the consummation of the Proposed
Transaction; (iii) delivery by KPMG Peat Marwick LLP of a letter to the effect
that the Proposed Transaction qualifies for "pooling-of-interests" accounting
treatment; (iv) the execution and delivery of the Stockholders' Agreement and
the Employment Agreements; (v) the Company having received an opinion from its
financial advisor, which it received on October 1, 1996, with respect to the
fairness, from a financial point of view, to the Company of the consideration to
be paid by the Company pursuant to the Transaction Agreements; (vi) the
continuing accuracy of the representations and warranties of and compliance with
the covenants by the BioClin Interest Holders and the BioClin Group; and (vii)
the acquisition by the Company of all of the capital stock of, or equity
interests in, all of the BioClin Group and the concurrent Closing of each
Transaction Agreement.
The respective obligations of the BioClin Interest Holders, Sherby, the
BioClin Employee Stockholders, the Trustees and the BioClin Group to effect the
Closing is subject to the satisfaction or waiver of several conditions,
including: (i) the receipt of certain consents and approvals, including the
approval by the stockholders of the Company for the issuance by the Company of
2,632,600 shares of Common Stock pursuant to the Transaction Agreements and the
approval by the stockholders of BioClin U.S. of the Merger and the Merger
Agreement; (ii) the absence of litigation or governmental orders enjoining the
consummation of the Proposed Transaction; (iii) delivery by KPMG Peat Marwick
LLP of a letter to the effect that the Proposed Transaction qualifies for
"pooling-of-interests" accounting treatment; (iv) the execution and delivery of
the Stockholders' Agreement and the Employment Agreements; (v) the continuing
accuracy of the representations and warranties of and compliance with the
covenants by the Company; and (vi) the release of Barbut and Hackel from certain
guarantees of indebtedness of the BioClin Group.
INDEMNIFICATION
The Stockholders' Agreement contains certain provisions pursuant to which
the Company and the BioClin Interest Holders (and related parties of each) agree
to indemnify each other with respect to certain matters in connection with the
Proposed Transaction and the Transaction Agreements. See "THE STOCKHOLDERS'
AGREEMENT -- Indemnification Provisions."
TERMINATION
Any Transaction Agreement may be terminated prior to the Closing by: (i)
either the Company or the BioClin Interest Holders in the event of a material
breach by the other party of any provision of such Transaction Agreement or the
nonsatisfaction of any of the conditions set forth in such Transaction
Agreement, in each case which has not been waived by such party; (ii) the mutual
consent of each of the Company and the BioClin Interest Holders; (iii) either
the Company or the BioClin Interest Holders if any other Transaction Agreement
is terminated; and (iv) either the Company or the BioClin Interest Holders if
the Closing does not occur, other than through the failure of the terminating
party to fulfill its obligations under such Transaction Agreement, on or before
December 31, 1996 or such later date as the parties may agree. Pursuant to the
Transaction Agreements and as provided by the DGCL, notwithstanding stockholder
approval of the Proposed Transaction, the Board of Directors of the Company, on
the one hand, and any
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member of the BioClin Group, on the other hand, may terminate any Transaction
Agreement following such stockholder approval, but only for the reasons set
forth in clauses (i) through (iv) above.
EMPLOYMENT AGREEMENTS
The following summarizes certain provisions to be contained in the
Employment Agreements with Dr. Barbut and Dr. Jensen to be entered into at the
Closing. Forms of the Employment Agreements are attached as Exhibit A to each
Transaction Agreement, which are attached hereto as Appendices B, C and D. Such
summary is qualified in its entirety by reference to the Employment Agreements.
Pursuant to the Transaction Agreements, at the Closing the Company will
enter into an employment agreement and a related consulting agreement with Dr.
Barbut and an employment agreement with Dr. Jensen. Pursuant to Dr. Barbut's
employment agreement, he will be employed by the Company as the Company's Vice
Chairman and President -- Clinical Services as well as President of BioClin
Institute. Pursuant to his consulting agreement, Dr. Barbut will serve as an
independent contractor special consultant for BioClin Europe. Pursuant to such
agreements, Dr. Barbut will be compensated, granted certain stock options and
provided other benefits comparable to other senior executives of the Company and
commensurate with his duties and responsibilities. Dr. Barbut's agreements
provide for severance payments in the event that he is terminated without cause,
as defined therein. Dr. Barbut's agreements will obligate the Company to pay him
his base salary at the discretion of the Company for a period of 12 to 36 months
following his termination, provided certain conditions are met. In addition, in
the event that Dr. Barbut's duties and responsibilities are changed, he may,
under certain circumstances, treat such change as a termination of employment
under such agreements. Dr. Barbut's agreements also contain standard non-compete
and non-solicitation provisions. The term of each agreement is two years from
the date of the Closing. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Pursuant to Dr. Jensen's employment agreement, he will be employed by the
Company as President -- International Services. Pursuant to Dr. Jensen's
employment agreement, he will be compensated, granted certain stock options and
provided other benefits comparable to other senior executives of the Company and
commensurate with his duties and responsibilities. Dr. Jensen's employment
agreement provides for severance payments in the event that he is terminated
without cause, as defined therein. Dr. Jensen's employment agreement will
obligate the Company to pay him his base salary at the discretion of the Company
for a period of 12 to 36 months following his termination, provided certain
conditions are met. In addition, in the event that Dr. Jensen's duties and
responsibilities are changed, he may, under certain circumstances, treat such
change as a termination of employment under such agreement. Dr. Jensen's
employment agreement also contain standard non-compete and nonsolicitation
provisions. The term of the employment agreement is two years from the date of
the Closing. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
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THE STOCKHOLDERS' AGREEMENT
The following summarizes certain provisions contained in the Stockholders'
Agreement attached hereto as Appendix E. Such summary is qualified in its
entirety by reference to the Stockholders' Agreement.
GENERAL
At the Closing, the Company, Sherby, the Trustees, the BioClin Interest
Holders and the BioClin Employee Stockholders will enter into the Stockholders'
Agreement.
DIRECTOR DESIGNATION
Pursuant to the Stockholders' Agreement, within five business days after
the Closing, the Company will take all actions reasonably necessary to elect to
the Board of Directors one member designated by the BioClin Interest Holders
reasonably acceptable to the Company. The Stockholders' Agreement provides that
Dr. Barbut and Dr. Jensen are acceptable nominees to the Company. The BioClin
Interest Holders have informed the Company that Dr. Barbut will be such
designee. Accordingly, in accordance with the Company's Bylaws, it is
contemplated that immediately following the Closing, the Company will increase
its Board of Directors by one member and elect Dr. Barbut, as the nominee of the
BioClin Interest Holders, as a Class I Director of the Company.
Upon the earlier to occur of the next vacancy on the Board of Directors or
March 31, 1997, the BioClin Interest Holders have the right to designate one
additional member reasonably acceptable to the Company to the Board of
Directors. The BioClin Interest Holders have informed the Company that Dr.
Jensen will be such designee. At such time, the Company will, if necessary and
in accordance with its Bylaws, increase its Board of Directors by one member,
and elect Dr. Jensen as a Class III Director of the Company, or as a Director of
the class in which the vacancy occurred, as the case may be. Although Dr. Treu
has not formally tendered his resignation as a Director of the Company, Dr. Treu
has informed the Company that he presently intends to resign as a Director of
the Company immediately after the consummation of the Proposed Transaction.
Pursuant to the Stockholders' Agreement, upon such resignation of Dr. Treu, if
any, the Board of Directors will, in accordance with the Bylaws, elect Dr.
Jensen as a Class III Director to fill the vacancy created on the Board of
Directors as a result of the resignation of Dr. Treu. No such resignation will
become effective until the Chairman of the Board receives a written resignation
from Dr. Treu. There can be no assurance that Dr. Treu will submit such a
written resignation. Pursuant to the Stockholders' Agreement, following the
Closing, Dr. Jensen has the right to attend, but not to vote at, meetings of the
Board of Directors until he is elected to the Board of Directors. See "ELECTION
OF DIRECTORS -- Information Concerning Nominees" for biographical information
regarding Dr. Barbut and Dr. Jensen.
REGISTRATION RIGHTS
Pursuant to the Stockholders' Agreement, the Company will grant Sherby and
the BioClin Interest Holders two demand registration rights. Pursuant to such
demand registration rights, (i) at any time following the second anniversary of
the Closing, Sherby and the BioClin Interest Holders, acting together, may
require the Company to register up to 38% of the Registrable Securities owned by
them; and (ii) at any time following the fifth anniversary of the Closing,
Sherby and the BioClin Interest Holders, acting together, may require the
Company to register any or all of the Registrable Securities then owned by them.
In addition, pursuant to the Stockholders' Agreement, the Company will grant to
Sherby, the BioClin Interest Holders and the BioClin Employee Stockholders
unlimited piggyback registration rights with respect to the Registrable
Securities, subject to customary terms and conditions, including underwriters'
cutback rights.
Notwithstanding the foregoing, pursuant to the Stockholders' Agreement, the
Company shall not be required to register Registerable Securities if: (i)
financial statements satisfying the requirements of the federal securities laws
cannot reasonably be obtained; (ii) the Company is in possession of material
non-public information that the Company's Board of Directors, in the exercise of
reasonable judgment, deems advisable not to disclose at that time; or (iii) such
registration would, in the reasonable judgment of the Board of
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Directors, jeopardize the completion of an acquisition, divestiture or other
transaction with respect to which the Company is at such time in negotiations.
Pursuant to the Stockholders' Agreement, all expenses incurred in
connection with a piggyback registration which, but for such piggyback
registration would not have been incurred by the Company, will be for the
account of and shall be payable by the BioClin Interest Holders and BioClin
Employee Stockholders participating in such piggyback registration. All expenses
incurred in connection with a demand registration will be for the account of and
shall be payable by the BioClin Interest Holders participating in such demand
registration, except that the Company will pay up to $75,000 of the fees and
disbursements of the Company's counsel and independent certified public
accountants in connection with such demand registration.
INDEMNIFICATION PROVISIONS
Registration Rights. With respect to any registration effected pursuant to
the Stockholders' Agreement, the Company will indemnify the BioClin Interest
Holders, Sherby and the BioClin Employee Stockholders against all losses arising
out of any untrue statement of material fact contained in a prospectus or
registration statement pertaining to such registration, any omission to state a
material fact required to be stated therein or necessary to make any statement
therein, in light of the circumstances under which it was made, not misleading
or any violation of the federal securities laws, except with respect to
information provided to the Company for inclusion therein by or on behalf of
such persons. With respect to any registration effected pursuant to the
Stockholders' Agreement, the BioClin Interest Holders will indemnify the Company
against all losses arising out of any untrue statement of material fact
contained in such a prospectus or registration statement, any omission to state
a material fact required to be stated therein or necessary to make any statement
therein, in light of the circumstances under which it was made, not misleading
or any violation of the federal securities laws, but only with respect to
information furnished to the Company for inclusion therein by or on behalf of
the BioClin Interest Holders or the Employee Stockholders.
Transaction Agreements. Pursuant to the Stockholders' Agreement, the
Company will indemnify the BioClin Interest Holders, their affiliates and
related persons against all losses and expenses arising out of any inaccuracy of
any representation of the Company or the breach of any warranty, covenant or
undertaking of the Company contained in the Transaction Agreements or the
Stockholders' Agreement. Pursuant to the Stockholders' Agreement, the BioClin
Interest Holders and Sherby will indemnify the Company and related persons
against all losses and expenses arising out of (i) any inaccuracy of any
representation of the BioClin Interest Holders, the Trustees or the BioClin
Group or the breach of any warranty, covenant or undertaking of the BioClin
Interest Holders, the Trustees or the BioClin Group contained in the Transaction
Agreements or the Stockholders' Agreement (the "General Liabilities") and (ii)
certain Identified Liabilities. "Identified Liabilities" are certain liabilities
with respect to pending or threatened litigation involving members of the
BioClin Group and the BioClin Interest Holders and the possible exercise by a
stockholder of BioClin U.S. of his right to a statutory appraisal pursuant to
the DGCL in connection with the Merger to the extent of any amount recovered by
such stockholder in excess of the market value of the Common Stock which such
stockholder is entitled to receive pursuant to the Merger Agreement.
Pursuant to the Stockholders' Agreement, the indemnity provided by the
Company with respect to the Transaction Agreements will continue until the date
of the independent auditor's report with respect to the financial statements of
the Company for the fiscal year ended December 31, 1996 (the "Report Date"). The
indemnity provided by the BioClin Interest Holders with respect to General
Liabilities will continue until the Report Date and with respect to Identified
Liabilities will continue until the earlier of December 31, 1999 and the date on
which the amount of such Identified Liability is finally determined. Under
certain circumstances set forth in the Stockholders' Agreement, such indemnity
obligations of the Company and the BioClin Interest Holders may extend beyond
the dates specified above.
Pursuant to the Stockholders' Agreement, no party shall be entitled to
indemnification until the damages incurred by such party exceeds $100,000 (the
"Threshold"), and then only amounts in excess of the Threshold, and in no event
shall the amount of all damages to be recovered by all parties with respect to
the Transaction Agreements exceed the aggregate amount of ten percent of the
product of 2,632,600 and the
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Closing Price (as defined below) (the "Cap"). Neither the Threshold nor the Cap
apply to any damages arising from any Identified Liability.
Pursuant to the Stockholders' Agreement, the Company shall satisfy all of
its indemnification obligations by delivering such number of shares of Common
Stock computed by dividing the aggregate dollar amount of such damages subject
to indemnification thereunder by the closing sales price of the Common Stock on
the business day immediately preceding the Closing Date (the "Closing Price").
Similarly, the BioClin Interest Holders shall satisfy their indemnification
obligations by delivering such number of shares of Common Stock held by them
computed by dividing the aggregate dollar amount of such damages subject to
indemnification thereunder by the Closing Price.
In order to secure their indemnification obligations thereunder, the
Stockholders' Agreement obligates the BioClin Interest Holders to deliver into
escrow a certain portion of the cash proceeds received by the BioClin Interest
Holders in the event that the BioClin Interest Holders transfer shares of Common
Stock before their indemnification obligations terminate with the result that
the BioClin Interest Holders would be unable to satisfy all of their
indemnification obligations with respect to the General Liabilities and the
Identified Liabilities (an "Early Transfer"). The amount of cash proceeds that
the BioClin Interest Holders must escrow upon any such Early Transfer is the
amount equal to the product of (i) the difference between the number of shares
of Common Stock specified in the Stockholders' Agreement to be deliverable to
satisfy all of their still remaining indemnification obligations and the number
of shares of Common Stock then owned by them and (ii) the Closing Price.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ISSUANCE
BY THE COMPANY OF 2,632,600 SHARES OF COMMON STOCK PURSUANT TO THE TRANSACTION
AGREEMENTS.
THE COMPANY
GENERAL
The Company is a contract research organization ("CRO") whose principal
activities consist of preclinical drug development services conducted through
its wholly-owned subsidiaries, Pharmakon and DNX Biotherapeutics, doing business
as DNX Transgenics. Additionally, the Company has an exclusive commercial
license to a U.S. patent covering DNA microinjection, which is a method of gene
transfer widely employed for the development of transgenic animals in several
mammalian species. The Company was incorporated in Delaware in March 1988. The
Company's principal executive offices are located at 575 Route 28, Raritan, New
Jersey 08869; telephone number: (908) 722-7900.
PHARMAKON RESEARCH INTERNATIONAL
Pharmakon is a contract research organization providing preclinical drug
development and safety assessment services, including in vitro and in vivo
toxicological, pharmacological and pharmacokinetics testing services, to
pharmaceutical, biotechnology, chemical and other industries through its United
States operations and its European subsidiary, Pharmakon Europe. A primary
component of Pharmakon's preclinical drug development services consists of
specialty services such as general and safety pharmacology, continuous infusion
techniques, immunology and immunotoxicology. Pharmakon also offers drug
screening and evaluation services utilizing DNX Transgenics' proprietary animal
models and markets transgenic-based drug development services provided by DNX
Transgenics. In August 1991, the Company acquired Pharmakon Research
International, Inc. and Matthews Laboratories, Inc., two affiliated preclinical
drug development services companies, through a merger of those two companies
into a wholly owned subsidiary of the Company, resulting in Pharmakon. In
December 1992, Pharmakon acquired Hazelton France, a French company engaged in
providing preclinical drug development services, and renamed it Pharmakon
Europe, which is a wholly owned subsidiary of Pharmakon. As used herein,
references to "Pharmakon," except as otherwise indicated, include Pharmakon
Research International, Inc. and Pharmakon Europe.
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DNX TRANSGENICS
DNX Transgenics is a specialty CRO using its proprietary and other
transgenic animal technology by providing drug development services to the
pharmaceutical, biotechnology and medical communities via the development of
laboratory animal models that more closely mimic human biological processes than
conventional laboratory animal models for use in in vivo testing for drug
discovery and development and in biomedical research.
MICROINJECTION PATENT LICENSING
The Company also grants sublicenses of its proprietary Pronuclear DNA
Microinjection technology ("DNA Microinjection"), the process widely used in the
pharmaceutical and biotechnology industries to develop transgenic animals. These
sublicenses entitle the Company to receive revenues consisting of fees and, in
certain cases, royalties. See "-- Licensing."
NEXTRAN
Pursuant to the terms of the Purchase Agreement, dated September 22, 1995,
as amended, DNX Biotherapeutics consummated the sale of its 30% partnership
interest in Nextran (as defined under "-- Nextran") to Transplant Acquisition
Inc., a wholly-owned subsidiary of Baxter (as defined under "-- Nextran"), for a
cash purchase price of $18 million. See "-- Nextran." In connection with this
transaction, in the third quarter of 1995, the Company eliminated its investment
in Nextran and recorded an estimated non-recurring gain, net of expenses, income
taxes and related accruals, of $17,266,000. Additionally, in the event that
Nextran develops and commercializes hemoglobin blood substitutes using
technologies licensed to Nextran by the Company, the Company will receive
royalty income of 3% of end product sales.
BUSINESS STRATEGY
The establishment and eventual sale of Nextran allows the Company to focus
its business exclusively on expanding its opportunities in drug development
services for the pharmaceutical and biotechnology industries as well as
expanding its preclinical opportunities including its specialty services such as
pharmacology, transgenic animal model services, immunotoxicology and continuous
infusion. Presently, the Company provides preclinical drug development services
on a worldwide basis to over approximately 250 clients in North America, Europe
and Japan.
Although the pharmaceutical industry will continue to maintain in-house
preclinical and clinical drug development capabilities to identify promising new
drug candidates, the pharmaceutical industry has increasingly turned to the
outsourcing of their drug testing requirements because of cost constraints and
rising regulatory demands. The U.S. biotechnology industry also has increased
the demand for drug development services primarily as a result of having very
little infrastructure to perform in-house preclinical and clinical requirements.
Since outsourcing currently accounts for approximately one-third of the drug
development services market, it is believed that pharmaceutical and
biotechnology companies will outsource a greater percentage of their drug
testing requirements in order to enhance flexibility and to help control drug
development costs.
In recent years, the Company has made investments to accommodate
anticipated growth and to enhance the quality of services offered. The Company
has a broad range of services that are capable of taking a compound from the
laboratory to human clinical trials, including the utilization of its specialty
preclinical services.
In combination with these preclinical drug development services, the
Company believes that the Proposed Transaction as well as other potential
acquisitions of complementary businesses will create synergies with its existing
business as well as enable it to provide additional services as a result of
anticipated demand for outsourcing by the pharmaceutical and biotechnology
industries. The Company from time to time is engaged in discussions regarding
strategic acquisitions, other than the Proposed Transaction, of other
organizations
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providing various drug development services and may finance such acquisition
with its existing cash resources or by additional public or private debt or
equity financings or through the issuance of stock. In the event any such
acquisition requires financing, there can be no assurance that such financing
will be available to the Company or if available, that it will be available on
acceptable terms. Also, there can be no assurance that the Company will
consummate such a transaction or obtain any such financing, or if consummated,
that such financing arrangements will satisfy a material portion of the
Company's capital needs. Although the Company continually considers and
evaluates potential acquisitions and related opportunities for growth, it has
not entered into any agreements with respect to such acquisitions, other than
the Proposed Transaction. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- THE COMPANY -- Liquidity and Capital
Requirements." Consummation of the Proposed Transaction is subject to certain
conditions. See "TRANSACTION AGREEMENTS -- Conditions to Closing."
PHARMAKON RESEARCH INTERNATIONAL
OVERVIEW
Pharmakon provides preclinical drug development services, including
toxicological, pharmacological and pharmacokinetics testing services, primarily
for pharmaceutical and biotechnology companies as well as chemical and other
industries. Drug development is an expensive and lengthy process. Under
guidelines issued by the U.S. Food and Drug Administration (the "FDA") in the
U.S. and analogous regulatory bodies throughout the world, all proposed new
drugs are required to undergo rigorous testing before approval for sale.
Extensive preclinical testing, involving pharmacology and toxicology studies, is
required before a drug developer may obtain permission to conduct safety and
efficacy testing in humans. In efficacy studies, drug candidates are evaluated
by administering them to animal models that simulate human disease conditions.
Such screens are used primarily by pharmaceutical and biotechnology companies.
In toxicology studies, drug candidates are tested in normal, healthy animals to
determine their potential toxicity to humans. In addition, new industrial and
agricultural chemicals often require extensive toxicology testing before they
may be sold. Consequently, toxicology tests are used not only by developers of
new drugs, but also by developers of other chemical products.
SERVICES OFFERED
Pharmakon believes it offers clients a full range of preclinical drug
development services and can provide a majority of the preclinical testing
requirements necessary to secure FDA (U.S.), EC (Europe) and MHW (Japan)
approval to initiate human clinical trials.
Pharmakon currently provides on a worldwide basis the following preclinical
drug development services:
Toxicology. Toxicology studies are designed to identify and evaluate any
harmful effects that pharmaceuticals or chemicals might cause to humans. These
studies are required in connection with the FDA approval process. Pharmakon
provides the following toxicology testing services: mutagenesis/genetic
toxicology; teratology; reproduction/fertility; immunotoxicology; continuous
infusion; carcinogenesis; acute, sub-acute and chronic evaluations. Pharmakon
believes it has a recognized specialty expertise in continuous infusion
administration techniques and immunotoxicology.
Pharmacology. Pharmacology studies are designed to quantify the properties
and reactions of drugs primarily in relation to their therapeutic value.
Pharmakon provides testing in the following therapeutic areas: central nervous
system, cardiovascular; pulmonary; anti-inflammatory; gastrointestinal;
cardiopulmonary; and analgesia. In addition, Pharmakon provides safety
pharmacology studies, which include the evaluation of possible effects on the
central nervous system, cardiovascular, gastrointestinal, pulmonary and renal
function as well as adverse interaction with drugs likely to be co-administered
with the development candidate.
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Transgenic Animal Models. Transgenic laboratory animal models more closely
mimic human biological processes than do conventional laboratory animal models.
Pharmakon currently offers drug screening and evaluation services utilizing DNX
Transgenics' proprietary animal models which include a portfolio of models for
evaluating compounds targeted at treating atherosclerosis and coronary heart
disease and inflammatory conditions. Additionally, Pharmakon markets
transgenic-based services offered by DNX Transgenics. See "-- DNX Transgenics."
Pharmacokinetics. Pharmacokinetic studies are designed to characterize the
time course of drug absorption, distribution, metabolism and excretion and
relate these processes to the intensity and time course of pharmacological and
toxicological effects of drugs.
Immunology. Immunology studies are designed to evaluate and test the
immunoregulatory potential of substances.
CONTRACTS/OPERATIONS
Preclinical studies are generally undertaken for, or required for an
investigational new drug application ("IND") with the FDA. Studies are conducted
in accordance with defined protocols established with clients prior to study
initiation. The protocol includes such parameters as the duration of the study,
the species and number of subjects to be used, dosage levels to be employed and
the specific observations and examinations to be made during and at the
conclusion of the study. Generally, a portion of the fee is paid in advance and
the balance is paid in installments over the study's duration, with a final
payment due upon delivery of the final report. Fees paid in advance are recorded
as deferred revenue when received and credited to revenues when earned.
A typical study program is initiated when a client contacts the Company
with a description of such matters as the compound to be tested, the objectives
of the study program, and the agency to which it may be submitted for approval.
The Company and the client develop a protocol to be followed, agree on a price
and, thereafter, the client forwards the test material to the Company. Each
study is assigned to a Study Director who manages the conduct of the study to
assure that test material administration, observations, analyses and reports are
in accordance with the protocol. Frequent contact is made with the client
regarding the progress of the program.
Further assurance of compliance with the protocol is achieved through
audits conducted by the Company's quality assurance department which are
administered separately from the services/study operations of the Company. A
study program generally culminates in delivery of a written report of the
results to the client.
Clients generally have the right to terminate studies at any time. The
Company's contracts generally require clients to make all scheduled payments
through the termination date and to pay certain extra costs incurred in
connection with the early termination thereof. In addition, the Company's
contracts may contain in certain circumstances the payment of an
early-termination fee.
DNX TRANSGENICS
DNX Transgenics is a specialty contract research organization using its
proprietary and other transgenic animal technology in providing preclinical drug
development services to the pharmaceutical, biotechnology and medical
communities.
TRANSGENIC ANIMAL TECHNOLOGY
Transgenic animals are developed through the application of genetic
engineering and embryo manipulation techniques. The process involves the in
vitro insertion of a genetically engineered segment of DNA (the "transgene")
into the genetic makeup of an embryo. The Company has an exclusive commercial
license to a U.S. patent awarded to Ohio University in October 1989 covering a
method of making non-human transgenic
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mammals through DNA Microinjection. The Company uses its proprietary DNA
Microinjection technology in this gene transfer process. Following the process,
the embryo is placed back into an adult female for gestation and birth. The
transgene integrates into the genetic makeup of only a small percentage of the
embryos that have been microinjected. As these embryos divide and mature, the
integrated transgene is passed on to most, if not all, of the cells of the
resulting transgenic animal, including, in most instances, the animal's germ
cells, thus allowing for inheritance of the transgene. Once established in the
germline of first generation ("founder") transgenic animals, the transgene can
be stably transmitted as a genetically dominant trait to future generations of
transgenic animals through traditional breeding.
The selection of a particular species for development as a transgenic
animal depends on the purpose for which the transgenic animal is being
developed. Small mammals, such as mice and rats, are well suited for developing
models for pharmacology and are used as tools early in the drug development
process. The DNA Microinjection process is also utilized with large mammals,
such as pigs or goats, to produce proteins for further development as
therapeutic drugs.
MARKETS AND SERVICES OFFERED
DNX Transgenics is using its DNA Microinjection technology to develop
transgenic animal models that more closely mimic human biological processes than
do conventional laboratory animals. Transgenic animal models are designed to
enhance efficacy and evaluation of drug candidates. The Company believes that
transgenic animal models will enable animal testing to provide more accurate and
rapid assessment of the pharmacological profiles of new candidate drugs and have
the potential to improve and accelerate the drug discovery and development
process. The Company believes that the efficiency of the drug development
process could be significantly improved, saving drug developers considerable
time and expense, by the development of animal models that more closely mimic
human physiology.
With the formation of Nextran in August 1994, DNX Biotherapeutics was
primarily focused on developing BIODIGMS(R), proprietary transgenic laboratory
animal models, for commercial application through screening services at
Pharmakon. During 1995, the Company believes it has observed an acceptance, by
the pharmaceutical and biotechnology industry, in the use of transgenic
laboratory animal model technology as a tool to improve drug discovery programs.
This acceptance, together with the Company's scientific experience and
proprietary DNA Microinjection technology, provides the Company with the
opportunity to offer a broader portfolio of specialty transgenic-based contract
research services for those companies wishing to outsource all or a portion of
their internal transgenic laboratory animal requirements. Therefore, in the
third quarter of 1995, DNX Biotherapeutics modified its strategic focus and
began doing business as DNX Transgenics, which provides transgenic-based
specialty contract research services including custom model development
programs, transgenic laboratory animal production services, breeding and
cryopreservation services, and molecular biology services. In addition to these
services, DNX Transgenics continues to sell and license its portfolio of
proprietary transgenic animal models, which include:
Lipoprotein/Atherosclerosis Models. Atherosclerosis leading to coronary
heart disease ("CHD") is currently a cause of death in most developed countries.
Reducing the rate of CHD depends in part on the development of new drugs to
prevent the accumulation of atherogenic lipoproteins. Low density lipoprotein-
cholesterol levels correlate directly with the incidence of CHD while serum high
density lipoprotein-cholesterol levels correlate inversely with CHD risk. A
positive association between serum triglyceride concentration and risk of CHD
has also been observed. The Company has a portfolio of transgenic animal models
that mimic human cholesterol metabolism that are useful for identifying and
evaluating new drug candidates.
Inflammatory Mediator Model. Several human-disease conditions including
septic shock, inflammatory arthritis and adult respiratory distress syndrome are
associated with elevated levels of Type II Phospholipase A2. The Company has
developed transgenic mice that express high levels of human Type II
Phospholipase A2 to provide a small animal model to identify and evaluate
inhibitors of this potent proinflammatory mediator.
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Pharmakon also continues to offer proprietary screening services employing
transgenics animal models and also markets specialty services offered by DNX
Transgenics. These services offered by DNX Transgenics also enable customers to
utilize other preclinical drug-development services provided by Pharmakon.
The Company's contract with the National Institute of Child Health and
Human Development to establish and operate the National Transgenic Mouse
Development Facility expired in the first half of 1995.
LICENSING
While the Company has retained the exclusive rights to use DNA
Microinjection for preclinical drug development services, it has granted several
non-exclusive sublicenses for the use of DNA Microinjection in a variety of
applications, including the development, use and sale of other commercial
transgenic animal-based products and transgenic animal models. While some of
these applications may be commercially viable, the Company has determined that
its financial and human resources are best utilized by focusing on the Company's
specialty transgenic-based preclinical drug development services. In those
certain instances where the Company grants a sublicense for commercial
applications, such as the use of a transgenic animal to produce therapeutic
proteins, the Company receives an annual license fee and revenue based royalties
upon commercialization of the transgenic animal-based products and services. In
the case of sublicenses for noncommercial applications, such as the use of
transgenic technology for basic in-house research purposes, the Company
generally receives an annual license fee. The Company will continue to license
this technology for the development of transgenic animals and transgenic animal
derived products which do not conflict with the specialty transgenic animal
models and services offered by DNX Transgenics.
Additionally, in connection with the Nextran transactions, the fixed assets
used by DNX Biotherapeutics for its hemoglobin blood substitute program have
been contributed to Nextran. DNX Biotherapeutics has also licensed certain
rights to the Company's hemoglobin blood substitute technologies to Baxter, who
is developing a hemoglobin blood substitute using outdated human blood as its
supply source. In the event that Baxter develops and commercializes hemoglobin
blood substitutes using these technologies, DNX Biotherapeutics will receive
royalty income of 3% of end product sales.
The Company has retained the exclusive rights to use certain technologies
associated with helper-free stocks of adeno associated virus vectors and has
licensed such technology to a biotechnology company for use in gene therapy
applications. In the event that such technology is developed and commercialized,
DNX Transgenics will receive royalty income and milestone payments.
NEXTRAN
On August 29, 1994, DNX Biotherapeutics entered into a Joint Venture
Agreement (the "Joint Venture Agreement") with Baxter Transplant Holdings, Inc.
("Holdings"), a wholly owned subsidiary of Baxter Healthcare Corporation
("Baxter"), which is a subsidiary of Baxter International, Inc. ("Baxter
International"). Under the Joint Venture Agreement, DNX Biotherapeutics and
Holdings formed Nextran, a Delaware general partnership ("Nextran"), in which
DNX Biotherapeutics had a 30% partnership interest and Holdings had a 70%
partnership interest. In connection with the formation of Nextran, DNX
Biotherapeutics contributed $2.5 million in cash and certain rights under patent
licenses, research agreements, and other intangible assets related to its
xenograft (animal to human) organ transplantation and blood substitute programs,
including certain limited rights to practice under the DNA Microinjection patent
specifically within the xenograft and hemoglobin blood substitute fields of use.
In addition, DNX Biotherapeutics contributed laboratory and office space in
Princeton, New Jersey, swine research facilities near Athens, Ohio and certain
related equipment and other related assets with a net book value of $2.4 million
to Nextran. Baxter contributed to Nextran $20 million in cash and certain rights
under research and product marketing programs between Baxter and various third
parties related to certain of its transplantation programs.
Pursuant to the terms of the Purchase Agreement, dated September 22, 1995,
as amended, DNX Biotherapeutics consummated the sale of its 30% partnership
interest in Nextran to Transplant Acquisition Inc., a wholly-owned subsidiary of
Baxter, for a cash purchase price of $18 million. In connection with this
transaction, in the third quarter of 1995, the Company eliminated its investment
in Nextran and recorded an
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estimated non-recurring gain, net of expenses, income taxes and related
accruals, of $17,266,000. Additionally, in the event that Nextran develops and
commercializes hemoglobin blood substitutes using technologies licensed to
Nextran by the Company, the Company will receive royalty income of 3% of end
product sales.
The obligations of DNX Biotherapeutics under the Joint Venture Agreement,
an asset transfer agreement and other related documents have been guaranteed by
each of the Company and Pharmakon. Such guarantees expired on August 29, 1995,
with the exception of certain environmental representations and warranties which
expire on August 29, 1997.
MARKETING
Marketing activities are conducted by personnel based at the Company's
operations in the U.S. and France. In addition, the Company utilizes a marketing
representative to service Japan.
The majority of new studies conducted by the Company are derived from
existing clients. To obtain new clients, the Company contacts potential clients
directly through its representatives and indirectly by mailings as well as
participates at various scientific association symposia. Further, the Company's
sales and marketing department targets the promotion of its preclinical drug
development services to potential new clients who are presently not familiar
with the Company's services, and to expanding services for existing clients. The
Company believes that its specialty services act as a component to the Company's
marketing programs.
The Company's scientific personnel participate in a variety of endeavors
such as publishing scientific papers and making presentations at scientific
meetings. The Company also participates in commercial conferences and advertises
in scientific journals and trade publications.
CUSTOMERS
No customer accounted for more than 10% of the Company's revenues in fiscal
1995 or for the nine months ended September 30, 1996. However, the Company's top
ten customers accounted for approximately 38% of the Company's revenues in
fiscal 1995 and approximately 34% of the Company's revenues for the nine months
ended September 30, 1996. The Company believes that the loss of any of these
customers, if not replaced or if services provided to existing customers are not
expanded, may have a material adverse effect on the Company. There is no
assurance that the loss of any such customer would be replaced or services to
existing customers would be expanded on terms acceptable to the Company.
BACKLOG
The Company's order backlog for preclinical drug development services was
$8.2 million at December 31, 1995, compared to $9.9 million at December 31,
1994. The Company's order backlog for preclinical drug development services was
$8.1 million at September 30, 1996. The Company anticipates that approximately
$3.0 million of the September 30, 1996 order backlog will be realized after
December 31, 1996.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's policy is to file and aggressively prosecute patent
applications covering its inventions that it considers to be important to its
business. The patent positions of pharmaceutical and biotechnology firms, as
well as academic and other research institutions, are uncertain and involve
complex legal and factual questions. Accordingly, no firm predictions can be
made regarding the breadth or enforceability of claims allowed in pharmaceutical
and biotechnology patents.
As of November 1, 1996, the Company has several patent applications on file
in the U.S. Patent and Trademark Office, relating to applications with respect
to its transgenic technologies and transgenic animal models. The Company intends
to file additional patent applications, when appropriate, relating to
improvements to its existing technologies and animal models under development.
In addition, the Company also has rights to technologies covered by patents and
patent applications owned by other parties. In some cases, these rights are
exclusive, in other cases they are non-exclusive.
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The Company has an exclusive commercial license to a U.S. patent awarded to
Ohio University in October 1989 covering DNA Microinjection, which is the method
of gene transfer most widely employed for the successful development of
transgenic animals in several mammalian species. The Company has granted several
non-exclusive sublicenses for a variety of applications under this patent. The
Company, as it becomes aware of activities potentially infringing on its
commercial rights as the exclusive commercial licensee for the Ohio University
DNA Microinjection patent, takes appropriate action to curtail infringing
activities. There can be no assurance, however, that the Company's actions will
result in proof of infringement, curtailment of the potentially infringing
party's activities, or that the potentially infringing party will become
properly licensed and, thereby, financially obligated to the Company. Outside of
the U.S., the DNA Microinjection process is non-proprietary. The license has a
term equal to the life of the last to expire of all patents covered by the
license, unless earlier terminated by either party for cause.
Competitors or potential competitors of the Company may have filed
applications for, or may be issued, certain patents, and may obtain patents and
proprietary rights, relating to technologies competitive with those of the
Company. Accordingly, there can be no assurance that the Company's patent
applications will result in patents being issued or that, if issued, such
patents will provide protection against competitive technology that circumvents
such patents or will be held valid by a court of competent jurisdiction; nor can
there be any assurance that others will not obtain patents that the Company
would need to license or circumvent. Furthermore, there can be no assurance that
licenses that might be required for the Company's processes or products would be
available on reasonable terms, if at all.
The Company, in forming the Nextran joint venture, licensed to Nextran
certain limited rights to practice under the Company's DNA Microinjection patent
specifically within the xenograft and hemoglobin blood substitute fields of use.
In addition, the Company transferred to Nextran its remaining
xenotransplantation technology and related patent applications and signed a
royalty-bearing license with Nextran for the Company's proprietary hemoglobin
technology and related patent applications. Included in these transfers of
technology is an agreement which provides that Nextran will fund and prosecute
the transferred patent applications and that the Company will not perform DNA
Microinjection for any third parties where the Company knows that the results of
such DNA Microinjection will be used in the Nextran fields of use. With the
exception of the agreement to avoid third party business in the Nextran fields
of use, none of these patent application or proprietary technology transfers or
licenses are expected to interfere with the Company's operation of its services
businesses. The Nextran fields of use have historically not been a significant
part of the Company's services businesses and the avoidance of such is not
expected to have a material adverse effect on the Company.
The Company also relies upon unpatented trade secrets, know-how and
continuing technological innovation to develop and maintain its competitive
position. No assurance can be given that others will not independently develop
substantially equivalent proprietary information and technology, or otherwise
gain access to the Company's trade secrets or disclose such technology, or that
the Company can meaningfully protect its rights to its unpatented trade secrets.
GOVERNMENT REGULATION
The Company's operations are subject to numerous regulatory requirements
designed to assure the quality and integrity of its preclinical drug development
services. In recent years, these regulations have become more numerous and
stringent, reflecting an increased public concern about the dangers of
potentially toxic drugs, chemicals and other substances. To the extent that the
following information describes statutory or regulatory provisions, it is
qualified in its entirety by reference to the particular statutory and
regulatory provisions currently in effect. Any change in applicable law or
regulation may have a material effect on the business and prospects of the
Company.
The industry standard for conducting biological testing is embodied in
regulations called "Good Laboratory Practices" ("GLP"). GLP has been adopted by
the Environmental Protection Agency ("EPA") and FDA in the United States and the
Minister des Affaires Sociales et de la Solidarite Nationale in France. GLP
stipulates requirements for facilities, equipment and professional staff. The
regulations mandate
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standardized procedures for controlling studies, for recording and reporting
data and for retaining appropriate records. The EPA, FDA, and any other
governmental agency with the authority to control marketing approval for new
products can reject test results if they do not comply with GLP. Pharmakon
monitors ongoing compliance with GLP standards. Additionally, Organization of
Economic Cooperation and Development ("OECD") member countries (including
France) must adopt GLP principles laid down by the OECD as indicated in
Directive 87/18/EEC.
In addition, the Company is subject to scrutiny by many regulators
regarding its laboratories and materials. On the federal level in the United
States, the Company is regulated by the Department of Transportation ("DOT"),
Occupational Safety and Health Administration ("OSHA"), Nuclear Regulatory
Commission ("NRC") and the Drug Enforcement Administration ("DEA"). At the state
level, Pharmakon is monitored by the Commonwealth of Pennsylvania Department of
Labor and Industry and the Pennsylvania Department of Environmental Resources.
In addition, Pharmakon Europe's operations are subject to certain regulations in
France similar to the aforementioned federal and state regulations.
In addition to the regulatory framework and GLP standards for preclinical
drug development services, the Company is and may be subject to regulation under
state and federal law, including requirements regarding occupational safety,
laboratory practices, the care and use of animals in experimentation and
testing, the use, handling and disposition of radioactive materials,
environmental protection and hazardous substance control, and may be subject to
other present and possible future local, state, federal and foreign regulation,
including future regulation of the preclinical drug development industry, the
biotechnology field and the biological testing industry.
COMPETITION
The CRO industry consists of several hundred small, limited-service
providers, several medium-sized CROs, and a few full-service global drug
development service companies. The CRO industry is consolidating and, in recent
years, several large, full-service competitors have emerged. This trend of
industry consolidation will likely result in greater competition among the
larger CROs for clients and acquisition candidates. The Company's primary
competitors include Corning Lab Services, Inc., a subsidiary of Corning, Inc.,
Quintiles Transnational Corp., Huntington International Holdings plc, TSI
Corporation, a subsidiary of Genzyme Transgenics Corporation, Inveresk Research
International Ltd. and BioResearch Laboratories, Inc. Additionally, the Company
competes against other CROs and the in-house research and development
departments of pharmaceutical companies, as well as academic institutions.
Competitive factors include previous experience, specialty preclinical
capabilities, an international presence, financial viability, reputation,
quality and responsiveness, as well as in certain markets, price is a
significant factor. In addition DNX Transgenics possesses an exclusive license
to a U.S. patent awarded to Ohio University, covering DNA Microinjection, which
is utilized in providing its specialty transgenic based services. As the Company
becomes aware of potentially infringing activities relating to this technology,
it takes appropriate action to curtail such infringing activities.
SERVICE OR PRODUCT LIABILITY
The preclinical drug development services being offered and to be offered
by the Company, entail an inherent risk of service liability. The Company
maintains limited coverage for professional service liability insurance. The
Company has experienced no claims to date with respect to professional service
liability. There can be no assurance that the professional service liability
insurance maintained by the Company will be adequate to cover all claims
relating to the Company's preclinical drug development services.
RESEARCH AND DEVELOPMENT EXPENSES
As the result of the sale of the Company's interest in Nextran as well as
the change in the strategic focus of DNX Transgenics, the Company's research and
development expenses have decreased significantly since 1993. Research and
development expenses for 1995, 1994 and 1993 were $1.1 million, $4.4 million and
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$11.1 million, respectively. Research and development expenses for the nine
months ended September 30, 1996 were $329,000.
EMPLOYEES
As of September 30, 1996, the Company employed 266 individuals on a
full-time basis. At the Company's corporate headquarters, 5 individuals were
employed in business management, general and administrative activities. As of
September 30, 1996, Pharmakon employed 246 individuals, 85 of whom were engaged
in managing and operating the U.S. operations and 161 of whom were engaged in
managing and operating Pharmakon Europe. At September 30, 1996, DNX Transgenics
employed 15 individuals in research, development and commercialization of its
transgenic-based animal model services. The Company provides its subsidiaries
with management, business, financial and administrative support.
A significant number of the Company's and its subsidiaries' management and
professional employees have had prior experience with pharmaceutical,
biotechnology, medical products or preclinical drug development service
companies. The Company believes that it maintains good relations with its
employees and that its success will depend in large part upon its ability to
attract and retain these and future employees.
None of the Company's U.S. employees are represented by trade unions. All
of the employees at Pharmakon Europe, except senior management, are represented
by a legal trade union. These employees are governed by an agreement between
Pharmakon Europe and the trade union, which is subject to renegotiation on an
annual basis.
BUSINESS SEGMENT INFORMATION
For information on amounts of revenue, operating profit and loss and
identifiable assets attributable to the Company's operating divisions, see Note
16 of the Notes to Consolidated Financial Statements included in "FINANCIAL
STATEMENTS -- THE COMPANY."
PROPERTIES
The Company's corporate headquarters is located in Raritan, New Jersey in
an administrative office facility with approximately 2,000 square feet. The
lease on this facility expires in February 1998 with a renewal option for an
additional one year period.
Pharmakon's U.S. operations are located in two adjacent facilities near
Scranton, Pennsylvania. One facility is approximately 21,000 square feet and is
leased through August 1999. The other facility is owned, subject to a mortgage,
and is a 20,000 square foot facility. Pharmakon Europe owns and operates
approximately 100,000 square feet of facilities on approximately nine acres near
Lyon, France. Each of Pharmakon and Pharmakon Europe has an option to purchase
land adjacent to their current facilities. See Note 14 of the Notes to the
Consolidated Financial Statements included in "FINANCIAL STATEMENTS -- THE
COMPANY."
DNX Transgenics is located in Princeton, New Jersey in a facility shared
with Nextran. This facility is comprised of approximately 30,000 square feet and
houses administrative offices and research laboratories. DNX Transgenics' prior
agreement with Nextran allowed for the sharing of the Princeton facility for its
transgenic services operations until August 1997. To accommodate expansion
opportunities, DNX Transgenics has leased approximately 5,000 square feet of
laboratory and office space adjacent to the Nextran facility. Such lease expires
in December 1999. Accordingly, DNX Transgenics has modified its arrangements
with Nextran to provide for the use of specific space at the Princeton facility
through August 31, 1999.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
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THE BIOCLIN GROUP
GENERAL
The BioClin Group is a privately owned contract research organization
serving the pharmaceutical, biotechnology and medical device industries. The
BioClin Group designs, monitors and manages clinical drug development involving
Phase I to Phase IV trials, including design of testing protocols, monitoring of
test participants, data management, quality assurance, report writing. In
addition, it has the capability to manage entire clinical development programs,
and offers product registration services in North America, Europe, the Middle
East and Australia. The BioClin Group generates substantially all of its revenue
from the clinical testing of new pharmaceutical and biotechnology products.
The BioClin Group was founded in 1979 by Dr. Barbut. It has been active in
international clinical drug development since 1982, initially in European-based
Phase II and Phase III trials focused on cardiovascular therapeutics, and
maintains its European headquarters in Cham, Switzerland. In 1988, the BioClin
Group established its U.S. Phase I operation in Richmond, Virginia. By 1992, the
BioClin Group had developed experience in most therapeutic areas, expanded
clinical operations throughout Europe, and established a Phase I facility at its
Institute of Clinical Pharmacology in Dusseldorf, Germany. Additionally, in
Dusseldorf, the BioClin Group established an information systems and data
management capability. In 1993, the BioClin Group established its U.S.-based
Phase II through IV data management services and clinical operations in Austin,
Texas. In 1995, the BioClin Group elected to discontinue its services for Phase
I trials in the United States and expanded its U.S.-based Phase II through IV
services. In connection with this decision, the BioClin Group began to focus on
providing all Phase I studies in Dusseldorf, Germany.
Today, the BioClin Group operates in North America in the United States and
Canada; in Europe in Austria, Belgium, Denmark, Estonia, Finland, France,
Germany, Greece, Italy, Latvia, Lithuania, Netherlands, Norway, Spain, Sweden,
Switzerland and the United Kingdom; in the Middle East in Israel and Turkey; and
in Australia.
Although the companies that comprise the BioClin Group are each controlled
by the BioClin Interest Holders, each of such companies has historically been
operated as a separate and independent legal entity. Because the Company will
operate the BioClin Group as consolidated wholly-owned subsidiaries upon
consummation of the Proposed Transaction, the BioClin Group is presented on a
combined financial and business description basis in this Proxy Statement.
DRUG DEVELOPMENT
Drug development is an expensive and lengthy process. Before a new drug can
be marketed, it must undergo extensive testing and regulatory review to
determine its safety and efficacy. This process consists of many stages -- two
of the most critical being preclinical and clinical testing. In preclinical
testing, the sponsor of the new drug conducts laboratory analyses and animal
tests to determine the basic biological activity and safety of the drug. After
successfully completing the preclinical phase, the drug undergoes a series of
clinical tests in humans, typically progressing from dosing studies in healthy
volunteers to testing in patients with the targeted disease. Clinical trials
often represent the most expensive and time-consuming part of the overall drug
development process. The information generated during these trials is critical
for gaining marketing approval from the FDA or other regulatory agencies. In the
United States, preclinical and clinical testing must comply with the
requirements of Good Laboratory Practices and Good Clinical Practices ("GCP")
and other standards promulgated by the FDA and other federal and state
governmental authorities.
The FDA pioneered the use of clinical trials for new drug development, and
the agency's approval process has shaped much of drug regulation worldwide. In
recent years, the FDA and corresponding regulatory agencies of the major
industrial countries, including Canada, Japan and the European Union (the "EU"),
commenced discussions to develop common standards for both the conduct of
preclinical and clinical studies and the format and content of applications for
new drug approvals. Data from multi-national studies adhering to GCP are now
generally acceptable to the FDA and the governments within the EU.
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In the United States, a drug sponsor must file an Investigational New Drug
Application (the "IND") with the FDA before the commencement of human testing of
a drug. The IND includes preclinical testing results and sets forth the
sponsor's plans for conducting human clinical trials. The design of these plans,
known as the study protocol, is critical to the success of the drug development
effort because the protocol must correctly anticipate the data and results that
the FDA will require before approving the drug.
Human trials usually start on a small scale to assess safety and then
expand to test efficacy. Trials are usually grouped into four phases, with
multiple trials generally conducted within each phase. Clinical trials often
represent the most expensive and time-consuming part of the overall drug
development process. The information generated during these trials is critical
for gaining marketing approval from the FDA or other regulatory agencies.
Phase I. Phase I trials are conducted on healthy volunteers, typically 20
to 80 persons, to develop basic safety data relating to toxicity, metabolism,
absorption, elimination and other pharmacological actions.
Phase II. Phase II trials are conducted on a small number of subjects,
typically 100 to 200 patients, who suffer from the drug's targeted disease or
condition. Phase II trials offer the first evidence of clinical efficacy, as
well as additional safety data.
Phase III. Phase III trials are conducted on a significantly larger
population of several hundred to several thousand patients who suffer from the
targeted disease or condition. Phase III trials are designed to measure efficacy
on a large scale as well as long-term side effects.
Phase IV. As a condition of granting marketing approval, the FDA may
require that a sponsor continue to conduct additional clinical trials, known as
Phase IV trials, to monitor long-term risks and benefits, study different dosage
levels, or evaluate different safety and efficacy parameters in target patient
populations. With the increasing importance of Phase IV trials has also come
increased complexity in the scope of the trials (i.e., the number of patients
tested) and the manner in which they are conducted (i.e., the number of sites at
which testing is performed).
After the successful completion of Phase III trials, the sponsor of a new
drug may submit a New Drug Application ("NDA") to the FDA. The NDA is a
comprehensive filing that includes, among other things, the results of all
preclinical and clinical studies, information about the drug's composition and
the sponsor's plans for producing, packaging and labeling the drug. Most of the
clinical data contained in an NDA is generated during the Phase II and III
trials. Drugs that successfully complete FDA review may be marketed in the
United States, subject to the conditions imposed by the FDA in its approval.
SERVICES
The BioClin Group's services and related products include clinical trial
management services, clinical data management and biostatistical services, and
product registration and regulatory services. The BioClin Group's services can
be provided separately or as an integrated package. Services from each of these
categories can be utilized for the development and execution of an NDA.
CLINICAL TRIAL MANAGEMENT SERVICES. The BioClin Group offers complete
services for the design, placement, performance and management of clinical trial
programs, critical elements in obtaining regulatory approval for drugs and
medical devices. The BioClin Group has performed services in connection with
trials in many therapeutic areas. The BioClin Group's multi-disciplinary
clinical trials group has the ability to examine a product's existing
preclinical and clinical data for the purposes of designing protocols for
clinical trials in order to ascertain evidence of the product's safety and
efficacy.
The BioClin Group's services include management of Phases I through IV
trials, including design of operations manuals, identification and recruitment
of trial investigators, initiation of sites, monitoring for strict adherence to
GCP, site visits to ensure compliance with protocol procedures and proper
collection of data, interpretation of trial results and report preparation. Many
of the BioClin Group's current projects involve
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Phase II, III or IV clinical trials, which, in most cases, are significantly
larger and more complex than Phase I trials.
Phase I Services. At the BioClin Institute, the BioClin Group provides a
number of specialized Phase I services. They include computerized volunteer
databases; a clinical pharmacology unit; access to special populations; vital
signs; telemetry; and statistical evaluation. Phase I trials are conducted on
healthy volunteers, typically 20 to 80 persons, to develop basic safety data
relating to toxicity, metabolism, absorption, elimination and other
pharmacological actions.
Tolerability pharmacokinetic and pharmacodynamic investigations and
drug-drug interaction studies can be performed in young and elderly healthy
volunteers, as well as in special populations, including patients with renal or
hepatic impairment. The BioClin Group has access to a large population of
suitable and reliable volunteers, and, since its opening, has built up an active
panel of approximately 2,000 volunteers which is continually reviewed and
expanded.
The BioClin Institute complements the BioClin Group's European and North
American clinical operations on Phase II to IV trials. This network of clinical
facilities allows parallel, worldwide development of pharmaceutical products by
the BioClin Group's clients.
Phase II -- Phase IV Services. The BioClin Group provides Phase II through
Phase IV services, including efficacy testing, additional safety data, long-term
risks and side effects and other matters. It maintains a network of physicians
who serve as investigators; hospitals and university centers for in-and-out-
patient studies; established research sites performing special investigations; a
selection of centralized laboratories in each country across Europe, Israel, and
North America; project management; traditional monitoring or monitoring by fax
or remote/direct data entry; and data management.
One recent development in the CRO industry is the emergence of trials
involving tests on over 1,000 patients over a period of several years at
multiple sites. These large multiple site trials have resulted from the drug
companies' emphasis on treating and curing chronic disorders and the resulting
need to thoroughly test large numbers of patients for long-term side effects of
new drugs. Since 1993, the BioClin Group has been conducting such a large
multiple site trial and presently actively markets its abilities in this area.
Clinical trials are monitored for strict adherence to GCP. Efficient data
collection, form design, detailed operations manuals and site visits by the
BioClin Group's clinical research associates ("CRAs") are utilized to determine
whether clinical investigators and their staffs follow established protocols and
accurately record the findings of the trials. In addition, the BioClin Group has
quality assurance auditors that provide additional internal and external
auditing.
In connection with its services, the BioClin Group assists clients with one
or more of the following:
(i) Study Protocol. The protocol defines the medical issues the study
seeks to examine and the statistical tests to be conducted such as the frequency
and type of laboratory and clinical measures that are to be tracked and
analyzed; the number of patients required to produce a statistically valid
result; the period of time over which they must be tracked and; the frequency
and dosage of drug administration.
(ii) Case Report Forms. Once the study protocol has been finalized,
special forms for recording the required information must be developed. These
forms are called Case Report Forms ("CRFs").
(iii) Site and Investigator Recruitment. The drug is administered to
patients under the supervision of physicians who serve as investigators, at
hospitals, clinics or other locations, referred to as sites. Potential
investigators may be identified by the drug sponsor or the BioClin Group, which
then solicits the investigators' participation in the study. Generally, the
investigators contract directly with the BioClin Group. The trial's success
depends on the successful identification and recruitment of investigators with
proper expertise and an adequate base of patients who satisfy the requirements
of the study protocol. The BioClin Group maintains a network of investigators
who have conducted clinical trials.
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(iv) Patient Recruitment and Enrollment. The BioClin Group recruits Phase
I volunteers and maintains a database of such volunteers. The investigators,
however, find and enroll patients suitable for the Phase II through IV trials
according to the study protocol. Prospective patients are required to review
information about the drug and its possible side effects and sign an informed
consent to record their knowledge and acceptance of potential side effects.
Patients also undergo a medical examination to determine whether they meet the
requirements of the study protocol. Patients then receive the drug and are
examined by the investigator as specified by the study protocol.
(v) Study Monitoring and Data Collection. As patients are examined and
tests are conducted in accordance with the study protocol, data are recorded on
CRFs and laboratory reports. The data are collected from study sites by CRAs.
CRAs visit sites regularly to ensure that the CRFs are completed correctly and
that all data specified in the protocol are collected. CRFs are reviewed for
consistency and accuracy before their data are entered into an electronic
database.
(vi) Medical Affairs. Throughout the course of a clinical trial, the
BioClin Group may provide various medical research and services, including
medical monitoring of clinical trials, interpretation of clinical trial results
and preparation of clinical study reports.
(vii) Report Writing. The results of statistical analysis of data
collected during the trial, together with other clinical data, are included in a
final report generated for inclusion in a regulatory document.
(viii) Information Technology. A fully networked information system is
available to facilitate complete computerized data management of Phase I through
IV trials. Data capture, for Phase I, is maintained by direct CRF "bedside"
entry of primary data and the creation of the electronic CRF. Data collected in
CRFs is entered into the study database within 72 hours of collection.
Laboratory data is on-line for review by physicians and project managers.
For Phase II through IV trials, monitored CRF pages are forwarded to either
of the BioClin Group's two data management centers (Dusseldorf, Germany or
Austin, Texas) for double data entry. Query lists are generated and returned to
the monitors for resolution. Alternatively, the BioClin Group offers the
Almedica Fax Monitoring(TM) system whereby completed CRF pages are transmitted
from the sites directly to either of the BioClin Group's two data management
centers.
CLINICAL DATA MANAGEMENT AND BIOSTATISTICAL SERVICES. The BioClin Group
has experience in the creation of scientific databases for all phases of the
drug development process. These databases provide clients with data abstraction,
data review and coding, data verification and editing and problem data
resolution capabilities. The BioClin Group utilizes an imaging technology
process which eliminates time and minimizes potential data entry errors by
electronically routing, tracking and querying optically scanned CRFs. The
BioClin Group's data management professionals assist in the design and
development of study protocols and CRFs, training manuals and training sessions
for investigators and coordinators.
The BioClin Group's biostatistics professionals provide biostatistical
consulting, database design, data analysis and statistical reporting. The
BioClin Group's biostatisticians provide clients with assistance in all phases
of drug development. These professionals develop and review protocols, design
appropriate analysis plans and design report formats to address the objectives
of the study protocol, as well as the client's individual objectives.
The BioClin Group believes that its data management and biostatistical
services capabilities can be utilized by a client more effectively when packaged
as part of its total clinical trials management services in the conduct of
Phases I through Phase IV trials. This packaging permits a faster and less
costly clinical trial process, as the data are collected and analyzed more
rapidly and the decision to move to the next phase can be made more quickly.
Although the BioClin Group believes that many pharmaceutical companies treat
each phase as a distinct trial, the BioClin Group emphasizes this packaged
approach as an integrated process.
PRODUCT REGISTRATION SERVICES/REGULATORY AFFAIRS. The pharmaceutical
companies who are clients of the BioClin Group have their own regulatory
expertise and generally register their products without the assistance
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of third parties. In connection with its Phase I through IV services to these
pharmaceutical companies, the BioClin Group provides regulatory strategy
formulation, consultation and, if requested, acts as a liaison with the FDA and
other international regulatory agencies.
The BioClin Group intends to market its clinical testing services to
biotechnology companies which may not have experience or expertise in regulatory
and product registration matters. As part of its clinical trial services, the
BioClin Group offers these clients comprehensive product registration services,
document preparation, regulatory strategy formulation and compliance, and may
act as liaison with the FDA and other international regulatory agencies.
Although to date the revenues from these services to biotechnology
companies have not been material, the BioClin Group believes it necessary to
offer these services to be competitive in the CRO industry. As a result, the
BioClin Group's regulatory affairs experts review existing published literature,
assess the scientific background of a product, assess the competitive and
regulatory environment, identify deficiencies and define the steps necessary to
obtain registration in the most expeditious manner. Through this service, the
BioClin Group may assist its clients to determine the feasibility of developing
a particular product or product line.
The BioClin Group's regulatory affairs professionals have experience in the
analysis, preparation and submission of FDA regulatory documents covering a wide
range of products, including prescription and over-the-counter drugs. The
BioClin Group also has experience with preparing regulatory documentation for
submission to European regulatory authorities.
CLIENTS AND MARKETING
Marketing activities have been conducted primarily by the BioClin Group's
senior management. Business development personnel have recently been added in
each of the BioClin Group's principal locations in order for the BioClin Group
to seek contracts with new clients, seek contracts with new therapeutic areas or
divisions within existing clients, cross-sell other services to existing
clients, and develop strategic alliances with major pharmaceutical and
biotechnology companies. In response to the highly technical nature of the
BioClin Group's business, most of the BioClin Group's marketing personnel have
scientific backgrounds. Additionally, the BioClin Group advertises in trade
journals and publications and, from time to time, employs direct mailings of
information to existing and potential clients. The BioClin Group also attends
and exhibits at selected trade shows in the United States and Europe.
The BioClin Group provides its services on an international basis to the
pharmaceutical and biotechnology industries. During 1995 and for the nine months
ended September 30, 1996, substantially all of the BioClin Group's revenue was
derived from pharmaceutical companies.
The BioClin Group has in the past derived, and may in the future derive, a
significant portion of its net service revenue from a relatively limited number
of major projects or clients. Concentrations of business in the CRO industry are
not uncommon and are increasing as large pharmaceutical and biotechnology
companies are outsourcing larger clinical trials and large multiple site trials
to fewer full-service CROs. For both the year ended December 31, 1995 and the
nine months ended September 30, 1996, the BioClin Group's top three customers
accounted for approximately 70% of the BioClin Group's combined net revenue. One
customer of the BioClin Group accounted for approximately 39% of revenues for
the year ended December 31, 1995 and approximately 43% of revenues for the nine
months ended September 30, 1996. The BioClin Group believes that the loss of any
of these customers, if not replaced or if services provided to existing
customers are not expanded, may have a material adverse effect on the BioClin
Group. There is no assurance that the loss of any such customers would be
replaced or services to existing customers would be expanded on terms acceptable
to the BioClin Group.
CONTRACTUAL ARRANGEMENTS
The BioClin Group generally is awarded contracts based, among other things,
upon its response to requests for proposal ("RFP") received from pharmaceutical,
biotechnology and medical device companies. The RFP may require the BioClin
Group to design a protocol, conduct the trial, analyze the results of one or
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more of the trials, prepare and submit an NDA to the FDA, or perform any
combination of these services. Once a trial has been commenced, change orders
may be requested by clients based on the results of the trial to date, including
changes in the scope of the trial and in the services to be provided by the
BioClin Group. Accordingly, the BioClin Group's compensation under a contract
may increase or decrease.
Most contracts are fixed priced contracts that require a portion of the
contract amount to be paid at or near the time the trial is initiated. The
BioClin Group generally bills its clients upon the completion of negotiated
performance requirements and, to a lesser extent, on a date certain basis. The
BioClin Group's contracts generally may be terminated with or without cause. In
the event of termination, the BioClin Group is typically entitled to all sums
owed for work performed through the notice of termination and all costs
associated with termination of the study. In addition, some of the BioClin
Group's contracts provide for an early termination fee, the amount of which
usually declines as the trial progresses. Termination or delay in the
performance of a contract occurs for various reasons, including, but not limited
to, unexpected or undesired results, inadequate patient enrollment or
investigator recruitment, production problems resulting in shortages of the drug
or medical devices being tested, adverse patient reactions to the drug or
medical devices being tested, or the client's decision to de-emphasize a
particular trial. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- THE BIOCLIN GROUP -- Overview."
BACKLOG
Backlog consists of anticipated net service revenue from letters of intent
and contracts believed to be firm. Once work under a letter of intent or
contract commences, net service revenue is recognized over the life of the
contract using the percentage-of-completion method of accounting. In certain
cases, the BioClin Group will work on a project prior to finalizing a letter of
intent or contract. Backlog excludes anticipated net service revenue for
projects for which the BioClin Group has commenced work, but for which a
definitive letter of intent or contract has not been confirmed.
The BioClin Group believes that its backlog as of any date is not
necessarily a meaningful indicator of future results and no assurance can be
given that the BioClin Group will be able to realize net service revenue
included in backlog. Clinical trials under contracts included in backlog are
subject to termination or delay at any time by the client or regulatory
authorities. Termination or delays can result from a number of factors. Delayed
contracts remain in the BioClin Group's backlog pending determination of whether
to continue, modify or cancel the contract.
As of December 31, 1995, the BioClin Group's backlog was approximately
$11.0 million. As of September 30, 1996, the BioClin Group's backlog was
approximately $17.0 million. One customer of the BioClin Group accounted for
approximately $5.0 million of the backlog at December 31, 1995 and approximately
$8.3 million of the backlog at September 30, 1996. The BioClin Group anticipates
that approximately $13.3 of the September 30, 1996 backlog will be realized
after December 31, 1996.
COMPETITION
The BioClin Group competes primarily against pharmaceutical companies' own
in-house research departments, CROs and universities and teaching hospitals. The
CRO industry includes several hundred small, limited-service providers, several
medium-sized CROs, and a few full-service global drug development companies. The
BioClin Group believes that it is one of the few medium-sized CROs that can
provide comprehensive international clinical trial services in competition with
the larger full-service global drug development companies. The CRO industry is
consolidating and, in recent years, several large, full-service competitors have
emerged. This trend of industry consolidation may result in greater competition
among the larger CROs for clients and possible candidates for further
consolidation for these larger CROs. Such large, full-service competitors may
have substantially greater capital, technical and other resources, may be better
known and may have more experienced personnel than the BioClin Group. The
BioClin Group's competitors include Corning Lab Services, Inc., a subsidiary of
Corning, Inc.; Parexel International Corporation; Quintiles
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Transnational Corporation; ClinTrials Research Inc.; Pharmaceutical Products
Development Corporation; and IBAH, Inc.
CROs generally compete on the basis of previous experience, medical and
scientific expertise in specific therapeutic areas, the quality of contract
research, the ability to organize and manage large-scale trials on a global
basis, the ability to manage large and complex medical databases, the ability to
provide statistical and regulatory services, the ability to recruit
investigators, the ability to integrate information technology with systems to
improve the efficiency of contract research, an international presence with
strategically located facilities, financial viability and price. The BioClin
Group believes that it competes favorably in these areas.
GOVERNMENT REGULATION
The services provided by the BioClin Group are ultimately subject to FDA
regulation in the United States and comparable agencies in other countries,
although the level of applicable regulation in other countries is generally less
comprehensive than regulation present in the United States. The industry
standard for conducting clinical research and development studies is embodied in
regulations and guidelines called Good Clinical Practices. Although the FDA has
not formally adopted a single GCP guideline, certain provisions of GCP have been
included in FDA regulations. In Europe, all work is carried out in accordance
with the EU Note For Guidance, "Good Clinical Practice for Trials on Medicinal
Products in the European Community." As a matter of practice, the FDA and many
other regulatory authorities require that test results submitted to such
authorities be based on studies conducted in accordance with GCP. These
regulations include: (i) complying with FDA regulations governing the selection
of qualified investigators; (ii) obtaining specific written commitments from the
investigators; (iii) verifying that patient informed consent is obtained; (iv)
monitoring the validity and accuracy of data; (v) verifying drug or device
accountability; and (vi) instructing investigators to maintain records and
reports. The BioClin Group must also maintain reports for each study for
specified periods for inspection by the study sponsor and the FDA during audits.
Non-compliance with GCP can result in the disqualification of data collected
during the clinical trial.
The BioClin Group's standard operating procedures are written in accordance
with regulations and guidelines appropriate to the region where they will be
used. FDA regulations and guidelines serve as a basis for the BioClin Group's
North American standard operating procedures. The BioClin Group has developed
operating procedures in accordance with local requirements and in harmony with
the BioClin Group's North American and European operations. From a transnational
perspective, the BioClin Group has implemented common standard operating
procedures across regions to assure consistency whenever it is feasible and
appropriate to do so. Complete external auditing services are provided by the
BioClin Group's U.S. and European operations.
INTELLECTUAL PROPERTY
The BioClin Group believes that factors such as its ability to attract and
retain highly-skilled professional and technical employees and its project
management skills and experience are more important to its performance than
intellectual property rights developed by it. The BioClin Group has developed,
and continually develops and updates, certain computer software related
methodologies. The BioClin Group seeks to maintain its rights in the software it
develops through a combination of contract, copyright and trade secret
protection. While the BioClin Group does not consider any of this software or
methodology to be material to the BioClin Group's business, the BioClin Group
believes its software capabilities provide important benefits to its clients.
POTENTIAL LIABILITY AND INSURANCE
The BioClin Group's clinical research services focus on the testing of new
drugs on human volunteers pursuant to a study protocol. Clinical research
involves a risk of liability for personal injury or death to patients due to,
among others, possible unforeseen adverse side effects or improper
administration of the new drug. Many of these patients are already seriously ill
and are at risk of further illness or death. The BioClin Group has not
experienced any claims to date arising out of any clinical trial managed or
monitored by it.
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The BioClin Group believes that the risk of liability to patients in
clinical trials is mitigated by various regulatory requirements, including the
role of institutional review boards ("IRBs") and the need to obtain each
patient's informed consent. The FDA requires each human clinical trial to be
reviewed and approved by the IRB at each study site. An IRB is an independent
committee that includes both medical and nonmedical personnel and is obligated
to protect the interests of patients enrolled in the trial. After the trial
begins, the IRB monitors the protocol and the measures designed to protect
patients, such as the requirement to obtain informed consent.
To reduce its potential liability, the BioClin Group seeks to obtain
indemnity provisions in its contracts with clients and with investigators hired
by the BioClin Group on behalf of its clients. These indemnities generally do
not, however, protect the BioClin Group against certain of its own actions such
as those involving negligence. Moreover, these indemnities are contractual
arrangements that are subject to negotiation with individual clients, and the
terms and scope of such indemnities can vary from client to client and from
study to study. Finally, the financial performance of these indemnities is not
secured, so that the BioClin Group bears the risk that an indemnifying party may
not have the financial ability to fulfill its indemnification obligations. The
BioClin Group could be materially and adversely affected if it were required to
pay damages or incur defense costs in connection with a claim that is outside
the scope of an indemnity or where the indemnity, although applicable, is not
performed in accordance with its terms.
The BioClin Group does not currently maintain an errors and omissions
professional liabilities insurance policy.
EMPLOYEES
As of September 30, 1996, the BioClin Group had approximately 110
employees, of which approximately 40 employees were located in the United States
and the remaining 70 employees were located in Europe. The BioClin Group
believes that its relations with its employees are good.
The BioClin Group's performance depends on its ability to attract and
retain a qualified management, professional, scientific and technical staff.
Competition from both the BioClin Group's clients and competitors for skilled
personnel is high. While the BioClin Group has not experienced any significant
problems in attracting or retaining qualified staff to date, there can be no
assurance the BioClin Group will be able to avoid these problems in the future.
While no employee of the BioClin Group is covered by a trade union, many of
its employees for its European operations have written contracts with the
BioClin Group in accordance with local law.
FACILITIES
The BioClin Group leases all of its facilities. The BioClin Group maintains
its European headquarters in Cham, Switzerland, which lease expires in March 31,
2000. The BioClin Group maintains its U.S. headquarters in Richmond, Virginia,
which lease expires in February 1997. The BioClin Group's U.S. operations are
conducted out of Austin, Texas, which lease expires in February 28, 2001. The
BioClin Group also maintains offices in Mannheim, Germany and Vilnius,
Lithuania. The BioClin Group believes that the space it leases is adequate for
the BioClin Group's operations and that the leases generally reflect market
rates in their respective geographic areas.
The BioClin Group leases a facility in Dusseldorf, Germany which lease
expires in August 1, 2001. The facility is utilized for Phase I and Phase II
trials and is the information systems, data management and biostatistical center
for the BioClin Group. The BioClin Institute is a modern 1,800 square meter
dedicated facility with 48 dormitory and 6 intensive monitoring beds.
LEGAL PROCEEDINGS
BioClin U.S. and one of its directors are defendants in an action entitled
William H. Barr v. BioClin, Inc. and Jack Barbut, now pending in the Circuit
Court of the City of Richmond, Virginia. The plaintiff is a shareholder of
record and former officer and director of BioClin U.S. The plaintiff has alleged
that BioClin
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U.S. has breached certain agreements between plaintiff and BioClin U.S. The
plaintiff seeks compensatory damages of $1 million from BioClin U.S. and an
additional $1 million from Dr. Barbut, as well as attorneys' fees and costs of
the action. The defendants have denied all claims and intend to vigorously
defend this suit.
On October 23, 1996, BioClin U.S. was served with a motion for judgment in
a new action, Barr v. BioClin, Inc. and Merlik C.V., in the Circuit Court of the
City of Richmond, Virginia. In this additional action, Dr. Barr has alleged that
he is entitled to payments under a Consulting Agreement with Merlik C.V. and
that he, as a third-party beneficiary of a License Agreement between Merlik C.V.
and BioClin U.S., is entitled to license fees in the amount of $160,000. BioClin
U.S. believes that Dr. Barr's third party beneficiary claims against it are
without merit and intends to vigorously defend against such claims.
Also, in the early fall of 1995, Virginia Commonwealth University ("VCU")
and BioClin U.S., acting through their respective senior officials, agreed upon
a settlement of certain indebtedness and disputes between them. The settlement
is presently at the Virginia Attorney General's office awaiting approval by the
Attorney General and Governor of Virginia, as required by the law of Virginia
for matters involving a state agency or institution.
In order to avoid the running of the statute of limitations, BioClin U.S.
filed with the Circuit Court for the City of Richmond two separate motions for
judgment against VCU and two of its pharmacists alleging various claims of
negligent conduct. Each claim seeks damages in the amount of $1.5 million. The
claim against VCU alleges that dosing errors committed by VCU pharmacists had
the effect of rendering valueless the results of certain clinical trials
performed at VCU and at other test sites and that the trials had to be redone at
significant cost and loss to BioClin U.S. Although VCU has not formally filed a
counterclaim against BioClin U.S., VCU claims that BioClin U.S. has failed to
honor its contractual commitments to pay VCU for significant efforts undertaken
in the performance of a number of clinical trial contracts between BioClin U.S.
and VCU. VCU's claims have not yet been reduced to litigation since they are in
the nature of breach of contract claims which are subject to longer statutes of
limitation.
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SELECTED FINANCIAL DATA -- THE COMPANY
The following selected historical consolidated financial information of the
Company has been derived from and should be read in conjunction with the
information appearing in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- THE COMPANY" and "FINANCIAL
STATEMENTS -- THE COMPANY," which is included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1995(4) 1994 1993 1992(1) 1991(2) 1996 1995(4)
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXPECT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Commercial services........................... $ 24,396 25,775 23,077 6,083 1,897 21,606 18,317
License fees and other contracts.............. 927 754 642 1,367 1,196 351 784
-------- -------- -------- -------- -------- -------- --------
25,323 26,529 23,719 7,450 3,093 21,957 19,101
-------- -------- -------- -------- -------- -------- --------
OPERATING EXPENSES:
Cost of commercial services................... 21,323 19,981 17,902 4,246 1,299 16,966 15,529
Research and development...................... 1,095 4,359 11,134 6,121 3,343 329 773
General, administrative and marketing......... 5,506 7,237 7,247 4,433 1,980 4,530 4,600
Special charge (3)............................ 7,095
Purchased research and development............ 3,048
-------- -------- -------- -------- -------- -------- --------
27,924.. 31,577 43,378 14,800 9,670 21,825 20,902
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations................. (2,601) (5,048) (19,659) (7,350) (6,577) 132 (1,801)
-------- -------- -------- -------- -------- -------- --------
Other income, net............................... 310 30 220 1,380 249 618 107
-------- -------- -------- -------- -------- -------- --------
Income (loss) before equity in net loss of
Nextran, gain on sale of Nextran and income
taxes....................................... (2,291) (5,018) (19,439) (5,970) (6,328) 750 (1,694)
-------- -------- -------- -------- -------- -------- --------
Equity in net loss of Nextran (4)............... 2,700 1,329 2,700
Gain on sale of Nextran (4)..................... 17,266 17,266
Income tax expense (benefit).................... (291) 332 (50) 454 (45)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............................. $ 12,566 (6,679) (19,389) (5,970) (6,328) 296 12,917
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share
Primary....................................... $ 1.39 (0.76) (2.23) (0.69) (1.07) 0.03 1.43
Fully Diluted................................. $ 1.39 (0.76) (2.23) (0.69) (1.07) 0.03 1.43
-------- -------- -------- -------- -------- -------- --------
Shares used in computing per share amounts
Primary....................................... 9,042 8,755 8,700 8,664 5,908 9,287 9,018
Fully Diluted................................. 9,042 8,755 8,700 8,664 5,908 9,343 9,056
-------- -------- -------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1994 1993 1992(1) 1991(2) SEPTEMBER 30, 1996
-------- -------- -------- -------- -------- ------------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments.......... $ 21,043 4,404 13,280 29,674 37,386 20,689
Restricted cash................................. 777 1,724 1,430 10 1,286 460
Accounts receivable, net........................ 7,662 6,888 5,390 4,860 843 7,167
Fixed assets, net............................... 16,935 17,585 18,798 17,863 1,878 15,190
Investment in Nextran (4)....................... 3,844
Intangible assets, net.......................... 1,035 991 1,252 2,253 785 964
Other assets.................................... 1,395 1,037 2,021 1,367 839 1,780
-------- -------- -------- -------- -------- --------
Total assets.................................. $ 48,847 36,473 42,171 56,027 43,017 46,250
======== ======== ======== ======== ======== =================
Current liabilities, excluding debt............. 8,548 10,385 9,871 7,349 3,077 8,586
Short-term borrowings........................... 1,399
Current portion of long-term debt............... 744 784 3,691 502 181 246
Long-term debt, excluding current portion....... 7,830 8,502 6,131 6,500 97 7,431
Deferred income taxes........................... 2,045 1,921 1,841 2,053 1,779
Other liabilities............................... 948 1,180 1,758 1,152 95 876
Total stockholders' equity...................... 27,333 13,701 18,879 38,471 39,567 27,332
-------- -------- -------- -------- -------- --------
Total liabilities and stockholders' equity.... $ 48,847 36,473 42,171 56,027 43,017 46,250
======== ======== ======== ======== ======== =================
</TABLE>
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- ---------------
(1) Financial information as of December 31, 1992 gives effect to the
acquisition of Pharmakon Europe, using the purchase method of accounting
from December 31, 1992.
(2) Financial information as of and for the year ended December 31, 1991 gives
effect to the acquisition of Pharmakon, using the purchase method of
accounting from August 28, 1991.
(3) In the third quarter of 1993, the Company initiated a plan to suspend
research and development efforts on its hemoglobin blood substitute program
and thereby downsized and reorganized its DNX Biotherapeutics operations. In
accordance with this decision, the Company recorded a special charge of $7.1
million. See Note 4 of the Notes to Consolidated Financial Statements
included in "FINANCIAL STATEMENTS -- THE COMPANY."
(4) On August 29, 1994 DNX Biotherapeutics entered into a Joint Venture
Agreement with Baxter to form Nextran, a partnership in which DNX
Biotherapeutics had a 30% partnership interest. On September 22, 1995, DNX
Biotherapeutics consummated the sale of its 30% partnership interest in
Nextran to Transplant Acquisition Inc. for a cash purchase price of $18
million. As a result of the sale of its partnership interest in Nextran, the
Company recorded a non-recurring gain, net of expenses, income taxes and
related accruals of $17.3 million. See Note 6 of the Notes to Consolidated
Financial Statements included in "FINANCIAL STATEMENTS -- THE COMPANY."
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- THE COMPANY
GENERAL SUMMARY
The Company is a contract research organization whose principal activities
consist of preclinical drug development services conducted through its two
wholly-owned subsidiaries, Pharmakon and DNX Biotherapeutics, currently doing
business as DNX Transgenics (together with Pharmakon, the "Subsidiaries").
Pharmakon provides preclinical drug development and safety assessment services,
including in vitro and in vivo toxicological, pharmacological and
pharmacokinetics testing services, to the pharmaceutical, biotechnology,
chemical and other industries through its United States operations and its
European subsidiary, Pharmakon Europe. A primary component of Pharmakon's
preclinical drug development services consists of specialty services such as
general and safety pharmacology, continuous infusion techniques, immunology and
immunotoxicology. DNX Transgenics uses its proprietary and other transgenic
animal technology to provide drug development services to the pharmaceutical,
biotechnology and medical communities via the development of laboratory animal
models that more closely mimic human biological processes than do conventional
laboratory animal models for use in in vivo testing for drug discovery and
development and in biomedical research. See "THE COMPANY."
The Company also grants sublicenses of its proprietary Pronuclear DNA
Microinjection technology, the process widely used in the pharmaceutical and
biotechnology industries to develop transgenic animals. These sublicenses
entitle the Company to receive revenues consisting of fees and, in certain
cases, royalties. Additionally, although the Company has sold its partnership
interest in Nextran, in the event that Nextran develops and commercializes
hemoglobin blood substitutes using technologies licensed to Nextran by the
Company, the Company will receive royalty income. See "THE
COMPANY -- Licensing."
Pharmakon accounted for more than 95% of the Company's revenues for the
years ended December 31, 1995 and 1994 and the nine months ended September 30,
1996. Since the majority of Pharmakon Europe's revenues, which accounted for
approximately 69% of the Company's revenues for the year ended December 31, 1995
and 68% of the Company's revenues for the nine months ended September 30, 1996,
are denominated in French Francs, fluctuations in the exchange rate between the
French Franc and the U.S. dollar have an effect on the Company's operating
results. See "-- Liquidity and Capital Requirements -- Exchange Rate
Fluctuations."
Formation and Sale of Nextran. On August 29, 1994, DNX Biotherapeutics
entered into the Joint Venture Agreement with Holdings, a wholly-owned
subsidiary of Baxter, which is a subsidiary of Baxter International. Under the
Joint Venture Agreement, DNX Biotherapeutics and Holdings formed Nextran, a
Delaware general partnership, in which DNX Biotherapeutics had a 30% partnership
interest and Holdings had a 70% partnership interest. Pursuant to the terms of
the Purchase Agreement, dated September 22, 1995, as amended, DNX
Biotherapeutics consummated the sale of its 30% partnership interest in Nextran
to Transplant Acquisition Inc., a wholly-owned subsidiary Baxter, for a cash
purchase price of $18 million. See Note 6 of the Notes to Consolidated Financial
Statements included in "FINANCIAL STATEMENTS -- THE COMPANY."
As a result of these transactions, the Company is no longer required to use
its resources to fund the development of its organ transplantation or blood
substitute programs. Historically, these programs have accounted for a
substantial portion of the Company's research and development expenses, capital
expenditures, working capital and accumulated deficit. Prior to the sale of its
partnership interest in Nextran, the Company recorded its share of Nextran's
financial results of operations in its consolidated financial statements
according to the equity method of accounting.
Although the Company has sold its partnership interest in Nextran, in the
event that Nextran develops and commercializes hemoglobin blood substitutes
using these technologies, the Company will receive royalty income. See "THE
COMPANY -- Nextran."
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Proposed Acquisition of the BioClin Group. On August 19, 1996, the Company
entered into the Transaction Agreements providing for the acquisition by the
Company of all of the outstanding capital stock of, or equity interests in,
BioClin U.S., BioClin Europe, BioClin Germany, Kilmer and BioClin Institute in
consideration and exchange for 2,632,600 shares of Common Stock. The BioClin
Group, which is an international contract research organization engaged in
clinical drug development services in the United States, all major European
countries, Israel, Turkey and Australia is controlled by the BioClin Interest
Holders. The Proposed Transaction has been structured, and the legal agreements
have been drafted, in a manner intended to qualify the Proposed Transaction for
"pooling-of-interests" accounting treatment. Pursuant to the Transaction
Agreements, the closing of the Proposed Transaction is subject to a number of
conditions, including DNX stockholder approval and regulatory approvals. The
Proposed Transaction is expected to close during the late fourth quarter of
fiscal 1996. See "THE PROPOSED TRANSACTION" and "TRANSACTION AGREEMENTS."
RESULTS OF OPERATIONS
INTERIM RESULTS
Three and nine months ended September 30, 1996 as compared to three and
nine months ended September 30, 1995.
Revenues. Revenues were $7,391,000 for the three months ended September
30, 1996 versus $5,515,000 for the same period in 1995, an increase of 34%.
Revenues were $21,957,000 for the nine months ended September 30, 1996 versus
$19,101,000 for the same period in 1995, an increase of 15%. The increase in
revenues for the three and nine month periods ended September 30, 1996 as
compared to the same periods in 1995 was primarily due to an increase in
business activity in preclinical drug development services in both the European
and U.S. marketplaces. The Company believes the increase in business activity is
a result of the improvement in the pharmaceutical industry outsourcing trends
and expanded cash reserves within the biotechnology sector. Additionally,
revenue for the nine months ended September 30, 1995 included approximately
$420,000 of revenue, classified as license fees and other contracts, primarily
from a government contract that was terminated in 1995.
Operating Expenses. Cost of commercial services was $5,691,000 or 78% of
commercial service revenues for the three months ended September 30, 1996 and
$4,791,000 or 91% of commercial service revenues for the same period in 1995.
For the nine months ended September 30, 1996, cost of commercial services was
$16,966,000 or 79% of commercial service revenues and $15,529,000 or 85% of
commercial services revenue for the same period in 1995. The increase in these
costs for the three and nine month periods ended September 30, 1996 versus the
same periods in 1995 was primarily due to (i) increased business activity, which
resulted in an increase in variable costs such as materials and supplies, and
(ii) an increase in commercial service activity associated with DNX Transgenics.
The decrease in these costs as a percent of revenues is due to the leveraging of
a base cost structure of management and scientific personnel, equipment and
facilities which supported a higher level of business in the first nine months
of 1996 than experienced during the same period in 1995.
Research and development expenses decreased 63% to $93,000 for the three
month period ended September 30, 1996 from $252,000 for the same period in 1995.
For the nine month periods ended September 30, 1996 and 1995, research and
development expense decreased 57% to $329,000 from $773,000, respectively. The
decrease in expenses was primarily the result of the shift in the strategic
focus of DNX Transgenics from the internal development of transgenic animal
models to providing commercial specialty drug development services.
General, administrative and marketing expenses were $1,504,000 for the
three months ended September 30, 1996 versus $1,806,000 for the same period in
1995. For the nine month periods ended September 30, 1996 and 1995, these
expenses were $4,530,000 and $4,600,000, respectively. Included in general,
administrative and marketing expenses for the three months ended September 1995
is a charge of $498,000 of expenses
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associated with cost reduction programs in Europe. The remainder of the increase
in expenses was primarily the result of increased marketing and business
development expenses.
Other Income (Expense). Other income (expense) amounted to $199,000 for
the three months ended September 30, 1996 versus $5,000 for the same period last
year. For the nine months ended September 30, 1996 and 1995, other income
(expense) was $618,000 and $107,000, respectively. The increase in other income
for 1996 as compared to 1995 is primarily the result of (i) the increase in cash
available for investment, (ii) the reduction of debt, primarily Pharmakon
Europe's borrowings under its credit lines (see "-- Liquidity and Capital
Requirements -- Debt") and (iii) the decrease in interest expense as a result of
the decrease in interest rates applicable to the Company's debt instruments.
Additionally, in the first quarter of 1995, the Company transferred its lease
obligation on the former Plainsboro pilot plant facility to a third party and
sold certain equipment associated with this facility to the same party for a
total of $600,000 to be paid in monthly installments through September 1996.
Other income for the nine months ended September 30, 1996 and 1995 includes
income of $225,000 and $401,000, respectively, associated with the transactions
for this facility.
Equity in Net Loss of Nextran. As a result of the sale of its partnership
interest in Nextran in September 1995, the Company no longer records a share of
Nextran's financial results of operations in its consolidated financial
statements. Prior to September 30, 1995, as a result of its minority equity
ownership in Nextran, the Company recorded its share of Nextran's financial
results in its consolidated financial statements based on the equity method of
accounting. For the three and nine month periods ended September 30, 1995, the
Company's share of Nextran's loss amounted to $519,000 and $2,700,000,
respectively.
Gain on Sale of Nextran. As a result of the sale of its partnership
interest in Nextran in the third quarter of 1995, the Company eliminated the
remaining balance of its Investment in Nextran from the balance sheet and
recorded an estimated non-recurring gain, net of expenses, income taxes and
related accruals, of $17,266,000.
Taxes. The Company's Pharmakon Europe subsidiary is subject to foreign
income taxes under French tax laws on the profits generated in France. The 1996
French corporate income tax rate is approximately 37%. For the three and nine
months ended September 30, 1996, the Company recorded income tax expense of
$246,000 and $454,000, respectively, as compared to income tax benefit of
$49,000 and $45,000 for the three and nine months ended September 30, 1995,
respectively, due to operating results generated by Pharmakon Europe.
The impact from United States federal and state income taxes is currently
not significant due to the Company's available net operating loss carryforwards.
At December 31, 1995, the Company had available net operating loss carryforwards
of approximately $20,318,000 for United States federal and state income tax
purposes. Such loss carry forwards expire through 2009 and 2001, respectively.
The Company also has research and development tax credit carryforwards of
approximately $2,982,000 for federal income tax reporting purposes which are
available to reduce federal income taxes, if any, through 2010. The Company has
alternative minimum tax credit carryforwards of approximately $200,000 for
federal income tax purposes which are available to reduce federal income taxes,
if any. These tax credits have an unlimited carryforward period. The Company
believes that the Proposed Transaction will have no effect on the Company's
ability to utilize the foregoing carryforwards. The Proposed Transaction,
however, will result in an ownership change under the Code. Accordingly, the
Company's ability to utilize its net operating loss carryforwards may be subject
to certain limitations in the future under the Code.
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FISCAL YEAR RESULTS
Fiscal year ended December 31, 1995 as compared to the fiscal years ended
December 31, 1994 and December 31, 1993.
Revenues. Revenues were $25,323,000 for 1995 versus $26,529,000 and
$23,719,000 for 1994 and 1993, respectively. The decrease in revenues from 1994
to 1995 was primarily a result of reduced research and development activity
requiring preclinical development services as a result of (i) government price
control pressures on pharmaceutical companies, (ii) increased consolidation in
the pharmaceutical industry causing delays in decisions that effect current
preclinical drug development efforts, and (iii) a difficult financial
environment (from 1993 through mid-1995) for biotechnology companies requiring
those companies to allocate cash resources to existing drug candidates rather
than developing new candidates which would require preclinical services. The
Company believes that the decline in business activity will be short-term and
not indicative of the long-term environment. However, there can be no assurance
as to when such decline in business activity will return to expected levels. The
decrease in revenue for 1995 was offset by a favorable effect amounting to
approximately $2,004,000 for the year ended December 31, 1995 versus the same
period in 1994 from the currency translation of Pharmakon Europe's business from
French Francs to U.S. dollars. The increase in revenues from 1993 to 1994 was
primarily due to growth of Pharmakon's European business, which accounted for
approximately 70% of the revenues for the Company.
Operating Expenses. Cost of commercial services was $21,323,000 or 87% of
commercial service revenues for 1995, compared with $19,981,000 or 78% of
commercial service revenues for 1994. For 1993 cost of commercial services was
$17,902,000 or 78% of commercial service revenues. The increase in these costs
in 1995 versus 1994 was primarily due to an unfavorable effect from the currency
translation of Pharmakon Europe's business from French Francs to U. S. dollars.
The cost of commercial services at Pharmakon Europe increased by approximately
$291,000 (excluding the $329,000 of expenses described below) in 1995 versus the
same period in 1994 due to the unfavorable effect of the currency translation,
despite the fact that the actual cost of commercial services at Pharmakon Europe
decreased, on a U.S. dollar-to-U.S. dollar basis, by approximately $1,244,000
since 1994 when applying the 1994 French Franc translation rate as a constant to
both the 1995 and 1994 expense levels. The increase in cost of commercial
services was also the result of (i) cost increases for Pharmakon's U.S.
facilities and personnel due to investments to accommodate anticipated growth
and enhance the quality of services offered and (ii) $329,000 of expenses
recorded in association with cost reduction programs in Europe. The cost
reduction programs employed in Europe were substantially implemented in the
first quarter of 1996. The increase in these costs in 1994 versus 1993 was due
to (i) variable costs associated with an increase in the amount of services
provided by Pharmakon and (ii) investment in Pharmakon's U.S. facilities and
personnel to accommodate anticipated growth and enhance the quality of services
offered. The increase in costs as a percent of revenues in 1995 from 1993 and
1994 is primarily due to a base cost structure of personnel, equipment and
facilities at Pharmakon which is positioned to support a higher level of
business than it experienced during 1995.
Research and development expenses in 1995 decreased to $1,095,000 from
$4,359,000 in 1994, which decreased from $11,134,000 in 1993. The decrease in
expenses in 1995 versus 1994 was primarily the result of the transfer of the
Company's organ transplantation program to Nextran in August 1994. The decrease
in expenses in 1994 versus 1993 was primarily the result of the curtailment of
the Company's blood substitute program in 1993. As a result of the evolution in
the strategic focus of DNX Transgenics, the Company expects that research and
development expenses will be less in 1996 than research and development expenses
incurred in 1995. However, as a result of the change in strategic focus of DNX
Transgenics, the reduction of research and development expenses will be offset
with a corresponding increase in cost of services to support the commercial
services offered.
General, administrative and marketing expenses decreased to $5,506,000 in
1995 from $7,237,000 in 1994, which remained relatively unchanged from
$7,247,000 in 1993. The decrease in expenses was primarily the result of (i)
$572,000 of non-recurring general and administrative expense accounted for in
1994, the majority of which were associated with the formation of Nextran, (ii)
elimination of expenses for activities transferred to and in support of Nextran,
and (iii) the Company's efforts to control general and administrative
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costs, offset by (i) an increase in costs as a result of the currency
translation of Pharmakon Europe's business from French Francs to U.S. dollars
and (ii) increased sales and marketing expenses. As adjusted for the non-
recurring general and administrative expenses, general, administrative and
marketing expenses decreased by 8% in 1994 as compared to 1993 primarily as the
result of the curtailment of the blood substitutes program and expenses for
activities transferred to and in support of Nextran.
Special Charge. In October 1993, the Company initiated a plan to curtail
research and development efforts on its hemoglobin blood substitute program and
thereby downsized and reorganized its DNX Biotherapeutics operations. As a
result of this decision, the Company recorded a special charge of $7,095,000
including $706,000 for severance-related costs, $1,736,000 for future rents and
related obligations on vacated facilities, net of anticipated recoveries,
$4,376,000 for the write-down of equipment and leasehold improvements to net
realizable values, and $277,000 for other related costs.
Other Income (Expense). Other income (expense) increased to $310,000 in
1995 versus $30,000 for 1994 and $220,000 for 1993. In the first quarter of
1995, the Company transferred its lease obligation on the former Plainsboro
pilot plant facility to a third party and sold certain equipment associated with
this facility to the same party for a total of $600,000 to be paid in monthly
installments through September 1996. The increase in other income for 1995 as
compared to 1994 includes income of $508,000 associated with the transactions
for this facility, as well as an increase in interest income due to an increase
in cash available for investment. Additionally, the increase in other income was
partially offset by an increase in interest expense as a result of the increase
in the prime rate. See "-- Liquidity and Capital Requirements -- Debt." The
decrease in 1994 reflects the increase in interest expense and the prime
interest rate, primarily associated with the debt incurred related to the
acquisition of Pharmakon Europe, offset by the reversal of $300,000 of an
accrued liability relating to the former Plainsboro pilot plant facility
established in connection with the curtailment of the blood substitute program.
See Note 14 of the Notes to Consolidated Financial Statements included in
"FINANCIAL STATEMENTS -- THE COMPANY." The Company expects that interest income
will increase as a result of the additional cash currently available for
investment from the sale of the Company's partnership interest in Nextran.
Equity In Net Loss Of Nextran. As a result of its minority equity
ownership in Nextran, the Company recorded its share of Nextran's financial
results in its consolidated financial statements based on the equity method of
accounting. As a result of the sale of its partnership interest in Nextran, the
Company no longer records a share of Nextran's financial results of operations
in its consolidated financial statements, subsequent to September 30, 1995. The
Company's share of Nextran's loss amounted to $2,700,000 for the period ended
September 30, 1995, as compared to $1,329,000 for the period from August 29,
1994 (the date of formation of Nextran) through December 31, 1994.
Gain on Sale of Nextran. As a result of the sale of its partnership
interest in Nextran, in the third quarter of 1995, the Company eliminated its
investment in Nextran and recorded a non-recurring gain, net of expenses,
estimated income taxes of $200,000 and related accruals, of $17,266,000.
Taxes. The Company's Pharmakon Europe subsidiary is subject to foreign
income taxes under French tax laws on the profits generated in France. The
French corporate income tax rate was approximately 37% in 1995. In 1995, the
Company recorded an income tax benefit of $291,000 as compared to income tax
expense of $332,000 in 1994 as the result of operating results generated by
Pharmakon Europe for both years.
The impact from United States federal and state income taxes is currently
not significant due to the Company's available net operating loss carryforwards.
At December 31, 1995, the Company has available net operating loss carryforwards
of approximately $20,318,000 for United States federal and state income tax
purposes. Such loss carry forwards expire through 2009 and 2001, respectively.
The Company also has research and development tax credit carryforwards of
approximately $2,982,000 for federal income tax reporting purposes which are
available to reduce federal income taxes, if any, through 2010. The Company has
alternative minimum tax credit carryforwards of approximately $200,000 for
federal income tax purposes which are available to reduce federal income taxes,
if any. These tax credits have an unlimited carryforward
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period. The Company believes that the Proposed Transaction will have no effect
on the Company's ability to utilize the foregoing carryforwards. The Proposed
Transaction, however, will result in an ownership change under the Code.
Accordingly, the Company's ability to utilize its net operating loss
carryforwards may be subject to certain limitations in the future under the
Code.
LIQUIDITY AND CAPITAL REQUIREMENTS
Cash Reserves. The Company finances its operations and activities by
relying on (i) its operating activities for its working capital requirements,
(ii) its cash reserves, and (iii) its available lines of credit. The Company
invests its excess cash in a diversified portfolio of high-grade money market
funds, United States Government-backed securities and commercial paper and
corporate obligations. As of December 31, 1995, the Company had cash reserves
(consisting of cash and cash equivalents, short-term investments and restricted
cash) of $21,820,000. The Company's cash reserves increased by $15,692,000 in
1995 primarily due to the sale of the Company's partnership interest in Nextran
and the use of short-term borrowings in Europe, offset by (i) investments made
in order to provide new specialty services at Pharmakon Europe and enhance the
quality of services offered at Pharmakon's U.S. operations, (ii) negative
working capital associated with operating losses, (iii) tax payments associated
with Pharmakon Europe, and (iv) payments on long-term debt. As of September 30,
1996, the Company had cash reserves (consisting of cash and cash equivalents,
short-term investments and restricted cash) of $21,149,000. During the first
nine months of 1996, while the Company generated $2,350,000 from operating
activities, the Company's cash reserves decreased by $671,000 primarily due to
reductions in the outstanding principal amounts of short-term borrowings and
long-term debt totaling $2,254,000 and capital expenditures as described
immediately below.
Capital Expenditures. In 1995 and during the first nine months of 1996,
the Company invested a total of approximately $800,000 and $706,000,
respectively, in property, plant and equipment. This increase primarily reflects
investments to provide specialty services at Pharmakon Europe and to enhance
information systems capabilities for the Company's operations.
Debt. In December 1992, Pharmakon acquired Pharmakon Europe through a
stock purchase. Included in the purchase price were promissory notes having an
aggregate principal amount of $7.0 million (the "Pharmakon Notes"). The
remaining unpaid principal balance as of September 30, 1996 of $5,000,000 will
be paid in December 1997. The payment of the Pharmakon Notes is secured by a
pledge of the capital stock of Pharmakon Europe, a pledge of certain assets of
Pharmakon, a guarantee by the Company and a security interest in fees and
royalties payable to the Company under sublicenses of its proprietary DNA
Microinjection Technology. The Pharmakon Notes require prepayments in specified
amounts upon the Company selling any of its shares of common stock of Pharmakon.
The promissory notes contain various covenants, the most restrictive of which
prohibit the payment of dividends by Pharmakon to the Company and the sale of
any Pharmakon Europe assets that are not made in the ordinary course of
business.
In connection with its new U.S. facility, in 1994 Pharmakon secured (i) a
$1.5 million 15-year mortgage with a bank, which required cash collateral of
$180,000, and (ii) a $1.2 million 15-year mortgage from a Pennsylvania agency,
which required cash collateral of $450,000. These two loans are also secured by
mortgages on the property acquired. As a result of achieving certain financial
covenants, the cash collateral on the mortgage loan with the bank was released
in 1995. The cash collateral on the mortgage loan with the Pennsylvania agency
is classified as restricted cash as of December 31, 1995 and September 30, 1996.
If the Company achieves certain financial covenants, this $450,000 of cash
collateral will be released. Additionally, the favorable interest rate on the
mortgage with the Pennsylvania agency is subject to change upon review by the
agency of certain future conditions. As of December 31, 1995, the Company was in
violation of one of the financial covenants on its mortgage loan with the bank,
primarily as a result of $329,000 of expenses recorded in 1995 in association
with cost reduction programs in Europe. This violation was waived by the bank.
Pharmakon Europe has lines of credit and overdraft privileges with French
banks in the aggregate amount of 10.5 million French Francs ($2.0 million at the
exchange rate in effect on September 30, 1996). At December 31, 1995, there were
short-term borrowings outstanding under these facilities in the amount of
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6.9 million French Francs ($1,399,000 at the exchange rate in effect on December
31, 1995). As of September 30, 1996, there were no outstanding borrowings under
these credit facilities.
In March 1993, DNX Biotherapeutics obtained a $3.0 million debt financing
facility from a bank in the form of an equipment line of credit which is
guaranteed by the Company. In connection with the curtailment of the blood
substitute program in 1993, DNX Biotherapeutics discontinued borrowings under
this line of credit and is paying the principal balance of $90,000 outstanding
on September 30, 1996 in monthly installments through January 1997. In June
1995, the Company and the bank restructured certain terms of this loan and the
bank released from collateral a certificate of deposit in the amount of
$750,000, which had previously been classified as restricted cash. The loan is
secured by a security interest in the equipment acquired and the payments due to
the Company under the installment sale of certain equipment associated with the
transfer of the lease obligation on the former Plainsboro pilot plant facility.
In connection with the formation of Nextran, the Company entered into a
services/lease agreement whereby Nextran leases 49% of the equipment subject to
this loan and makes monthly payments to the Company equal to Nextran's
proportionate share of the monthly payment due under this loan based on the
equipment.
In May 1994, Pharmakon obtained a $500,000 equipment loan from a
Pennsylvania agency secured by certain of the equipment required in connection
with the expansion of Pharmakon's United States operations. The loan is payable
in equal monthly installments through June 2001. As of December 31, 1995,
$288,000 of the proceeds from this equipment loan, plus accrued interest,
remained in escrow and was classified as restricted cash. The funding period for
this loan ended on December 31, 1995. In April 1996, $288,000, representing the
unused proceeds from this equipment loan, was returned to the Pennsylvania
agency.
Proposed Transaction. Based upon unaudited financial information appearing
elsewhere in this Proxy Statement, at September 30, 1996, the BioClin Group had
cash and marketable debt securities totaling approximately $1,873,000 and
outstanding debt, consisting primarily of short-term lines of credit, totaling
approximately $9,983,000. See "FINANCIAL STATEMENTS -- THE BIOCLIN GROUP." In
the event the Proposed Transaction is consummated, a portion of the cash
resources of the combined entity may be used to reduce the indebtedness of the
BioClin Group acquired in the Proposed Transaction as well as to pay the
expenses of the Proposed Transaction.
Capital Requirements. The Company believes that with its current financial
resources it has the ability to meet its working capital requirements on an
ongoing basis for the foreseeable future. The Company anticipates that its
future capital requirements may include investment for expansion of its
operating infrastructure to meet anticipated increased demand for preclinical
drug development services from the pharmaceutical and biotechnology industries.
In addition, a $5,000,000 payment on the principal balance of the Pharmakon
Notes will be due in December 1997. Additionally, the Company from time to time
is engaged in discussions regarding strategic acquisitions, other than the
Proposed Transaction, of organizations providing various drug development
services and may finance such acquisition with its existing cash resources or by
additional public or private debt or equity financings or through the issuance
of stock. In the event any such acquisition requires financing, there can be no
assurance that such financing will be available to the Company or if available,
that it will be available on acceptable terms. Also, there can be no assurance
that the Company will consummate such an acquisition or obtain any such
financing, or if consummated, that such financing arrangements will satisfy a
material portion of the Company's capital needs. Although the Company
continually considers and evaluates potential acquisitions and related
opportunities for growth, it has not entered into any agreements with respect to
such acquisitions, other than the Proposed Transaction. Consummation of the
Proposed Transaction is subject to certain conditions. See "TRANSACTION
AGREEMENTS -- Conditions to Closing."
As a former general partner of Nextran, the Company remains obligated with
respect to certain environmental representations and warranties which expire on
August 29, 1997. Such representations and warranties are also limited by certain
financial indemnification provisions.
The Company's working capital and other capital requirements will depend on
numerous factors, including among others: success in increasing the Company's
revenues and managing its operating subsidiar-
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ies; Pharmakon and DNX Transgenics; success in licensing the Company's DNA
Microinjection technology; the exchange rate between the United States dollar
and the French Franc in the event funds from the Company's Pharmakon Europe
operation are needed to meet capital requirements of the Company's U.S.
operations; the level of Company resources devoted to marketing and
administration; technological advances; the status of competitors; and
consummation of the Proposed Transaction and payment of expenses of the Proposed
Transaction and possible reduction of the indebtedness of the BioClin Group.
EXCHANGE RATE FLUCTUATIONS
The Company's consolidated financial statements are denominated in U.S.
dollars and, accordingly, changes in the exchange rate between the French Franc
and the U.S. dollar will affect the translation of Pharmakon Europe's revenues
and operating results into U.S. dollars for purposes of reporting the Company's
consolidated financial results, and also affect the U.S. dollar amounts actually
received by the Company from such subsidiary. Based on the assumption that
Pharmakon Europe continues to represent a significant portion of the business of
the Company, the depreciation of the U.S. dollar against the French Franc would
have a favorable impact on the Company's revenues and an unfavorable impact on
the Company's operating expenses due to the effect of such currency translation
on Pharmakon Europe's operating results; however, the appreciation of the U.S.
dollar against the French Franc would have an unfavorable impact on the
Company's revenues and a favorable impact on the Company's operating expenses.
The Company does not currently hedge its currency translation exposure.
Contracts between Pharmakon Europe and its clients are generally
denominated in French Francs. Because substantially all of Pharmakon Europe's
expenses, such as salaries, services, materials and supplies, are paid in French
Francs, its expenses are not materially affected by fluctuations in exchange
rates. However, given that the majority of Pharmakon Europe's clients and
competitors are located outside of France, exchange rate fluctuations may
materially impact contract prices and therefore may materially impact the
results of operations of Pharmakon Europe and the Company.
The results of operations of Pharmakon Europe denominated in French Francs
have been translated from French Francs into U.S. dollars using the following
exchange rates:
<TABLE>
<CAPTION>
FRENCH FRANC U.S. DOLLAR PER
PERIOD PER U.S. DOLLAR FRENCH FRANC
- ----------------- --------------- ---------------
<S> <C> <C>
1995 4.9850 .2006
1994 5.5465 .1803
1993 5.6633 .1766
1st quarter 1995 5.1602 .1938
2nd quarter 1995 4.9161 .2034
3rd quarter 1995 4.9393 .2025
1st quarter 1996 5.0384 .1985
2nd quarter 1996 5.1578 .1939
3rd quarter 1996 5.0965 .1962
</TABLE>
The rates in the above table represent an average exchange rate calculated using
rates quoted in The Wall Street Journal.
Due to Pharmakon Europe, the percentage of the Company's total revenues
recorded in French Francs is significant. For years ended 1995, 1994 and 1993
and the nine months ended September 30, 1996, Pharmakon Europe accounted for
approximately 69%, 70%, 65% and 68% of the Company's revenues, respectively.
During 1995, the currency translation of Pharmakon Europe's results of
operations and balance sheet from French Francs to U.S. dollars was
significantly effected by the depreciation of the U.S. dollar against the French
Franc. See "-- Results of Operations." The balance sheet impact resulted in a
significant increase in the translation adjustment within stockholder's equity
primarily due to the translation of Pharmakon Europe's property, plant and
equipment from French Francs to U.S. dollars.
69
<PAGE> 73
ACCUMULATED DEFICIT
Since its inception in 1988 until the formation and subsequent sale of its
partnership interest in Nextran in 1995, the Company has expended substantial
funds for research and development and capital expenditures. A significant
portion of such expenditures were made to support DNX Biotherapeutics' organ
transplantation and blood substitute research and development programs, which
programs were transferred to the Nextran partnership. Historically, these
programs have accounted for a substantial portion of the Company's accumulated
deficit.
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued Statement
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 presents
companies with the alternative of retaining the current accounting for
stock-based compensation or adopting a new accounting method based on the
estimated fair value of equity instruments granted during the year. Companies
that do not adopt the fair value based method of accounting will be required to
adopt the disclosure provisions of SFAS 123 for the year ending December 31,
1996. The Company expects to continue applying its current accounting principles
and upon adoption in 1996 will present the required footnote disclosures.
INFLATION
The Company believes that inflation has not had a material impact on its
results of operations.
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<PAGE> 74
SELECTED COMBINED FINANCIAL DATA --
THE BIOCLIN GROUP
The following selected historical combined financial information of the
BioClin Group has been derived from and should be read in conjunction with the
information appearing in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- THE BIOCLIN GROUP" and "FINANCIAL
STATEMENTS -- THE BIOCLIN GROUP," which are included elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
(IN THOUSANDS)
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- --------------------------
1995 1994 1993 1996 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross revenues...................... $18,837 11,386 8,536 13,621 13,256
Less reimbursed costs............... (4,551) (1,727) (1,361) (4,466) (2,224)
------- ------- ------- ------- -------
Net revenues...................... 14,286 9,659 7,175 9,155 11,032
------- ------- ------- ------- -------
Operating costs and expenses:
Direct costs...................... 8,456 7,528 6,072 5,061 7,296
Selling, general and
administrative................. 4,467 3,537 2,824 3,453 3,112
Depreciation and amortization..... 445 366 237 328 343
------- ------- ------- ------- -------
13,368 11,431 9,133 8,842 10,751
------- ------- ------- ------- -------
Income (loss) from
operations................... 918 (1,772) (1,958) 313 281
Other income (expense), net......... (945) (555) (451) (294) (703)
Income taxes........................ 114 58 28 5 61
------- ------- ------- ------- -------
Net income (loss).............. $ (141) (2,385) (2,437) 14 483
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
DECEMBER 31,
----------------------------------------- SEPTEMBER 30,
1995 1994 1993 1996
----------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................ $ 1,126 995 659 1,009
Marketable debt securities...... 933 835 653 864
Trade accounts receivable....... 3,245 2,452 2,156 3,986
Property and equipment, net..... 871 963 593 1,040
Other assets.................... 402 417 356 1,210
-------- -------- ------- --------
Total assets................. $ 6,577 5,662 4,417 8,109
======== ======== ======= ========
Current liabilities, excluding
debt......................... 6,744 5,662 3,572 8,073
Short-term borrowings........... 9,834 9,589 7,898 9,683
Note payable -- related party... 326 287 247 300
Other liabilities............... 14 154 124 103
Total stockholders'
deficiency................... (10,341) (10,030) (7,424) (10,050)
-------- -------- ------- --------
Total liabilities and
stockholders' deficiency... $ 6,577 5,662 4,417 8,109
======== ======== ======= ========
</TABLE>
71
<PAGE> 75
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- THE BIOCLIN GROUP
OVERVIEW
The BioClin Group is a privately owned contract research organization
serving the pharmaceutical, biotechnology and medical device industries in North
America, Europe, the Middle East and Australia. The BioClin Group designs,
monitors and manages clinical Phase I to Phase IV trials, including design of
testing protocols, monitoring of test participants, data management, quality
assurance and report writing. It also has the capability to manage entire
development programs, and offers product registration services. The BioClin
Group generates substantially all of its revenue from clinical testing of new
pharmaceutical and biotechnology products.
In addition to cash generated from operations, the BioClin Group has
historically financed its operations principally by obtaining from U.S. and
non-U.S. financial institutions short-term financing and letters of credit that
are guaranteed by certain major shareholders of the BioClin Group. See "--
Liquidity and Capital Requirements." As a result of favorable trends in the CRO
industry and an investment by the BioClin Group in its capabilities to
capitalize on such trends, the BioClin Group has generated an operating profit
of $918 thousand and $313 thousand for the year ended December 31, 1995 and the
nine months ended September 30, 1996, respectively. However, because the BioClin
Group has expenses related to the servicing of the short-term financing and
letters of credit, the BioClin Group has recorded a net loss of $141 thousand in
1995 and net income of $14 thousand for the nine months ended September 30,
1996.
In order to maintain existing clients and to attract new clients, the
BioClin Group continues its investment in the expansion of its Phase I through
Phase IV services, information systems and data management capabilities. As a
result of the continued consolidation in the CRO industry and the recognition by
the BioClin Group of the requirements of the biotechnology and pharmaceutical
companies to maintain relations with CROs with global capabilities and long-term
financial stability, the BioClin Group has elected to pursue a strategy of
responding to these requirements while at the same time gaining access to new
clients by combining its operational resources with the complementary services
offered by the Company as well as the capability of the Company to access the
public financial markets.
Although the companies that comprise the BioClin Group are each controlled
by the BioClin Interest Holders, each of such companies has historically been
operated as a separate and independent legal entity. Because the Company will
operate the BioClin Group as consolidated wholly-owned subsidiaries upon
consummation of the Proposed Transaction, the BioClin Group's financial
condition and results of operations are presented on a combined financial basis
in this Proxy Statement.
The BioClin Group's contracts are typically fixed price contracts that
require a portion of the contract amount to be paid at or near the time the
trial is initiated. The BioClin Group generally bills its clients upon the
completion of negotiated performance requirements and, to a lesser extent, on a
date certain basis. Certain of the BioClin Group's contracts are subject to cost
limitations which cannot be exceeded without client approval. Because, in many
cases, the BioClin Group bears the risk of cost overruns, unbudgeted costs in
connection with performing these contracts may have a detrimental effect on the
financial results of the BioClin Group. If it is determined that a loss will
result from the performance of a contract, the entire amount of the estimated
loss is charged against income in the period in which the determination is made.
The BioClin Group's contracts generally may be terminated with or without
cause. In the event of termination, the BioClin Group is typically entitled to
all sums owed for work performed through the notice of termination and all costs
associated with termination of the study. In addition, most of the BioClin
Group's contracts provide for an early termination fee, the amount of which
usually declines as the trial progresses. Termination or delay in the
performance of a contract occurs for various reasons, including, but not limited
to, unexpected or undesired results, inadequate patient enrollment or
investigator recruitment, production problems resulting in shortages of the drug
or medical device being tested, adverse patient reactions to the
72
<PAGE> 76
drug or medical device being tested, or the client's decision to not proceed
with a particular trial. See "THE BIOCLIN GROUP -- Contractual Arrangements."
Revenue for contracts extending over more than one accounting period is
recognized on a percentage of completion basis as work is performed. Revenue is
affected by the mix of trials conducted and the degree to which effort is
expended. The BioClin Group may subcontract with third-party investigators in
connection with multi-site clinical trials. These costs are passed through to
clients and, in accordance with industry practice, are included in service
revenue. Subcontractor services may vary significantly from contract to
contract; therefore, changes in service revenue may not be indicative of trends
in revenue growth. Accordingly, the BioClin Group views net service revenue,
which consists of service revenue less subcontractor costs, as its primary
measure of revenue growth. See Note 1 to the BioClin Group Combined Financial
Statements included in "FINANCIAL STATEMENTS -- THE BIOCLIN GROUP."
The BioClin Group's quarterly operating results may fluctuate as a result
of various factors, such as delays experienced in implementing or completing
particular clinical trials and termination of clinical trials. Since a
substantial portion of the BioClin Group's operating costs are relatively fixed,
while revenue is subject to fluctuations, minor variations in the timing of
contracts or the progress of clinical trials may cause significant variations in
quarterly operating results. Results of one quarter are not necessarily
indicative of results for the next quarter.
The BioClin Group's backlog consists of anticipated net service revenue
from contracts that have not been completed. At December 31, 1995 and September
30, 1996, backlog was approximately $11.0 million and $17.0 million,
respectively. The BioClin Group believes that its backlog as of any date is not
necessarily a meaningful indicator of future results and no assurances can be
given that the BioClin Group will be able to fully realize all of its backlog as
net service revenue. See "THE BIOCLIN GROUP -- Backlog."
The BioClin Group has had, and will continue to have, certain clients from
which at least 10% of the BioClin Group's overall revenue is generated over
multiple contracts. Such concentration of business is not uncommon within the
CRO industry. See "THE BIOCLIN GROUP -- Clients and Marketing." Revenues for
operations of the BioClin Group in Europe represent a significant portion of
total revenues. For the years ended December 31, 1995 and 1994 and the nine
months ended September 30, 1996, revenues from European operations accounted for
52%, 43% and 68%, respectively, of the BioClin Group's total revenue for such
periods. Substantially all of the remaining revenues for such periods were
generated by operations in North America.
In 1995, the BioClin Group elected to discontinue providing services for
Phase I trials in the United States and to focus its resources on services for
Phase II through Phase IV trials and related data management services in the
United States. Net revenues related to these Phase I services in the United
States were approximately $3.5 million for each of the years ended December 31,
1995 and 1994. The BioClin Group has not generated any revenue for Phase I
services in the United States for the nine months ended September 30, 1996. The
BioClin Group retains its capability to provide services for Phase I trials for
its clients through its operations in Dusseldorf, Germany. See Notes 14 and 15
to the BioClin Group Combined Financial Statements included in "FINANCIAL
STATEMENTS -- THE BIOCLIN GROUP."
The BioClin Group's combined financial statements are denominated in U.S.
dollars and, accordingly, changes in the exchange rate between non-U.S.
currencies and the U.S. dollar will affect the translation on non-U.S. revenues
and operating results into U.S. dollars for purposes of reporting the BioClin
Group's combined financial results. The BioClin Group's non-U.S. operations
generally enter into contracts denominated in the local currency of such
operation. Because the non-U.S. operation's expenses are generally paid in the
local currency, such operation's local currency earnings are not materially
affected by fluctuations in exchange rates. However, changes in the exchange
rates between such local currencies and the U.S. dollar will affect the
translation of such operation's financial results into U.S. dollars for purposes
of reporting the BioClin Group's combined financial results. In cases where the
BioClin Group contracts for a multi-country clinical trial and a significant
portion of the contract expenses are in a currency other than the contract
currency, the BioClin Group seeks to require its client to incur the effect of
fluctuations in the relative values of the contract currency and the currency in
which the expenses are incurred. To the extent the BioClin Group is unable to
73
<PAGE> 77
require its clients to incur the effects of currency fluctuations, these
fluctuations could have a material effect on the BioClin Group's results of
operations. The BioClin Group does not currently hedge against the risk of
exchange rate fluctuations.
RESULTS OF OPERATIONS
INTERIM RESULTS
Nine months ended September 30, 1996 as compared to nine months ended
September 30, 1995.
Revenues. Net service revenues were $9,155,000 for the nine months ended
September 30, 1996 versus $11,032,000 for the same period in 1995. The decrease
in revenues was primarily due to the decision to discontinue providing services
for Phase I trials in the U.S., which accounted for approximately $3.4 million
of revenue for the nine months ended September 30, 1995. In addition, for the
nine months ended September 30, 1996, net service revenues were adversely
affected by senior management's involvement in the negotiation of the Proposed
Transaction and, consequently, having less opportunity than in 1995 to devote to
marketing and operating the BioClin Group. The decrease was partially offset by
an increase in the scope and volume of clinical research services provided by
the BioClin Group during the first nine months of 1996.
Operating Expenses. Direct costs were $5,061,000 or 55% of net service
revenues for the nine months ended September 30, 1996 and $7,296,000 or 66% of
net service revenues for the same period in 1995. The decrease in these costs
for the nine month period ended September 30, 1996 versus the same period in
1995 was primarily due to the decision to discontinue providing services for
Phase I trials in the U.S., which amounted to approximately $3.2 million of
direct costs for the nine months ended September 30, 1995. The decrease in costs
as a percentage of revenue is primarily due to a base cost structure of
personnel and related infrastructure which supported a higher level of services
for Phase II and Phase III trials conducted during the first nine months of 1996
as compared to the first nine months of 1995.
Selling, general and administrative expenses were $3,453,000 for the nine
months ended September 30, 1996 versus $3,112,000 for the same period in 1995.
The increase in expenses was primarily the result of increased sales and
marketing and advertising costs and an increase in the number of administrative
personnel to service an increased level of business, other than with respect to
Phase I services in the U.S., in 1996 than in 1995.
Other Income (Expense). Interest expense was $544,000 for the nine months
ended September 30, 1996 as compared to $536,000 for the same period in 1995.
This modest change in interest expense was due primarily to the increase in
amounts outstanding under the BioClin Group's line of credit arrangements.
The BioClin Group recorded a foreign currency loss of $219,000 for the nine
month period ended September 30, 1995 and a foreign currency gain of $91,000 for
the nine months ended September 30, 1996, as a result of exchange rate
fluctuations between the German Mark and Swiss Franc associated with short-term
borrowings held by BioClin Germany and BioClin Institute and denominated in
Swiss Francs.
Taxes. The BioClin Group recorded provisions for income taxes of $5,000
and $61,000 for the nine month periods ended September 30, 1996 and 1995,
respectively, primarily associated with its European operations.
The impact from United States federal and state income taxes is currently
not significant due to the BioClin Group's net operating loss carryforwards of
approximately $3,200,000 for United States federal and state income tax
purposes. Such loss carryforwards expire through 2009. The BioClin Group also
has foreign net operating loss carryforwards of approximately $7,400,000 which
are available to reduce German taxable income, if any, indefinitely. The
management of the BioClin Group believes that the Proposed Transaction will have
an effect on the BioClin Group's ability to utilize the foregoing carryforwards.
74
<PAGE> 78
FISCAL YEAR RESULTS
Fiscal year ended December 31, 1995 as compared to the fiscal years ended
December 31, 1994 and December 31, 1993.
Revenues. Net service revenues were $14,286,000 for 1995 versus $9,659,000
and $7,175,000 for 1994 and 1993, respectively. The increase in revenues from
1994 to 1995 and from 1993 to 1994 was primarily a result of an increase in the
volume and scope of clinical research projects in both the U.S. and European
operations, the majority of which was related to a contract with the BioClin
Group's largest customer, and a favorable effect amounting to approximately
$943,000 for the year ended December 31, 1995 versus the same period in 1994
from the currency translation of the BioClin Group's European revenues from
German Marks and Swiss Francs to U.S. dollars. See Note 15 to the Combined
Financial Statements of the BioClin Group in "FINANCIAL STATEMENTS -- THE
BIOCLIN GROUP."
Operating Expenses. Direct costs were $8,456,000 or 59% of net service
revenues for 1995, compared with $7,528,000 or 78% of net service revenues for
1994. For 1993 direct costs were $6,072,000 or 85% of net service revenues. The
increase in these costs in 1995 versus 1994 was primarily due to an increase in
personnel in the European operations in response to additional business activity
partially offset by a decrease in personnel in the U.S. due to the decision in
1995 to discontinue providing Phase I services in the U.S. The increase in these
costs in 1994 versus 1993 was due primarily to an increase in personnel in
response to additional business in the European operations and Phase II and III
business in the U.S. The decrease in costs as a percent of revenues in 1995 from
1993 and 1994 is primarily due to a base cost structure of personnel and related
infrastructure which supported a higher level of services for Phase II and Phase
III trials conducted during 1995 as compared to 1994 and 1993.
Selling, general and administrative expenses increased 26% to $4,467,000 in
1995 from $3,537,000 in 1994, which increased 25% from $2,824,000 in 1993. The
increase in these expenses was primarily the result of an increase in business
development and administrative personnel, investments in information services
and advertising costs both in the U.S. and European operations.
Depreciation and amortization expense increased 22% to $445,000 in 1995
from $366,000 in 1994, which increased 54% from $237,000 in 1993. The increase
in such expenses was primarily due to an increase in information systems assets
which were utilized to establish and grow the Phase II through IV operations in
the U.S.
Other Income (Expense). Interest expense increased to $700,000 in 1995
from $599,000 in 1994, which increased from $450,000 in 1993 primarily as a
result of higher average balances outstanding under the BioClin Group's line of
credit arrangements.
The BioClin Group recorded foreign currency losses of $292,000, $25,000 and
$215,000 in 1995, 1994 and 1993, respectively, as a result of exchange rate
fluctuations between the German Mark and the Swiss Franc associated with
short-term borrowings held by BioClin Germany and BioClin Institute and
denominated in Swiss Francs.
Taxes. The BioClin Group recorded provisions for income taxes of $114,000,
$58,000 and $29,000 for 1995, 1994 and 1993, respectively, primarily associated
with its European operations.
The impact from United States federal and state income taxes is currently
not significant due to the BioClin Group's net operating loss carryforwards of
approximately $3,200,000 for United States federal and state income tax
purposes. Such loss carry forwards expire through 2009. The BioClin Group also
has foreign net operating loss carryforwards of approximately $7,400,000 which
are available to reduce German taxable income, if any, indefinitely. The
management of the BioClin Group believes that the Proposed Transaction will have
an effect on the BioClin Group's ability to utilize the foregoing carryforwards.
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<PAGE> 79
LIQUIDITY AND CAPITAL REQUIREMENTS
In anticipation of the trends in the CRO industry that are currently taking
place, the BioClin Group pursued in the early 1990's a strategy of investing in
information systems and data management capabilities and expanding of its Phase
II through Phase IV services as well as establishing its Phase I capabilities in
Europe. In addition to the cash need to finance this strategy, the BioClin
Group's other primary cash needs on both a short-term and long-term basis are
the payment of salaries, payment of subcontractors, including investigators and
CRAs, office rent and travel expenses. The BioClin Group elected to finance the
costs of these investments and the other costs by utilizing short-term
financings and letters of credit that are guaranteed by the major shareholders
of the BioClin Group. As a result of pursuing this strategy to finance its
operations, the BioClin Group had line of credit arrangements with U.S. and
non-U.S. banks totalling approximately $9.8 million and $9.7 million for the
year ended December 31, 1995 and the nine months ended September 30, 1996,
respectively. In addition, the BioClin Group had cash and marketable debt
securities at December 31, 1995 and September 30, 1996 of approximately $2.1
million and $1.9 million, respectively. As a result of this investment and
financing strategy, the BioClin Group believes that it is currently one of the
few medium-sized CROs that can provide comprehensive international clinical
trial services in competition with the larger full service global drug
development companies.
The BioClin Group's contracts usually require a portion of the contract
amount to be paid at or near the time the trial is initiated. Payments are
generally made upon the completion of negotiated performance requirements and,
to a lesser degree, on a date certain basis throughout the life of the contract.
The BioClin Group has experienced a trend, which it expects will continue, in
which clients place less emphasis on prepayments and greater emphasis on
negotiated performance requirements. As a result of this trend, the BioClin
Group anticipates its day sales outstanding in accounts receivables will
increase. Cash receipts generally do not, as a general rule, correspond to costs
incurred and revenue recognition, which is based on percentage of completion
accounting. Consequently, the BioClin Group's cash flow is influenced by the
interaction of changes in accounts receivable and advance billings.
At December 31, 1995, net cash on hand increased by approximately $131
thousand thereof compared to December 31, 1994. Net cash on hand decreased by
approximately $117 thousand at September 30, 1996 compared to December 31, 1995.
The increase in 1995 was primarily the result of cash generated from operations
offset by investments in the operation of the BioClin Group and payments of line
of credit arrangements. The decrease at September 30, 1996 is primarily due to
working capital fluctuations offset by additional utilization of line of credit
arrangements.
Capital expenditures have primarily been made for information system
upgrades and facility and computer equipment improvement and expansion. Capital
expenditures were $688 thousand in the year ended December 31, 1994 and $312
thousand in the year ended December 31, 1995 and $540 thousand for the nine
months ended September 30, 1996. Capital expenditures are estimated to be
approximately $800 thousand for fiscal 1996 for costs related to the expansion
of the United States and Europe information systems and data management
capabilities.
Debt. The BioClin Group has line of credit arrangements with U.S. and
non-U.S. banks totalling approximately $10.7 million at both December 31, 1995
and September 30, 1996. Amounts outstanding under the line of credit
arrangements amounted in the aggregate to approximately $9.8 million and $9.7
million at December 31, 1995 and September 30, 1996, respectively. Amounts
outstanding under this line of credit arrangements have been guaranteed by Mr.
Hackel and Dr. Barbut. One of the conditions to the Closing of the Proposed
Transaction is that such guaranties are extinguished. The line of credit
arrangements are payable on demand or due on various dates beginning in the
fourth quarter of 1996. See Note 6 to the BioClin Group Combined Financial
Statements included in "FINANCIAL STATEMENTS -- THE BIOCLIN GROUP." The line of
credit arrangements bear interest at local bank rates or LIBOR plus .5% to .75%
resulting in interest rates ranging from 6.47% to 10.25% at December 31, 1995
and 5.0% to 9.75% at September 30, 1996. Certain of such line of credit
arrangements are collateralized by standby letters of credit with U.S. and non-
U.S. banks aggregating approximately $5.5 million at both December 31, 1995 and
September 30, 1996. Each
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<PAGE> 80
standby letter of credit automatically renews for successive one year terms
unless the applicable bank notifies the BioClin Group within 30 days prior to
such automatic extension of its intention to terminate the letter.
Because the BioClin Group does not currently have sufficient cash to meet
its current obligations, cash to satisfy such obligations, including the
repayment of amounts due in 1996 under the line of credit arrangements, must be
obtained from the current shareholders and/or the incurrence of additional debt
guaranteed by such shareholders. Although such shareholders may have the
financial capability to fund the current obligations of the BioClin Group, there
is no assurance that such shareholders will provide such cash or that cash from
other shareholders will be available through the incurrence of additional debt
or otherwise.
EXCHANGE RATE FLUCTUATIONS
The BioClin Group's combined financial statements are denominated in U.S.
dollars and, accordingly, changes in the exchange rate between the German Mark
or Swiss Franc and the U.S. dollar will affect the translation of the BioClin
Group's revenues and operating results into U.S. dollars for purposes of
reporting the BioClin Group's combined financial results and also affect the
U.S. dollar amounts actually received by the domestic operations from the
European operations. Based on the assumption that the European operations
continues to represent a significant portion of the business of the BioClin
Group, the depreciation of the U.S. dollar against German Mark and Swiss Franc
would have a favorable impact on the BioClin Group's revenues and an unfavorable
impact on the BioClin Group's operating expenses due to the effect of such
currency translation on the European operations operating results; however, the
appreciation of the U.S. dollar against the German Mark and Swiss Franc would
have an unfavorable impact on the BioClin Group's revenues and a favorable
impact on the BioClin Group's operating expenses. The BioClin Group does not
currently hedge its currency translation exposure.
The BioClin Group's combined financial statements are denominated in U.S.
dollars and, accordingly, changes in the exchange rate between non-U.S.
currencies and the U.S. dollar will affect the translation on non-U.S. revenues
and operating results into U.S. dollars for purposes of reporting the BioClin
Group's combined financial results. The BioClin Group's non-U.S. operations
generally enter into contracts denominated in the local currency of such
operation. Because the non-U.S. operation's expenses are generally paid in the
local currency, such operation's local currency earnings are not materially
affected by fluctuations in exchange rates. However, changes in the exchange
rates between such local currencies and the U.S. dollar will affect the
translation of such operation's financial results into U.S. dollars for purposes
of reporting the BioClin Group's combined financial results. In cases where the
BioClin Group contracts for a multi-country clinical trial and a significant
portion of the contract expenses are in a currency other than the contract
currency, the BioClin Group seeks to require its client to incur the effect of
fluctuations in the relative values of the contract currency and the currency in
which the expenses are incurred. To the extent the BioClin Group is unable to
require its clients to incur the effects of currency fluctuations, these
fluctuations could have a material effect on the BioClin Group's results of
operations. The BioClin Group does not currently hedge against the risk of
exchange rate fluctuations.
The BioClin Group's European transactions denominated in Swiss Francs have
been translated from Swiss Francs into U.S. dollars using the following exchange
rates:
<TABLE>
<CAPTION>
SWISS FRANC U.S. DOLLAR PER
PERIOD PER U.S. DOLLAR SWISS FRANC
- --------------------- --------------- ---------------
<S> <C> <C>
1995 1.1740 .8518
1994 1.3580 .7364
1993 1.4802 .6756
1st nine months 1995 1.1804 .8472
1st nine months 1996 1.2270 .8150
</TABLE>
77
<PAGE> 81
The BioClin Group's European transactions denominated in German Marks have
been translated from German Marks into U.S. dollars using the following exchange
rates:
<TABLE>
<CAPTION>
GERMAN MARK U.S. DOLLAR PER
PERIOD PER U.S. DOLLAR GERMAN MARK
- --------------------- --------------- ---------------
<S> <C> <C>
1995 1.4263 .7011
1994 1.6113 .6206
1993 1.6601 .6024
1st nine months 1995 1.4251 .7017
1st nine months 1996 1.5033 .6652
</TABLE>
The rates in the above tables represent an average exchange rate calculated
using rates quoted in The Wall Street Journal.
The following table sets forth, for the fiscal years and nine month periods
indicated, the percentage of the BioClin Group's revenue from operations
recorded in Swiss Francs and German Marks based on the average rates for the
period indicated in the conversion tables above:
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
TOTAL NET REVENUES TOTAL NET REVENUES
PERIOD IN SWISS FRANCS IN GERMAN MARKS
- --------------------- ------------------ ------------------
<S> <C> <C>
1995 30.4% 21.6%
1994 18.6% 24.6%
1993 15.8% 9.1%
1st nine months 1995 23.5% 22.7%
1st nine months 1996 37.2% 31.2%
</TABLE>
INFLATION
The BioClin Group believes that inflation has not had a material impact on
its results of operations.
78
<PAGE> 82
UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial information
gives effect to the Proposed Transaction, including the issuance by the Company
of 2,632,600 shares of Common Stock in connection with the acquisition by the
Company of all of the outstanding capital stock of, and equity interests in, the
BioClin Group, using the "pooling-of-interests" method of accounting, but
without giving effect to costs and expenses associated with the consummation of
the Proposed Transaction, which currently are estimated to range between $2.0
million and $2.5 million. The unaudited pro forma combined condensed balance
sheet combines the condensed balance sheets of the Company and the BioClin Group
as of September 30, 1996. The unaudited pro forma combined condensed statements
of operations combine historical condensed statements of operations of the
Company and the BioClin Group for the nine month periods ended September 30,
1996 and 1995 and for the years ended December 31, 1995, 1994 and 1993. The
unaudited pro forma combined condensed balance sheet is presented as if the
Proposed Transaction occurred on the date thereof. The unaudited pro forma
combined condensed statements of operations are presented as if the Proposed
Transaction occurred at the beginning of the earliest period presented. The
consummation of the Proposed Transaction is subject to a number of conditions.
There can be no assurance as to when, if at all, the conditions with respect to
the Proposed Transaction will be satisfied or waived. See "TRANSACTION
AGREEMENTS -- Conditions to Closing."
The unaudited pro forma combined condensed financial information is not
necessarily indicative of the results of operations or the financial condition
that would have been reported had the Proposed Transaction been in effect during
those periods, or as of those dates, or that may be reported in the future. The
unaudited pro forma combined condensed financial information should be read in
conjunction with the information appearing in "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "FINANCIAL
STATEMENTS" for each of the Company and the BioClin Group included elsewhere in
this Proxy Statement.
79
<PAGE> 83
DNX CORPORATION AND SUBSIDIARIES
AND THE BIOCLIN GROUP
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------------------
PRO
BIOCLIN PRO FORMA FORMA
DNX GROUP ADJUSTMENTS COMBINED
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................... $ 15,456 1,009 16,465
Short-term investments....................... 5,233 -- 5,233
Marketable debt securities................... -- 361 361
Trade accounts receivable, net............... 7,167 3,986 11,153
Prepaid expenses and other current assets.... 983 378 1,361
-------- -------- ----- --------
Total current assets................. 28,839 5,734 -- 34,573
Property and equipment, net.................... 15,190 1,040 16,230
Intangible assets.............................. 964 -- 964
Marketable debt securities..................... -- 503 503
Other assets................................... 797 832 1,629
Restricted cash................................ 460 -- 460
-------- -------- ----- --------
$ 46,250 8,109 -- 54,359
======== ======== ===== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings........................ -- 9,683 9,683
Current portion of long-term debt............ 246 -- 246
Note payable -- related party................ -- 300 300
Accounts payable............................. 2,455 1,791 4,246
Accrued expenses............................. 3,533 2,810 6,343
Deferred revenues............................ 2,598 3,472 6,070
-------- -------- ----- --------
Total current liabilities............ 8,832 18,056 -- 26,888
Long-term debt, excluding current portion...... 7,431 -- 7,431
Deferred income taxes.......................... 1,779 -- 1,779
Other liabilities.............................. 876 103 979
-------- -------- ----- --------
Total liabilities.................... 18,918 18,159 -- 37,077
-------- -------- ----- --------
Stockholders' equity
Serial preferred stock....................... -- 1 (1) --
Common stock................................. 87 191 (165) 113
Additional paid-in-capital................... 57,157 125 166 57,448
Foreign currency translation adjustment...... 640 (139) 501
Employee stock purchase loans................ -- (86) (86)
Accumulated deficit.......................... (30,552) (10,219) (40,771)
Net unrealized gain on marketable debt
securities................................ -- 77 77
-------- -------- ----- --------
Total stockholders' equity........... 27,332 (10,050) -- 17,282
-------- -------- ----- --------
$ 46,250 8,109 -- 54,359
======== ======== ===== ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
80
<PAGE> 84
DNX CORPORATION AND SUBSIDIARIES
AND THE BIOCLIN GROUP
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------------
BIOCLIN PRO FORMA PRO FORMA
DNX GROUP ADJUSTMENTS COMBINED
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues...................................... $21,957 9,155 31,112
Operating expenses:
Direct costs.................................... 16,966 5,061 (1,560) 20,467
Research and development........................ 329 -- (4) 325
General, administrative and marketing........... 4,530 3,453 (158) 7,825
Depreciation and amortization................... -- 328 1,722 2,050
------- ------ ------- -------
21,825 8,842 -- 30,667
------- ------ ------- -------
Income from operations............................ 132 313 -- 445
Other income (expense)............................ 618 (294) 324
------- ------ ------- -------
Income before income taxes........................ 750 19 -- 769
Income tax expense................................ 454 5 459
------- ------ ------- -------
Net income........................................ 296 14 -- 310
======= ====== ======= =======
Earnings per common and common equivalent share
Primary...................................... $ 0.03 0.03
======= =======
Fully Diluted................................ $ 0.03 0.03
======= =======
Shares used in computing per share amounts
Primary...................................... 9,287 11,920
======= =======
Fully Diluted................................ 9,343 11,976
======= =======
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
81
<PAGE> 85
DNX CORPORATION AND SUBSIDIARIES
AND THE BIOCLIN GROUP
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
-------------------------------------------------
BIOCLIN PRO FORMA PRO FORMA
DNX GROUP ADJUSTMENTS COMBINED
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues...................................... 19,101 11,032 30,133
Operating expenses:
Direct costs.................................... 15,529 7,296 (1,606) 21,219
Research and development........................ 773 -- (29) 744
General, administrative and marketing........... 4,600 3,112 (282) 7,430
Depreciation and amortization................... -- 343 1,917 2,260
------- ------ ------- -------
20,902 10,751 -- 31,653
------- ------ ------- -------
Income (loss) from operations..................... (1,801) 281 -- (1,520)
Other income (expense)............................ 107 (703) (596)
------- ------ ------- -------
Loss before equity in net loss of Nextran, gain on
sale of Nextran and income taxes................ (1,694) (422) -- (2,116)
Equity in net loss of Nextran..................... 2,700 -- 2,700
Gain on sale of Nextran........................... 17,266 -- 17,266
Income tax expense (benefit)...................... (45) 61 16
------- ------ ------- -------
Net income (loss)................................. $12,917 (483) -- 12,434
======= ====== ======= =======
Earnings per common and common equivalent share
Primary......................................... $ 1.43 1.07
======= =======
Fully Diluted................................... $ 1.43 1.06
======= =======
Shares used in computing per share amounts
Primary......................................... 9,018 11,651
======= =======
Fully Diluted................................... 9,056 11,689
======= =======
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
82
<PAGE> 86
DNX CORPORATION AND SUBSIDIARIES
AND THE BIOCLIN GROUP
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------
BIOCLIN PRO FORMA PRO FORMA
DNX GROUP ADJUSTMENTS COMBINED
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues..................................... $25,323 14,286 39,609
Operating expenses:
Direct costs................................... 21,323 8,456 (2,088) 27,691
Research and development....................... 1,095 -- (32) 1,063
General, administrative and marketing.......... 5,506 4,467 (342) 9,631
Depreciation and amortization.................. -- 445 2,462 2,907
------- ------ ------- -------
27,924 13,368 -- 41,292
------- ------ ------- -------
Income (loss) from operations.................... (2,601) 918 -- (1,683)
Other income (expense)........................... 310 (945) (635)
------- ------ ------- -------
Loss before equity in net loss of Nextran, gain
on sale of Nextran and income taxes............ (2,291) (27) -- (2,318)
Equity in net loss of Nextran.................... 2,700 -- 2,700
Gain on sale of Nextran.......................... 17,266 -- 17,266
Income tax expense (benefit)..................... (291) 114 (177)
------- ------ ------- -------
Net income (loss)................................ $12,566 (141) -- 12,425
======= ====== ======= =======
Earnings per common and common equivalent
share.......................................... $ 1.39 1.06
======= =======
Shares used in computing per share amounts....... 9,042 11,675
======= =======
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
83
<PAGE> 87
DNX CORPORATION AND SUBSIDIARIES
AND THE BIOCLIN GROUP
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-------------------------------------------------
BIOCLIN PRO FORMA PRO FORMA
DNX GROUP ADJUSTMENTS COMBINED
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues..................................... $26,529 9,659 36,188
Operating expenses:
Direct costs................................... 19,981 7,528 (2,010) 25,499
Research and development....................... 4,359 -- (419) 3,940
General, administrative and marketing.......... 7,237 3,537 (799) 9,975
Depreciation and amortization.................. -- 366 3,228 3,594
------- ------ ------- -------
31,577 11,431 -- 43,008
------- ------ ------- -------
Loss from operations............................. (5,048) (1,772) -- (6,820)
Other income (expense)........................... 30 (555) (525)
------- ------ ------- -------
Loss before equity in net loss of Nextran and
income taxes................................... (5,018) (2,327) -- (7,345)
Equity in net loss of Nextran.................... 1,329 -- 1,329
Income tax expense............................... 332 58 390
------- ------ ------- -------
Net loss......................................... $(6,679) (2,385) -- (9,064)
======= ====== ======= =======
Loss per common and common equivalent share...... $ (0.76) (0.80)
======= =======
Shares used in computing per share amounts....... 8,755 11,388
======= =======
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
84
<PAGE> 88
DNX CORPORATION AND SUBSIDIARIES
AND THE BIOCLIN GROUP
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
--------------------------------------------------
BIOCLIN PRO FORMA PRO FORMA
DNX GROUP ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues.................................... $ 23,719 7,175 30,894
Operating expenses:
Direct costs.................................. 17,902 6,072 (1,632) 22,342
Research and development...................... 11,134 -- (1,258) 9,876
General, administrative and marketing......... 7,247 2,824 (556) 9,515
Depreciation and amortization................. -- 237 3,446 3,683
Special charge................................ 7,095 -- 7,095
------- ------ ------- -------
43,378 9,133 -- 52,511
------- ------ ------- -------
Loss from operations............................ (19,659) (1,958) -- (21,617)
Other income (expense).......................... 220 (451) (231)
------- ------ ------- -------
Loss before income taxes........................ (19,439) (2,409) -- (21,848)
Income tax expense (benefit).................... (50) 28 (22)
------- ------ ------- -------
Net loss........................................ $(19,389) (2,437) -- (21,826)
======= ====== ======= =======
Loss per common and common equivalent share..... $ (2.23) (1.93)
======= =======
Shares used in computing per share amounts...... 8,700 11,333
======= =======
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
85
<PAGE> 89
DNX CORPORATION AND SUBSIDIARIES
AND THE BIOCLIN GROUP
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) PRO FORMA ADJUSTMENTS
The pro forma stockholders' equity accounts of the Company and the BioClin
Group as of September 30, 1996 have been adjusted to reflect the issuance by the
Company of 2,632,600 shares of Common Stock in connection with the acquisition
by the Company of all of the outstanding capital stock of, and equity interests
in, the BioClin Group pursuant to the Transaction Agreements.
The historical statements of operations of the Company reflect depreciation
and amortization in direct costs, research and development and general,
administrative and marketing expenses, as appropriate. The historical statements
of operations of the BioClin Group reflect depreciation and amortization as a
separate line item. The pro forma combined condensed statements of operations
reflect a pro forma adjustment to reclassify the Company's depreciation and
amortization previously reported in direct costs, research and development and
general, administrative and marketing expenses to a separate line item,
consistent with CRO industry standards.
The unaudited pro forma data are presented for information purposes only
and do not give effect to any synergies that may occur due to the integration of
the BioClin Group with the Company's existing operations. Additionally, the
adjustments to the unaudited pro forma combined condensed statements of
operations do not include costs and expenses associated with the Proposed
Transaction which are currently estimated to range between $2.0 million and $2.5
million. Accordingly, the pro forma data are not necessarily indicative of the
operating results or financial position that would have occurred had the
Proposed Transaction been consummated at the dates indicated, nor necessarily
indicative of future operating results or financial position.
(2) PRO FORMA PER SHARE DATA
The unaudited pro forma per share data are based on the weighted average
number of shares of Common Stock that would have been outstanding had the
Proposed Transaction occurred at the beginning of the earliest period presented,
including the issuance by the Company of 2,632,600 shares of Common Stock in
connection with the acquisition by the Company of all of the outstanding capital
stock of, and equity interests in, the BioClin Group pursuant to the Transaction
Agreements.
86
<PAGE> 90
MARKET PRICE AND DIVIDEND DATA
As of the close of business on November 1, 1996, there were approximately
2,980 holders of record of the Common Stock. The Company has not declared or
paid any cash dividends on shares of its equity securities, including Common
Stock, since its incorporation in 1988. The Company currently intends to retain
its earnings, if any, to finance its future development and growth and therefore
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future.
The Common Stock is traded on The NASDAQ National Market. The symbol is
"DNXX." In the event that the Proposed Transaction is consummated, the Company
proposes to have the Common Stock traded on NASDAQ under the symbol "CRLS." See
"APPROVAL OF NAME CHANGE."
The Company's Common Stock commenced trading on December 11, 1991. On
November 7, 1996, the reported closing price of the Common Stock on NASDAQ was
$4 5/8 per share. The table below sets forth the high and low closing prices for
the fiscal quarter indicated as reported on NASDAQ.
<TABLE>
<CAPTION>
QUARTER HIGH LOW
- ------------------------------------- ---- ----
<S> <C> <C>
1994
1st................................ 4 3/4 3
2nd................................ 4 3/4 3 5/8
3rd................................ 5 3/4 3 11/16
4th................................ 5 1/2 4 1/4
1995
1st................................ 5 1/8 3 3/8
2nd................................ 4 1/8 3 1/4
3rd................................ 4 1/2 2 7/8
4th................................ 4 7/16 3 3/8
1996
1st................................ 5 3/4 3 1/2
2nd................................ 8 1/2 4 1/4
3rd................................ 6 5/8 4 5/8
4th (through November 7, 1996)..... 4 5/8 4
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL
OF THE ISSUANCE BY THE COMPANY OF 2,632,600 SHARES OF COMMON STOCK PURSUANT TO
THE TRANSACTION AGREEMENTS.
87
<PAGE> 91
PROPOSAL 2: ELECTION OF DIRECTORS
GENERAL
The Company's Certificate provides that the Board of Directors will be
divided into three classes of Directors, with each class to be as nearly equal
in number of Directors as possible. At each annual stockholders' meeting,
Directors are elected for a term of three years and hold office until their
successors are elected and qualified or until their earlier removal or
resignation. Mr. Roj, a Director since April 1995, has submitted his resignation
from the Board of Directors, effective September 6, 1996. Accordingly, and in
accordance with the Company's Bylaws, the Board of Directors has reduced the
number of Directors to six. The Board of Directors has nominated Mr. John K.
Clarke and Mr. Desmond H. O'Connell to be elected as members of Class II for a
term of office which will expire at the 1999 annual meeting. If the nominees
become unavailable for any reason or should a vacancy occur before the election
(which events are not anticipated), the person named on the enclosed proxy card
may substitute another person as a nominee. Class I consists of Mr. Paulson and
Dr. Thompson, and their term of office will expire at the 1998 annual meeting.
Class III consists of Mr. Schmitt and Dr. Treu and their term of office will
expire at the 1997 annual meeting. Dr. Treu has informed the Company that he
presently intends to resign as a Director immediately after the consummation of
the Proposed Transaction. See "-- Information Concerning Nominees -- The BioClin
Group Nominees."
INFORMATION CONCERNING NOMINEES
Information regarding the continuing Directors and the nominees is set
forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------- --- ------------------------------------
<S> <C> <C>
Paul J. Schmitt(3)............................... 45 Chairman of the Board of Directors;
President and Chief Executive
Officer
Jesse I. Treu, Ph.D.(1)(2)(3).................... 49 Director
John K. Clarke(1)(2)............................. 43 Director nominee
Desmond H. O'Connell, Jr.(1)(2)(3)............... 60 Director nominee
Photios T. Paulson............................... 57 Director
W. Leigh Thompson................................ 58 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee.
DIRECTOR NOMINEES
JOHN K. CLARKE has served as a Director of the Company since March 1988. He
is a General Partner in DSV Management, the general partner of DSV Partners IV,
a professional venture capital partnership. He has been associated with DSV
Management since 1982. Mr. Clarke is a Director of Alkermes, Inc. and several
privately held companies. Mr. Clarke received his B.A. degree from Harvard
College and his M.B.A. degree from the Wharton School, University of
Pennsylvania.
DESMOND H. O'CONNELL, JR. has served as a Director of the Company since
April 1991. From December 1992 until December 1993, he served as the Chairman,
Management Committee of Pharmakon. During 1991, he briefly served as Chairman of
the Board and Chief Executive Officer of Osteotech, Inc., a medical products
company. Since September 1990, he has been an independent management consultant.
From April 1990 until September 1990, Mr. O'Connell was President and Chief
Executive Officer of BOC Health Care. He is a Director of Abiomed, Inc. Mr.
O'Connell received a B.S. degree from the University of Notre Dame and received
an M.B.A. degree from Harvard University.
88
<PAGE> 92
CONTINUING DIRECTORS
CLASS I
PHOTIOS T. PAULSON, DIRECTOR. Mr. Paulson is a Vice President of
bioMerieux Alliance S.A., a French holding company whose businesses include
Clinical Laboratory Diagnostics and Biotechnology Research in Genetic Therapy.
From 1991 to 1995, he was Chairman of bioMerieux Vitek, Inc., a diagnostics
systems company. Between 1987 and 1991, Mr. Paulson was Senior Advisor of Health
Care Industry for Prudential Securities Inc. Prior to 1987, Mr. Paulson had a
long career with Becton Dickinson and Company. Mr. Paulson received his B.S. and
M.S. degrees from Stevens Institute of Technology. Mr. Paulson's current
three-year term as a Director will expire in 1998.
W. LEIGH THOMPSON, PH.D., M.D., DIRECTOR. Dr. Thompson is Chief Executive
Officer of Profound Quality Resources, Ltd., a consulting firm and a director of
various privately held companies. From 1982 to 1994, Dr. Thompson was an
employee of Eli Lilly and Company holding positions including Executive Vice
President of Lilly Research Laboratories and corporate Chief Scientific Officer.
He is a Fellow of the American College of Physicians and the American College of
Critical Care Medicine and served as President of the Society of Critical Care
Medicine. Dr. Thompson received his M.S. and Ph.D. (Pharmacology) degrees and an
honorary Sc.D. from the Medical University of South Carolina. Dr. Thompson's
current three-year term as a Director will expire in 1998.
CLASS III
PAUL J. SCHMITT, DIRECTOR, CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER. Mr. Schmitt has served as Chairman of the Board of Directors
since October 1994. Mr. Schmitt joined the Company as President and Chief
Executive Officer in November 1988. Mr. Schmitt was elected as a Director of the
Company in November 1988. From May 1986 to October 1988, Mr. Schmitt was
President of Biolectron, Inc., a medical device company. Prior to joining
Biolectron, Mr. Schmitt was with the BOC Group, PLC, an industrial gas and
health care company, where, from October 1981 until May 1986, he served as Vice
President and General Manager in BOC's health care group. Mr. Schmitt received
his B.S. degree in finance from Lehigh University and his M.B.A. degree from
Rutgers University. Mr. Schmitt's current three-year term as a Director will
expire in 1997.
JESSE I. TREU, PH.D., DIRECTOR. Dr. Treu served as Chairman of the Board
of Directors from March 1988 until October 1994. He has been a General Partner
of Domain Associates, a professional venture capital partnership specializing in
life science companies, since 1986. Dr. Treu has been President of several
venture stage companies and also has had nine years of management experience at
General Electric Company and Technicon Corporation, a medical products company.
He is director of Geltex Pharmaceuticals, Inc. and Lumisys, Inc. and several
privately held companies. Dr. Treu received his B.S. degree from Rensselaer
Polytechnic Institute and his M.A. and Ph.D. degrees from Princeton University.
Dr. Treu's current three-year term as a Director will expire in 1997.
THE BIOCLIN GROUP NOMINEES
In connection with the Proposed Transaction, pursuant to the Stockholders'
Agreement, it is contemplated that immediately following the Closing the Company
will increase its Board of Directors to seven members and elect Dr. Barbut as a
Class I Director to serve until the stockholders' meeting in 1998. Upon the
earlier to occur of March 31, 1997 or the next vacancy on the Board of
Directors, if necessary, the Board of Directors will be increased to eight
members, and Dr. Jensen will be elected as a Class III Director to serve until
the stockholders' meeting in 2000, or as a Director of the class in which the
vacancy occurred, as the case may be. Although Dr. Treu has not formally
tendered his resignation as a Director of the Company, Dr. Treu has informed the
Company that he presently intends to resign as a Director of the Company
immediately after the consummation of the Proposed Transaction. Pursuant to the
Stockholders' Agreement, upon such resignation of Dr. Treu, if any, the Board of
Directors will, in accordance with the Bylaws, elect Dr. Jensen as
89
<PAGE> 93
a Class III Director to fill the vacancy created on the Board of Directors as a
result of the resignation of Dr. Treu. No such resignation will become effective
until the Chairman of the Board receives a written resignation from Dr. Treu.
There can be no assurance that Dr. Treu will submit such a written resignation.
See "THE STOCKHOLDERS' AGREEMENT -- Director Designation." Information regarding
Dr. Barbut and Dr. Jensen is set forth below:
JACK BARBUT, SC.D. In 1979, Dr. Barbut founded the BioClin Group,
initially in Switzerland. He has served as Chairman and Chief Executive Officer
of the BioClin U.S. since its organization in 1988 and oversees the operations
of the other companies comprising the BioClin Group. Dr. Barbut received his
Sc.D. degree in systems engineering from The Polytechnic Institute in Lausanne,
Switzerland. Following the Closing, Dr. Barbut will be appointed as Vice
Chairman and President -- Clinical Services of the newly combined company as
well as President of BioClin Institute and will be elected to the Board of
Directors.
J. CHRISTIAN JENSEN, PH.D. Dr. Jensen joined the BioClin Group in 1991 and
currently serves as President of BioClin Europe and Chief Operating Officer of
the BioClin Group. Previously, he served as President and Scientific Director of
BioClin Institute in Dusseldorf, Germany. Dr. Jensen has served as Human
Pharmacology Expert from 1989 to 1991 and Pharmacological and Medical Expert
from 1986 to 1989 at Sandoz Pharma Ltd. From 1981 to 1986 he was a
pharmacologist and toxicologist at the University of Bonn Medical Clinics. In
1986, Dr. Jensen became an associate professor of Clinical Pharmacology at the
University of Bonn. Dr. Jensen received his B.S. degree in Biology from Baker
University and received a Ph.D. degree in pharmacology and toxicology from the
University of Kansas. Following the Closing, Dr. Jensen will be appointed as
President -- International Services in the newly combined company and will be
elected to the Board of Directors by March 31, 1997.
DIRECTORS MEETINGS AND COMMITTEES
The Audit Committee recommends to the Board of Directors, subject to
stockholder approval, the selection of the Company's independent certified
public accountants. The Audit Committee discusses with the Company's management
and the Company's independent certified public accountants the overall scope and
specific plans for the accountants' audit. The Audit Committee meets annually
with the Company's senior management and independent public accountants to
discuss the results of the accountants' examination and the Company's systems,
controls and reporting. The Audit Committee held one meeting in 1995.
The Compensation Committee reviews executive compensation, fixes
compensation of the executive officers and incentive compensation, recommends
the adoption of and administers executive benefit plans and grants stock
options. The Compensation Committee held ten meetings in 1995.
The Nominating Committee considers and reviews the qualifications of
potential nominees for Directors and nominates a slate of nominees for election
as Directors at the Annual Meeting of Stockholders and, when in certain
circumstances vacancies occur, candidates for election by the Board of
Directors. The Nominating Committee held three meetings in 1995. The Nominating
Committee is normally able to identify from its own resources the names of
qualified nominees, but it will accept from stockholders recommendations of
individuals to be considered as nominees. Any such nominations should be
submitted in writing to the Company at 575 Route 28, Raritan, New Jersey 08869,
Attention: Corporate Secretary.
The Board of Directors held nine meetings in 1995. All of the Directors,
other than Mr. Roj who attended only four meetings, attended at least
seventy-five percent (75%) of the total meetings held by the Board of Directors
and by the Committees on which they served during 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Treu, Chairman of the Compensation Committee, also served as an
executive officer of the Company as a result of being the Chairman of the Board
of Directors until October 1994. Dr. Treu is not an employee of the Company, was
not paid a retainer for his services as Chairman of the Board of Directors and
is not involved in the day-to-day management of the Company.
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<PAGE> 94
COMPENSATION OF DIRECTORS
The Directors of the Company do not receive annual retainers, meeting fees
or other cash compensation of any kind for their service as Directors, but are
reimbursed for their travel expenses in attending meetings. Directors who are
not employees of the Company or any of its subsidiaries receive certain
automatic grants of stock options under the Company's 1991 Stock Option Plan.
See "EXECUTIVE COMPENSATION -- Stock Options" and "APPROVAL OF AMENDMENTS TO
1991 STOCK OPTION PLAN" for additional information regarding such grants. In
addition, Directors who are not employees of the Company or any of its
subsidiaries will receive automatic grants of stock options pursuant to the
Company's 1996 Stock Option Plan. See "APPROVAL OF ADOPTION OF 1996 STOCK OPTION
PLAN" for information regarding such grants.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT BY OFFICERS, DIRECTORS AND 10%
STOCKHOLDERS
Section 16(a) of the Exchange Act requires the Company's Directors and
executive officers, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities, to file with the Commission
initial reports of beneficial ownership and reports of changes in beneficial
ownership of the Company's Common Stock and other equity securities of the
Company. The rules promulgated by the Commission under Section 16(a) of the
Exchange Act require those persons to furnish the Company with copies of all
reports filed with the Commission pursuant to Section 16(a).
Reports received by the Company indicate that Mr. Roj failed to timely file
a Form 3 in 1995.
91
<PAGE> 95
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 1, 1996, by (i) each of
those persons known to the Company to be a beneficial owner of more than five
percent of the Common Stock, (ii) each of the Company's Directors and the Named
Executive Officers (as defined in "EXECUTIVE COMPENSATION -- Summary
Compensation Table") and (iii) all Directors and executive officers of the
Company as a group. All information with respect to beneficial ownership by the
Directors, officers and beneficial owners has been furnished by the respective
Director, officer or beneficial owner, as the case may be. Unless otherwise
indicated below, the persons named below have sole voting and investment power
with respect to the number of shares set forth opposite their names. The
information contained herein regarding share ownership of persons beneficially
owning five percent or more of the Common Stock other than officers and
Directors was obtained from required filings of such persons with the Securities
and Exchange Commission.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAMES AND ADDRESSES OF COMMON COMMON STOCK
BENEFICIAL OWNERS STOCK(1) BENEFICIALLY OWNED
- ------------------------------------------------------ ---------------- ------------------
<S> <C> <C>
BVF Partners, L.P.
333 West Wacker Drive
Suite 1600
Chicago, IL 60606 545,345 6.3%
Venrock Associates
30 Rockefeller Plaza, 55th Floor
New York, NY 10112 514,600 5.9%
Patricof & Co. Ventures, Inc.
445 Park Avenue
New York, NY 10022 500,000(2) 5.7%
DSV Partners IV
221 Nassau Street
Princeton, NJ 08542 465,833 5.3%
John K. Clarke 487,555(3) 5.6%
Jesse I. Treu, Ph.D. 323,054(4) 3.7%
Desmond H. O'Connell 48,609(5) *
Photios T. Paulson 15,055(6) *
W. Leigh Thompson Ph.D., M.D. 8,685(7) *
Paul J. Schmitt 340,869(8) 3.8%
Leif Modeweg, D.V.M. 89,212(9) *
John G. Cooper 160,701(10) 1.8%
All Directors and executive officers as a group (8
persons) 1,473,740(11) 15.7%
</TABLE>
- ---------------
* Less than one percent.
(1) Shares identified in the footnotes below which are subject to exercisable
options were deemed to be outstanding as of September 1, 1996, for purposes
of Rule 13d-3 under the Exchange Act.
(2) Includes 348,968 shares of Common Stock owned by APA Excelsior III, L.P.,
133,032 shares of Common Stock owned by Coutts & Company (Jersey) Ltd., as
Custodian for APA Excelsior III/Offshore, L.P. and 18,000 shares of Common
Stock owned by CIN Venture Nominees, Ltd. The general partner for each of
APA Excelsior III, L.P. and APA Excelsior III/Offshore, L.P. is APA
Excelsior III Partners, L.P. Patricof & Co. Ventures, Inc. may be deemed to
beneficially own these
92
<PAGE> 96
shares because it is affiliated with these entities. Patricof & Co.
Ventures, Inc. disclaims beneficial ownership of such shares.
(3) Includes 465,833 shares of Common Stock owned by DSV Partners IV. Mr.
Clarke is a general partner of DSV Management Ltd., the sole general
partner of DSV Partners IV. Mr. Clarke is one of four general partners who
share voting and investment control over DSV Management. Mr. Clarke
disclaims beneficial ownership of such shares. Also includes 21,722 shares
of Common Stock which Mr. Clarke had the right to acquire upon the exercise
of stock options within 60 days after September 1, 1996. Certain of such
options are subject to stockholder approval. See "APPROVAL OF AMENDMENTS TO
1991 STOCK OPTION PLAN."
(4) Includes 297,833 shares of Common Stock beneficially owned by Domain
Partners, L.P. Dr. Treu is a general partner of One Palmer Square
Associates, L.P., the general partner of Domain Partners, L.P., and has an
indirect beneficial interest in these shares. Also includes 25,221 shares
of Common Stock which Dr. Treu had the right to acquire upon the exercise
of stock options within 60 days after September 1, 1996. Certain of such
options are subject to stockholder approval. See "APPROVAL OF AMENDMENTS TO
1991 STOCK OPTION PLAN."
(5) Includes 13,389 shares of Common Stock which Mr. O'Connell had the right to
acquire upon the exercise of stock options within 60 days after September
1, 1996. Certain of such options are subject to stockholder approval. See
"APPROVAL OF AMENDMENTS TO 1991 STOCK OPTION PLAN."
(6) Includes 12,055 shares of Common Stock which Mr. Paulson had the right to
acquire upon the exercise of stock options within 60 days after September
1, 1996. Certain of such options are subject to stockholder approval. See
"APPROVAL OF AMENDMENTS TO 1991 STOCK OPTION PLAN."
(7) Includes 8,685 shares of Common Stock which Dr. Thompson had the right to
acquire upon the exercise of stock options within 60 days after September
1, 1996. Certain of such options are subject to stockholder approval. See
"APPROVAL OF AMENDMENTS TO 1991 STOCK OPTION PLAN."
(8) Includes 337,349 shares of Common Stock which Mr. Schmitt had the right to
acquire upon the exercise of stock options within 60 days after September
1, 1996.
(9) Includes 89,212 shares of Common Stock which Dr. Modeweg had the right to
acquire upon the exercise of stock options within 60 days after September
1, 1996.
(10) Includes 157,620 shares of Common Stock which Mr. Cooper had the right to
acquire upon the exercise of stock options within 60 days after September
1, 1996.
(11) Includes 665,253 shares of Common Stock which all Directors and executive
officers, as a group, had the right to acquire upon the exercise of stock
options within 60 days after September 1, 1996. As of the Record Date,
based upon records of the Company, all Directors and executive officers, as
a group, beneficially owned 1,501,369 shares of Common Stock, or 15.9% of
the outstanding Common Stock.
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<PAGE> 97
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
REPORT OF THE COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is responsible for developing and making recommendations to the
Board of Directors with respect to the Company's executive compensation
policies. In addition, the Compensation Committee, pursuant to authority
delegated by the Board of Directors, determines on an annual basis the
compensation to be paid to the Chief Executive Officer ("CEO"), each of the
other executive officers of the Company and employees with salaries in excess of
$100,000. The Compensation Committee is composed of Mr. Clarke, Mr. O'Connell
and Dr. Treu. Dr. Treu serves as the Chairman of the Compensation Committee.
Each member of the Compensation Committee is a Nonemployee Director (as defined
in "APPROVAL OF AMENDMENTS TO 1991 STOCK OPTION PLAN").
This Report sets forth policies used by the Compensation Committee in
determining the compensation paid by the Company to its executive officers,
including the Named Executive Officers (as defined in "-- Summary Compensation
Table").
Compensation Philosophy and Overall Objectives of Executive Compensation
Programs. The overall compensation philosophy of the Company is to ensure that
executive officer compensation, both in the short and long term, will promote
the long-term objectives of the Company by attracting and retaining superior
talent and rewarding performance. The Company's compensation is structured to
create a mutuality of interest between executive officers and long-term
stockholders through programs that share the rewards and risks of strategic
decision making.
The Compensation Committee believes that the Company's executive
compensation program provides an overall level of compensation that is
competitive within the health care industry, primarily the CRO sector, and
recognizes the increasing responsibility of executive officers as the Company
grows. In establishing base salaries, cash bonuses, and incentive compensation
programs, the Compensation Committee assesses periodic compensation surveys. The
executive officers' compensation is compared to peer executive groups surveyed
as a guideline for compensation levels. Although the Compensation Committee uses
the average compensation levels reported in the surveys as targets, actual
compensation levels may be greater or less than average competitive levels in
surveyed companies based on the performance of the Company and the individual.
The Company's basic executive officer compensation package is comprised of
base salary, cash bonuses, long-term incentive compensation in the form of stock
options, and various other benefits which are generally available to employees
of the Company.
Compensation decisions are determined in a structured annual review by the
Compensation Committee with input from the CEO in all determinations other than
his own. This annual review considers the decision making responsibilities of
each position and the individual's experience, work performance, and progress
toward Company objectives. The Compensation Committee has discounted the
Comparative Stock Performance Graph below in its decisions on compensation,
because the Compensation Committee believes the Company stock performance is
only of limited applicability as a measure of the Company's performance. See "--
Comparative Stock Performance Graph."
The Compensation Committee has reviewed the proposed regulations under the
federal income tax legislation adopted during 1993 that limits the deductibility
of certain executive compensation in excess of $1 million and has determined
that any nondeductible payments under the Company's existing compensation
programs would be highly unlikely.
Base Compensation. The Compensation Committee is cognizant and responsive
to growing levels of executive responsibility as the size and complexity of the
Company increases. Since the base salary is a critical component of the
Company's success in attracting and retaining key executives, the Compensation
Commit-
94
<PAGE> 98
tee seeks to maintain base compensation levels competitive to average
compensation levels for executive peer groups within the health care industry,
primarily the CRO sector.
In 1995, the average base salaries of the Named Executive Officers other
than the CEO, when translated, where appropriate, to U.S. dollars increased
14.6%. Such increase was heavily impacted by the translation of Dr. Modeweg's
base compensation from French Francs to U.S. dollars. Excluding the impact of
translating Dr. Modeweg's base compensation, in 1994 and 1995, respectively,
from French Francs to U.S. dollars, the increase for Named Executive Officers,
other than the CEO, was 8.1%. Such increase primarily reflects Dr. Modeweg's
promotion in the third quarter of 1994 to reflect worldwide responsibilities as
President of Pharmakon Research International.
Cash Bonuses. The Compensation Committee adopted a bonus plan for the
executive officer group for 1995 performance with payout determinations under
such plan primarily based on the achievement of financial performance targets
and secondarily to individual performance objectives -- both focused on
increasing stockholder value. No bonus payments under the 1995 plan were made to
the Named Executive Officers as both management and the Compensation Committee
were unsatisfied with the financial performance of the Company.
Additionally, a formal bonus plan for key management of Pharmakon was
established for the 1995 fiscal year with payout determinations based on the
achievement of Pharmakon's financial targets and individual performance
objectives. The Compensation Committee awarded 24.2% of the bonus target for
1995 to key Pharmakon managers, primarily as a result of the achievement of
individual objectives.
Long-term Incentive Compensation. The Compensation Committee utilizes
stock options as its primary long-term incentive compensation mechanism for
executive officers. The objective of the program is to align executive and
stockholder long-term interests by creating a strong and direct link between
executive pay and long-term stockholder return, thereby enabling executives to
develop and maintain a significant, long-term stock ownership position in the
Company's Common Stock.
The Company established a four-year vesting schedule for options granted to
executives in order to focus the efforts of executive officers on the long-term
strategy of the Company.
The Compensation Committee conducts a formal review from time to time of
the stock option holdings and vesting status of each executive officer. The
Compensation Committee makes stock option grants to the Named Executive Officers
based on such factors as the strategic development of the Company, growth and
performance of the Company, individual performance contribution, total stock
options and related vesting positions for each executive officer of the Company,
and length of service. Based on its consideration of these factors, the
Compensation Committee granted options on March 9, 1995, under the 1991 Plan to
Mr. Cooper to purchase 50,000 shares of Common Stock and on April 12, 1995,
under the 1991 Plan to Mr. Schmitt and Dr. Modeweg to each purchase 50,000
shares of Common Stock.
Chief Executive Officer Compensation. It is the Compensation Committee's
philosophy that compensation for the CEO should be directly linked to the
achievement of the specific business objectives established to accomplish the
long-term goal of the Company. The compensation programs for the CEO integrate
with the Company's annual and long-term business objectives and strategy, and
focus the CEO's efforts and energies on the fulfillment of those objectives.
Through this strategy, the Company believes the CEO's compensation is directly
aligned with the long-term interests of stockholders.
It is also the Compensation Committee's philosophy that to attract and
retain a qualified individual for this critical executive position, compensation
for the CEO must be competitive with his peer group in the industry.
The CEO's compensation is comprised of the same elements as other executive
officers: base salary, cash bonuses, long-term incentives in the form of stock
options and various benefits which are generally available to employees of the
Company.
95
<PAGE> 99
In considering the compensation for the CEO for 1995, the Compensation
Committee conducted a review of the CEO's performance and compared the CEO's
compensation levels with his peer group within related industries.
The Compensation Committee was pleased with Mr. Schmitt's performance in
1994, and feels he managed the Company well through a particularly challenging
period including (i) minimizing the disruption on the Company following the
curtailment of the blood substitute program, (ii) ensuring the continued
momentum in the development of the Company's xenograft programs in order to
facilitate discussion with strategic partners regarding such programs, (iii)
managing the negotiation leading to the formation of Nextran and continuing as
the acting CEO of Nextran in addition to performing his services as CEO of the
Company and (iv) continuing the Company's strategic objective to become a
leading drug development services business. The Compensation Committee
determined that Mr. Schmitt's base salary should be adjusted from $235,000 to
$242,000 effective January 1, 1995.
JESSE I. TREU, Chairman
JOHN K. CLARKE
DESMOND H. O'CONNELL, JR.
Members of the Compensation
Committee
96
<PAGE> 100
COMPARATIVE STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Common Stock with the cumulative total stockholder return of (i) the NASDAQ
Stock Market (U.S.) Index (the "NASDAQ Index"), (ii) the Hambrecht & Quist
Biotechnology Section Index (the "Biotechnology Index") and (iii) the NASDAQ
Health Services Index (the "Health Services Index"), assuming an investment of
$100 on December 11, 1991, in each of the Common Stock of the Company, the
stocks comprising the NASDAQ Index, and the stocks comprising the Biotechnology
Index and the stocks comprising the Health Services Index. The following graph
commences as of December 11, 1991, the date the Common Stock became publicly
traded. This is the first year that the Company has presented the Health
Services Index as part of the Company's comparative stock performance graph. As
a result of the Company's decision to focus its efforts on opportunities as a
provider of drug development services, and in light of the Proposed Transaction,
the Company no longer believes that the Biotechnology Index represents an
appropriate comparison to the business of the Company as a CRO. Henceforth, the
Company's comparative stock performance graph will present the Health Services
Index, which the Company believes is more representative of the business of the
Company as a CRO, rather than the Biotechnology Index.
<TABLE>
<CAPTION>
Measurement Period DNX Corpora- H&Q Biotech- Nasdaq Stock Nasdaq Health
(Fiscal Year Covered) tion nology Market - U.S. Services
<S> <C> <C> <C> <C>
12/11/91 100 100 100 100
Dec. 91 68 112 110 112
Mar. 92 60 86 114 106
June 92 48 83 106 95
Sept. 92 38 84 110 101
Dec. 92 52 100 128 116
Mar. 93 35 66 131 104
June 93 35 74 133 110
Sept. 93 38 75 145 118
Dec. 93 31 86 147 134
Mar. 94 35 70 141 137
June 94 34 71 135 124
Sept. 94 38 85 146 149
Dec. 94 36 62 144 144
Mar. 95 32 85 157 158
June 95 28 96 180 138
Sept. 95 32 115 201 158
Dec. 95 28 139 204 184
</TABLE>
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation for
the Company's CEO and each of the two other most highly compensated executive
officers, other than the CEO, who were serving as executive officers at the end
of the Company's last completed fiscal year (collectively, the "Named Executive
97
<PAGE> 101
Officers"), as well as the total compensation paid to each of these individuals
for the Company's previous two fiscal years.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
AWARDS
---------- PAYOUTS
ANNUAL COMPENSATION RESTRICTED SECURITIES -------
------------------------------- STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS OTHER ANNUAL AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) COMPENSATION ($) (#) ($) ($)
- ----------------------- ---- ------- ------ ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mr. Schmitt
Chief Executive 1995 241,865 -- -- -- 50,000 -- 7,862(1)
Officer, President 1994 234,808 48,120 -- -- -- -- 7,847(2)
and Chairman 1993 224,723 -- -- -- 125,000 -- 5,738(3)
Dr. Modeweg(4)
President, Pharmakon
Research 1995 168,830 -- -- -- 50,000 -- --
International, 1994 138,929 -- -- -- 25,000 -- --
Vice President 1993 119,453 12,500 -- -- 75,000 -- --
Mr. Cooper(5)
Senior Vice President
Chief Financial
Officer, 1995 134,065 -- -- -- 50,000 -- 5,215(6)
Treasurer and 1994 125,423 36,264 -- -- -- -- 5,498(7)
Secretary 1993 119,038 -- -- -- 75,000 -- 2,932(8)
</TABLE>
- ---------------
(1) Includes $4,620 of Company matching contributions under DNX Corporation
Employee Savings Plan, which were paid in Common Stock, $392 of group term
life insurance premiums paid by the Company, and $2,850 of long-term
disability insurance premiums paid by the Company.
(2) Includes $4,620 of Company matching contributions under DNX Corporation
Employee Savings Plan, which were paid in Common Stock, $377 of group term
life insurance premiums paid by the Company, and $2,850 of long-term
disability insurance premiums paid by the Company.
(3) Includes $2,673 of Company matching contributions under DNX Corporation
Employee Savings Plan, which were paid in Common Stock, $255 of group term
life insurance premiums paid by the Company and $2,810 of long-term
disability insurance premiums paid by the Company.
(4) Dr. Modeweg's salary and other cash compensation is paid in French Francs.
Dr. Modeweg received total compensation in French Francs of 841,618 in 1995,
770,570 in 1994 and 676,500 in 1993. The salary amounts contained in this
table have been translated to U.S. dollars based on an average exchange rate
for 1995 of 4.985 French Francs per U.S. dollar, an average exchange rate
for 1994 of 5.5465 French Francs per U.S. dollar, and an average exchange
rate for 1993 of 5.6633 French Francs per U.S. dollar.
(5) On May 29, 1996, Mr. Cooper was elected as Senior Vice President of the
Company. Prior to such time, Mr. Cooper had been Vice President of the
Company.
(6) Includes $4,210 of Company matching contributions under DNX Corporation
Employee Savings Plan, which were paid in Common Stock, $111 of group term
life insurance premiums paid by the Company, and $894 of long-term
disability insurance premiums paid by the Company.
(7) Includes $4,620 of Company matching contributions under DNX Corporation
Employee Savings Plan, which were paid in Common Stock, $100 of group term
life insurance premiums paid by the Company, and $778 of long-term
disability insurance premiums paid by the Company.
(8) Includes $2,077 of Company matching contributions under DNX Corporation
Employee Savings Plan, which were paid in Common Stock, $77 of group term
life insurance premiums paid by the Company, and $778 of long-term
disability insurance premiums paid by the Company.
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<PAGE> 102
STOCK OPTIONS
The following table contains information concerning the grants of stock
options made during 1995 to the Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
- --------------------------------------------------------------------------------------- AT
PERCENT OF ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPLICATION
UNDERLYING GRANTED TO EXERCISE OF FOR OPTION TERM
OPTION/SARS EMPLOYEES BASE PRICE EXPIRATION -----------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- -------------------------------- ----------- ------------ ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Mr. Schmitt..................... 50,000(1) 8.97 4.00 4-12-05 125,779 318,748
Dr. Modeweg..................... 50,000(1) 8.97 4.00 4-12-05 125,779 318,748
Mr. Cooper...................... 50,000(2) 8.97 3.75 3-09-05 117,918 298,827
</TABLE>
- ---------------
(1) These stock options became exercisable to the extent of 25 percent of the
shares of Common Stock covered thereby on April 12, 1996, the first
anniversary of the date on which vesting commenced, and are exercisable at a
per diem rate over the next three years thereafter for so long as the
optionee remains in the continuous employ of the Company or a subsidiary.
(2) These stock options became exercisable to the extent of 25 percent of the
shares of Common Stock covered thereby on March 9, 1996, the first
anniversary of the date on which vesting commenced, and are exercisable at a
per diem rate over the next three years thereafter for so long as the
optionee remains in the continuous employ of the Company or a subsidiary.
OPTION EXERCISES AND HOLDINGS
The following table contains information concerning the exercise of stock
options during 1995 by the named Executive Officers and unexercised options held
by them at the end of 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FISCAL AT FISCAL
YEAR-END YEAR-END
SHARES VALUE ---------------- ----------------
ACQUIRED ON REALIZED EXERCISABLE(E)/ EXERCISABLE(E)/
NAME EXERCISE ($) UNEXERCISABLE(U) UNEXERCISABLE(U)
- --------------------------------------- ----------- -------- ---------------- ----------------
<S> <C> <C> <C> <C>
Mr. Schmitt............................ 1,000 $3,475 291,750(E) $ 547,613(E)
93,750(U) 0(U)
Dr. Modeweg............................ 0 0 48,836(E) 0(E)
101,164(U) 0(U)
Mr. Cooper............................. 0 0 120,034(E) 189,375(E)
79,966(U) 0(U)
</TABLE>
EMPLOYMENT AGREEMENTS
Messrs. Schmitt and Cooper and Dr. Modeweg are parties to employment
agreements with the Company (or, in Dr. Modeweg's case, Pharmakon). In
connection with the Proposed Transaction, the Company will enter into the
Employment Agreements with Dr. Barbut and Dr. Jensen. See "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS."
99
<PAGE> 103
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pharmakon entered into an employment agreement with Dr. Modeweg in 1993
that provides that in the event that Dr. Modeweg is terminated for reasons other
than reckless or gross misconduct, Pharmakon and Dr. Modeweg will enter into a
consulting agreement. Such consulting agreement would provide for the continued
services of Dr. Modeweg for a term, at the option of Pharmakon, of one or two
years at compensation levels substantially equivalent to that received by Dr.
Modeweg as President of Pharmakon. In the event that Pharmakon elects a term of
two years for the consulting agreement, Dr. Modeweg would be subject to a
non-competition clause for a period of one year following the effective date of
his termination. The term of Dr. Modeweg's employment agreement expires on
December 31, 1996; however, the agreement is subject to automatic renewal on a
year-to-year basis unless Pharmakon provides advance notice of its intent to
terminate the arrangement.
The Company is a party to a letter agreement with Paul J. Schmitt that
provides Mr. Schmitt with a severance package in the event that he is terminated
without cause, as defined in the agreement. The agreement obligates the Company
to provide Mr. Schmitt with pay at his base salary rate and certain benefit
coverage for up to 12 months following his termination, provided that certain
conditions are met. In addition, in the event of a change of control of the
Company, resulting in a change of duties or responsibilities of Mr. Schmitt, he
may, under certain circumstances, treat such change as a termination of
employment and he would be entitled to receive 12 months of salary plus
immediate vesting of all outstanding options. The term of his agreement expires
on June 2, 2000.
The Company is a party to a letter agreement with John G. Cooper that
provides Mr. Cooper with a severance package in the event that he is terminated
without cause, as defined in the agreement. The agreement obligates the Company
to provide Mr. Cooper with pay at his base salary rate and certain benefit
coverage for up to 12 months following his termination, provided that certain
conditions are met. In addition, in the event of a change of control of the
Company, resulting in a change of duties or responsibilities of Mr. Cooper, he
may, under certain circumstances, treat such change as a termination of
employment and he would be entitled to receive 12 months of salary plus
immediate vesting of all outstanding options. The term of his agreement expires
on May 28, 2001.
In connection with the Proposed Transaction, pursuant to the Transaction
Agreements, the Company will enter into the Employment Agreements with Dr.
Barbut and Dr. Jensen at the Closing. Pursuant to the Employment Agreements, Dr.
Barbut and Dr. Jensen will be compensated and provided other benefits comparable
to other senior executives of the Company and commensurate with their duties and
responsibilities. The Employment Agreements provide for severance payments to
Dr. Barbut and Dr. Jensen in the event that they are terminated without cause,
as defined therein. The Employment Agreements also contain standard non-compete
and non-solicitation provisions. The term of each Employment Agreement is two
years from the date of the Closing. See "TRANSACTION AGREEMENTS -- Employment
Agreements."
The law firm of Jones, Day, Reavis & Pogue of which Mr. Roj was formerly a
partner provided services to the Company in fiscal 1995 and provides services to
the Company on an on-going basis, including in connection with the Proposed
Transaction. Mr. Roj resigned as a Director effective September 6, 1996.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION
AS CLASS II DIRECTORS OF EACH OF MESSRS. CLARKE AND O'CONNELL.
100
<PAGE> 104
PROPOSAL 3: APPROVAL OF NAME CHANGE
On October 1, 1996, the Board of Directors of the Company approved a change
in the name of the Company to "Chrysalis International Corporation" in the event
that the Proposed Transaction is consummated, subject to stockholder approval.
This name was selected in consultation with Dr. Barbut and Dr. Jensen as well as
certain consultants which specialize in corporate name selection and identity
programs. In the event that the Proposed Transaction is not consummated, the
name of the Company will remain "DNX Corporation." In the event that the
Proposed Transaction is consummated, the Company proposes to have the Common
Stock traded on NASDAQ under the symbol "CRLS."
The combination of the Company and the BioClin Group creates a new service
company with multinational capabilities which span the entire spectrum of drug
development from preclinical through clinical to product registration and
approval. The combined company will be organized to provide for a more rapid
transition of a client's drug through various preclinical to clinical stages of
development thereby minimizing certain delays which typically occur before a new
drug is introduced to the market. It is appropriate, therefore, that the
combined company adopt a new name which symbolizes this process and its
strategic and competitive advantage.
Chrysalis (Kris-a-lis) is derived from the Greek word for gold, chrysos.
Chrysalis represents the stage of metamorphosis when a larvae or golden pupa
emerges into a butterfly. The name Chrysalis symbolizes the new company's
ability to manage the emergence of new drug candidates from the discovery phase
through the preclinical and clinical stages of development. It also symbolizes
how this natural progression can facilitate the drug development process
bringing clients added value and financial returns.
Pursuant to the DGCL and assuming stockholder approval thereof, in order to
effect such name change, the Company would file an amendment to the Company's
Certificate with the Secretary of State of the State of Delaware immediately
following the Closing of the Proposed Transaction (the "Filing"). Alternatively,
the Company may file a Third Amended and Restated Certificate of Incorporation
of the Company reflecting such name change. In the event that the Proposed
Transaction is not consummated, the name of the Company will remain "DNX
Corporation."
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE CHANGE IN THE NAME OF THE COMPANY TO "CHRYSALIS INTERNATIONAL
CORPORATION" AND THE RELATED FILING, SUBJECT TO THE CLOSING OF THE PROPOSED
TRANSACTION.
101
<PAGE> 105
PROPOSAL 4: APPROVAL OF AMENDMENTS
TO 1991 STOCK OPTION PLAN
GENERAL
The Board of Directors has approved, subject to the further approval of the
stockholders of the Company, certain amendments to the Company's 1991 Stock
Option Plan, as amended (the "1991 Plan"), described below.
The Company recognizes the importance of attracting and retaining
outstanding individuals as officers, key employees and consultants, and of
stimulating the active interest of these persons in the development and
financial success of the Company. The Board of Directors believes that the 1991
Plan is a significant factor in furtherance of these objectives and has, through
the 1991 Plan, furnished incentives to officers, employees and consultants to
increase the Company's profits by providing such persons with opportunities to
acquire shares of the Common Stock of the Company on advantageous terms. In
light of the competitive industry in which the Company participates, the Board
of Directors believes the 1991 Plan is a particularly important factor in the
Company's overall compensation program and in attracting and retaining officers,
key employees and consultants. The following summary of the 1991 Plan is
qualified in its entirety by reference to the 1991 Plan, as amended, attached
hereto as Appendix F.
Officers and key employees of, as well as consultants whose services have
been retained by, the Company and its subsidiaries, which presently consist of
approximately 280 individuals, are eligible to receive stock options under the
1991 Plan. The purpose of the 1991 Plan is to attract and retain outstanding
individuals as officers, key employees and consultants of the Company and its
subsidiaries, and to furnish incentives to such persons to increase the
Company's profits by providing them opportunities to acquire shares of Common
Stock of the Company on advantageous terms. The 1991 Plan is administered by the
Compensation Committee of the Board of Directors, consisting of Dr. Treu and
Messrs. Clarke and O'Connell (who are each "Non-Employee Directors" as defined
in Rule 16b-3 under the Exchange Act) which determines the terms and conditions
of stock options issued under the 1991 Plan, amounts of benefits granted, and
the officers, key employees and consultants who shall receive them. Options
granted under the 1991 Plan may be: (i) options that are intended to qualify
under particular provisions of the Code, as in effect from time to time; (ii)
options that are not intended to so qualify; or (iii) combinations of the
foregoing; provided, however, that options that are intended to qualify under
the Code may not be granted to consultants under the 1991 Plan. See "APPROVAL OF
ADOPTION OF 1996 STOCK OPTION PLAN -- Federal Income Tax Consequences for 1991
Plan and 1996 Plan" for a discussion of the tax treatment of such options.
The 1991 Plan authorizes the granting of options to purchase up to an
aggregate of 1,350,000 shares of the Company's Common Stock. Option agreements
evidencing the grant of options are required to specify an option price which
may be less than, equal to or greater than the fair market value of shares of
Common Stock of the Company on the date of grant. Historically, the Company's
practice has been to specify that the option price is equal to the closing price
of the underlying shares of Common Stock on the date of grant. To date, the
Company has not granted options at a price less than the closing price of the
underlying shares of Common Stock on the date of grant.
Option agreements must also specify the methods of payment of the option
price, which may be: (i) in cash or by check acceptable to the Company; (ii) by
delivery of Common Stock of the Company already owned by the optionee having a
fair value at the time of exercise equal to the total option price; or (iii) a
combination of such methods of payment. Any option may provide for deferred
payment of the option price from the proceeds of the sale through a bank or
broker of some or all of the shares of stock to which the exercise relates. No
stock option granted under the 1991 Plan may be exercised more than ten years
from the date of grant. Outstanding options are subject to adjustment in
specified events, such as stock dividends, stock splits, recapitalizations and
mergers, and the number of shares authorized by the 1991 Plan is subject to
adjustment in those events. In addition, with the consent of the affected
optionee, the Board of Directors may cancel any option granted under the 1991
Plan and, in replacement thereof, grant new options for any number of shares and
at any option price as it deems advisable.
102
<PAGE> 106
Prior to the October 1996 amendments described below in "-- Amendments to
1991 Plan," the 1991 Plan did not impose a limit on the number or shares that
could be optioned to a particular employee or officer. However, the Code
required that the aggregate fair market value (determined at the time the
options were granted) of stock could not exceed a total of $100,000 with respect
to which "incentive stock options" were exercisable for the first time by any
one employee during any calendar year.
The 1991 Plan may be amended by the Board of Directors of the Company
without stockholder approval; however, without stockholder approval, no such
amendment may: (i) increase the maximum number of shares of Common Stock
available under the 1991 Plan; (ii) change the eligible participants under the
1991 Plan; or (iii) cause Rule 16b-3 under the Exchange Act (or any successor
rule to the same effect) to cease to be applicable to the 1991 Plan.
NONEMPLOYEE DIRECTORS
Prior to the August 1995 amendments described below in "-- Amendments to
1991 Plan," Directors who were not employees of the Company or any of its
subsidiaries ("Nonemployee Directors") received annual automatic grants of stock
options under the Company's 1991 Plan as follows: (i) each Nonemployee Director
was automatically granted an option to purchase 1,000 shares of Common Stock
immediately following each annual meeting of the Company's stockholders until he
had served continuously as a Nonemployee Director for five years; and (ii)
immediately following the fifth annual meeting of the Company's stockholders
that was held following the commencement of a Nonemployee Director's continuous
service as such, he was automatically granted an option to purchase 7,000 shares
of Common Stock, and he was automatically granted an option to purchase 1,000
shares of Common Stock immediately following each annual meeting of the
Company's stockholders thereafter for so long as he continued to serve as a
Nonemployee Director.
Grants to Nonemployee Directors must be evidenced by an agreement
substantially in the form of Exhibit A to the 1991 Plan, which is attached
hereto as Appendix F. The option price of such grants to Nonemployee Directors
shall equal the closing price of the Common Stock on NASDAQ on the date of
grant. Upon stockholder approval of the adoption of the 1996 Plan (as defined in
"APPROVAL OF ADOPTION OF 1996 STOCK OPTION PLAN"), the automatic grant of
options to Nonemployee Directors under the 1996 Plan will replace the automatic
grant of options to Nonemployee Directors under the 1991 Plan and no new options
will be granted to Nonemployee Directors under the 1991 Plan thereafter. Options
outstanding under the 1991 Plan, however, will remain subject to the terms and
conditions of the 1991 Plan. In addition, the Company may continue to grant
options under the 1991 Plan to eligible persons other than Nonemployee Directors
following stockholder approval of the adoption of the 1996 Plan. Assuming
stockholder approval of the amendments to the 1991 Plan discussed below, options
with respect to 57,342 shares remain available as of October 2, 1996. See
"APPROVAL OF ADOPTION OF 1996 STOCK OPTION PLAN." The adjustment provisions
described above under " -- General" also apply to such grants to Nonemployee
Directors. However, the cancellation provisions described above under
"-- General" do not apply to such grants to Nonemployee Directors.
AMENDMENTS TO 1991 PLAN
In August 1995, the Board of Directors approved amendments to the 1991 Plan
as follows: (i) each Nonemployee Director elected to the Board of Directors on
or after August 18, 1995 would receive options to purchase 30,000 shares with
the option price set at the fair market value of the underlying shares on the
date of election to the Board of Directors; (ii) each Nonemployee Director
elected to the Board of Directors prior to August 18, 1995 would receive options
to purchase 30,000 shares with the option price set at $3.50 per share, the
closing price of the Common Stock on August 18, 1995; (iii) every three years
subsequent to the date of the initial grant of 30,000 options, each Director who
remains on the Board of Directors would receive an additional 30,000 options
with the option price set at the fair market value of the underlying shares on
the date of the grant; and (iv) the existing fifth year anniversary option
provision would remain in effect except for a change in the vesting schedule
such that vesting would be pro-rated on a daily basis over three years. In March
1996, the Board of Directors approved an increase in the maximum number of
shares authorized under the 1991 Plan, by 150,000 shares, for an aggregate of
1,500,000 shares available under the 1991 Plan. In October 1996, the Board of
Directors approved an amendment to the 1991 Plan which provides that under no
circumstances may any particular optionee be granted options pursuant to the
1991 Plan with respect to more
103
<PAGE> 107
than 500,000 shares during any three year period. All of the foregoing
amendments to the 1991 Plan remain subject to stockholder approval.
Based on the closing price of the Company's Common Stock on NASDAQ on
November 7, 1996, the market value of shares of Common Stock underlying the
additional 150,000 options authorized under the 1991 Plan would be $693,750.
GRANTS SUBJECT TO STOCKHOLDER APPROVAL
Following the Board of Director's amendment of the 1991 Plan in March 1996
to increase the pool of shares available under the 1991 Plan, the Compensation
Committee granted options to purchase an aggregate of 30,925 shares of Common
Stock at prices ranging from $4.375 to $7.25, the respective closing price of
the Common Stock on the date of grant. Included in these grants were a grant
under the 1991 Plan to Mr. Schmitt of an option to purchase 17,400 shares of
Common Stock at $7.25, a grant under the 1991 Plan to Mr. Cooper of an option to
purchase 9,425 shares of Common Stock at $7.25 and a grant under the 1991 Plan
to certain other employees of options to purchase an aggregate of 4,100 shares
of Common Stock at prices ranging from $4.375 to $7.25. The foregoing grants are
subject to stockholder approval.
In addition, prior to such March 1996 amendment to the 1991 Plan, the
Compensation Committee had granted options to purchase an aggregate of 150,000
shares of Common Stock (30,000 shares to each of the five Nonemployee Directors
then serving) to the Directors of the Company at prices ranging from $3.50 to
$3.625, in connection with the August 1995 amendments described above. The March
1996 amendments to the 1991 Plan to increase the number of shares of Common
Stock available under the 1991 Plan, which is also subject to stockholder
approval as described above, provided for sufficient additional shares to
satisfy all of the foregoing grants.
The following table sets forth information with respect to grants of
options pursuant to the 1991 Plan made during fiscal 1995 to the Named Executive
Officers, the executive officers of the Company as a group, the Nonemployee
Directors as a group, each nominee for election as Director, and all employees,
who are not executive officers, as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING OPTIONS
NAME AND POSITION GRANTED IN FISCAL 1995
----------------- ----------------------
<S> <C>
Paul J. Schmitt..................................................... 50,000
Chief Executive Officer,
President and Chairman of the Board
Dr. Leif Modeweg.................................................... 50,000
President, Pharmakon Research International,
Vice President
John G. Cooper...................................................... 50,000
Senior Vice President, Chief Financial Officer,
Treasurer and Secretary (1)
John K. Clarke...................................................... 31,000
Director Nominee
Desmond H. O'Connell, Jr............................................ 31,000
Director Nominee
Executive Group..................................................... 150,000
Non-Executive Director Group........................................ 153,000
Non-Executive-Officer Employee Group................................ 209,475
Consultants......................................................... 30,000
</TABLE>
- ---------------
(1) On May 29, 1996, Mr. Cooper was elected as Senior Vice President of the
Company. Prior to such time, Mr. Cooper had been Vice President of the
Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
AMENDMENTS TO AND GRANTS UNDER THE 1991 PLAN IDENTIFIED IN THIS PROPOSAL 4.
104
<PAGE> 108
PROPOSAL 5: APPROVAL OF ADOPTION OF 1996 STOCK OPTION PLAN
GENERAL
The Board of Directors has approved, subject to the further approval of the
stockholders of the Company, adoption of the Company's 1996 Stock Option Plan
(the "1996 Plan") with an aggregate of 350,000 shares of Common Stock which may
be sold upon exercise of stock options granted under the 1996 Plan. Upon
stockholder approval of the adoption of the 1996 Plan, the automatic grant of
options to Nonemployee Directors under the 1996 Plan will replace the automatic
grant of options to Nonemployee Directors under the 1991 Plan and no new options
will be granted to Nonemployee Directors under the 1991 Plan thereafter. Options
outstanding under the 1991 Plan, however, will remain subject to the terms and
conditions of the 1991 Plan. See "APPROVAL OF AMENDMENTS TO 1991 STOCK OPTION
PLAN."
The Company recognizes the importance of attracting and retaining
outstanding individuals as officers, key employees and consultants, and of
stimulating the active interest of these persons in the development and
financial success of the Company. The Board of Directors believes that the 1996
Plan is a significant factor in furtherance of these objectives and intends,
through the 1996 Plan, to furnish incentives to officers, employees and
consultants to increase the Company's profits by providing such persons with
opportunities to acquire shares of the Common Stock of the Company on
advantageous terms. In light of the competitive industry in which the Company
participates, the Board of Directors believes the 1996 Plan is a particularly
important factor in the Company's overall compensation program and in attracting
and retaining officers, key employees and consultants. In addition, in
connection with the Proposed Transaction, the Board of Directors believes that
it is appropriate to have options available to grant to officers, key employees
and consultants of the BioClin Group following the Closing. The following
summary of the 1996 Plan is qualified in its entirety by reference to the 1996
Plan, attached hereto as Appendix G.
Officers and key employees of, as well as consultants whose services have
been retained by, the Company and its subsidiaries, which presently consist of
approximately 280 individuals, are eligible to receive stock options under the
1996 Plan. The purpose of the 1996 Plan is to attract and retain outstanding
individuals as officers, key employees and consultants of the Company and its
subsidiaries, and to furnish incentives to such persons to increase the
Company's profits by providing them opportunities to acquire shares of Common
Stock of the Company on advantageous terms. The 1996 Plan will be administered
by the Compensation Committee of the Board of Directors, consisting of Dr. Treu
and Messrs. Clarke and O'Connell (who are each "Non-Employee Directors" as
defined in Rule 16b-3 under the Exchange Act) which determines the terms and
conditions of stock options issued under the 1996 Plan, amounts of benefits
granted, and the officers, key employees and consultants who shall receive them.
Options granted under the 1996 Plan may be: (i) options that are intended to
qualify under particular provisions of the Code, as in effect from time to time;
(ii) options that are not intended to so qualify; or (iii) combinations of the
foregoing; provided, however, that options that are intended to qualify under
the Code may not be granted to consultants under the 1996 Plan.
The 1996 Plan authorizes the granting of options to purchase up to an
aggregate of 350,000 shares of the Company's Common Stock. Option agreements
evidencing the grant of options are required to specify an option price which
may be less than, equal to or greater than the fair market value of shares of
Common Stock of the Company on the date of grant. Historically, under the 1991
Plan, the Company's practice has been to specify that the option price is equal
to the closing price of the underlying shares of Common Stock on the date of
grant. Under the 1991 Plan, to date, the Company has not granted options at a
price less than the closing price of the underlying shares of Common Stock on
the date of grant.
Option agreements must also specify the methods of payment of the option
price, which may be: (i) in cash or by check acceptable to the Company; (ii) by
delivery of Common Stock of the Company already owned by the optionee having a
fair value at the time of exercise equal to the total option price; or (iii) a
combination of such methods of payment. Any option may provide for deferred
payment of the option price from the proceeds of the sale through a bank or
broker of some or all of the shares of stock to which the exercise relates. No
stock option granted under the 1996 Plan may be exercised more than ten years
from the date of grant. Outstanding options are subject to adjustment in
specified events, such as stock dividends, stock
105
<PAGE> 109
splits, recapitalizations and mergers, and the number of shares authorized by
the 1996 Plan is subject to adjustment in those events. In the case of such
events, options may be required to be surrendered in exchange for alternative
consideration as the Board of Directors deems appropriate. In addition, with the
consent of the affected optionee, the Board of Directors may cancel any option
granted under the 1996 Plan and, in replacement thereof, grant new options for
any number of shares and at any option price as it deems advisable.
The 1996 Plan provides that under no circumstances may any particular
optionee be granted options with respect to more than 150,000 shares during any
three year period. In addition, the Code requires that the aggregate fair market
value (determined at the time the options are granted) of stock with respect to
which "incentive stock options" are exercisable for the first time by any one
employee during any calendar year not exceed a total of $100,000.
The 1996 Plan may be amended by the Board of Directors of the Company
without stockholder approval; however, without stockholder approval, no such
amendment may (i) increase the maximum number of shares of Common Stock
available under the 1996 Plan or (ii) change the eligible participants under the
1996 Plan.
Based on the closing price of the Company's Common Stock on NASDAQ on
November 7, 1996, the market value of shares of Common Stock underlying the
350,000 options being authorized under the 1996 Plan would be $1,618,750.
NONEMPLOYEE DIRECTORS
Nonemployee Directors will automatically be granted nonqualified stock
options under the 1996 Plan as follows:
(i) A nonqualified option to purchase 30,000 shares of the Company's
Common Stock shall be granted to each Nonemployee Director on the date he
or she is first elected or appointed to the Board of Directors on or after
September 30, 1996.
(ii) A nonqualified option to purchase 30,000 shares of Company's
Stock shall be granted to each Nonemployee Director, in the case of
Nonemployee Directors who are members of the Board of Directors prior to
September 30, 1996, every three fiscal years subsequent to the last grant
to such Nonemployee Director pursuant to the 1991 Plan on the anniversary
date of such grant, and in the case of Nonemployee Directors who became
members of the Board of Directors on or after September 30, 1996, every
three years subsequent to the date of his or her initial grant of 30,000
shares pursuant to Paragraph 8(a)(i) on the anniversary date of such
initial grant.
(iii) Immediately following the fifth annual meeting of the Company's
stockholders that is held following the commencement of his or her
continuous service as a Nonemployee Director, a nonqualified option to
purchase 7,000 shares of the Company's Common Stock shall be granted to
each Nonemployee Director whose fifth anniversary of continuous service as
a Nonemployee Director occurs at any time following such annual meeting.
Such grants to Nonemployee Directors must be evidenced by an agreement
substantially in the form of Exhibit A to the 1996 Plan, which is attached
hereto as Appendix G. The option price of such grants to Nonemployee Directors
shall equal the closing price of the Common Stock on NASDAQ on the date of
grant. The adjustment and substitution provisions described above under
"-- General" also apply to such grants to Nonemployee Directors. However, the
cancellation provisions described above under "-- General" do not apply to such
grants to Nonemployee Directors.
The following table sets forth information with respect to grants of
options pursuant to the 1996 Plan that would have been made during fiscal 1995
had the 1996 Plan been in effect in fiscal 1995 to the Named
106
<PAGE> 110
Executive Officers, the executive officers of the Company as a group, the
Nonemployee Directors as a group, each nominee for election as Director, and all
employees, who are not executive officers, as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING OPTIONS
NAME AND POSITION GRANTED IN FISCAL 1995
----------------- ----------------------
<S> <C>
Paul J. Schmitt..................................................... --
Chief Executive Officer,
President and Chairman of the Board
Dr. Lief Modeweg.................................................... --
President, Pharmakon Research International,
Vice President
John G. Cooper...................................................... --
Senior Vice President, Chief Financial Officer,
Treasurer and Secretary (1)
John K. Clarke...................................................... --
Director Nominee
Desmond H. O'Connell, Jr............................................ --
Director Nominee
Executive Group..................................................... --
Non-Executive Director Group........................................ --
Non Executive-Officer Employee Group................................ --
Consultants......................................................... --
</TABLE>
- ---------------
(1) On May 29, 1996, Mr. Cooper was elected as Senior Vice President of the
Company. Prior to such time, Mr. Cooper had been Vice President of the
Company.
FEDERAL INCOME TAX CONSEQUENCES FOR 1991 PLAN AND 1996 PLAN
The following is a brief summary of certain of the federal income tax
consequences to individuals receiving grants of options under either the 1991
Plan or the 1996 Plan. The following summary is based upon federal income tax
laws in effect on September 1, 1996 and is not intended to be complete or to
describe any state or local tax consequences.
Non-Qualified Stock Options. In general, (i) no income will be recognized
by an optionee at the time a non-qualified stock option is granted, (ii) at
exercise, ordinary income will be recognized by the optionee in an amount equal
to the difference between the option price paid for the shares and the fair
market value of the shares, if unrestricted, on the date of exercise, and (iii)
at sale, appreciation (or depreciation) after the date of exercise will be
treated as either short-term or long-term capital gain (or loss) depending on
how long the shares have been held.
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an incentive stock option. If shares of
Common Stock are issued to the optionee pursuant to the exercise of an incentive
stock option, and if no disqualifying disposition of such shares is made by such
optionee within two years after the date of grant or within one year after the
transfer of such shares to the optionee, then upon sale of such shares, any
amount realized in excess of the option price will be taxed to the optionee as a
long-term capital gain and any loss sustained will be a long-term capital loss.
If shares of Common Stock acquired upon the exercise of an incentive stock
option are disposed of prior to the expiration of either holding period
described above, the optionee generally will recognize ordinary income in the
year of disposition in an amount equal to the excess (if any) of the fair market
value of such shares at the time of exercise (or, if less, the amount realized
on the disposition of such shares if a sale or
107
<PAGE> 111
exchange) over the option price paid for such shares. Any further gain (or loss)
realized by the participant generally will be taxed as short-term or long-term
capital gain (or loss), depending on the holding period.
Special Rules Applicable to Officers and Nonemployee Directors. In limited
circumstances where the sale of stock received as a result of a grant or award
could subject an officer or Nonemployee Director to suit under Section 16(b) of
the Exchange Act, the tax consequences to the officer or Nonemployee Director
may differ from the tax consequences described above. In these circumstances,
unless an election under Section 83(b) of the Code has been made, the principal
difference (in cases where the officer or Nonemployee Director would otherwise
be currently taxed upon his receipt of the stock) usually will be to postpone
valuation and taxation of the stock received so long as the sale of the stock
received could subject the officer or Nonemployee Director to suit under Section
16(b) of the Exchange Act, but no longer than six months.
Tax Consequences to the Company. To the extent that a participant
recognizes ordinary income in the circumstances described above, the
participant's employer or entity for which the participant performs services
should be entitled to a corresponding deduction, provided, among other things,
such income meets the test of reasonableness, is an ordinary and necessary
business expense, is not an "excess parachute payment" within the meaning of
Section 280G of the Code and is not disallowed by the $1 million limitation on
certain executive compensation.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ADOPTION
OF THE 1996 STOCK OPTION PLAN.
PROPOSAL 6: RATIFICATION OF APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors recommends a vote for ratification of appointment of
KPMG Peat Marwick LLP as the independent certified public accountants of the
Company and certain of its subsidiaries to audit the books and accounts for the
Company and certain of its subsidiaries for the year ended December 31, 1996. It
is expected that representatives of KPMG Peat Marwick LLP will attend the Annual
Meeting, with the opportunity to make a statement if they so desire, and will be
available to answer appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THIS
PROPOSAL 6.
108
<PAGE> 112
SUBMISSION OF STOCKHOLDERS' PROPOSALS
Proposals of stockholders intended to be eligible for inclusion in the
Company's proxy statement and proxy card relating to the Company's next annual
meeting should be received at the Company's executive offices on or before
December 16, 1996. Such proposals should be submitted by certified mail, return
receipt requested.
OTHER BUSINESS
It is not anticipated that any other matters will be brought before the
Annual Meeting for action; however, if any such other matters shall properly
come before the Annual Meeting or any adjournments or postponements thereof, it
is intended that the persons authorized under proxies may, in the absence of
instructions to the contrary, vote or act thereon in accordance with their best
judgment.
/s/ Paul J. Schmitt
President, Chief Executive Officer,
and Chairman of the Board of Directors
Raritan, New Jersey
November 11, 1996
IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. PLEASE PROMPTLY FILL
OUT, SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD WHETHER OR NOT YOU EXPECT TO BE
PRESENT AT THE ANNUAL MEETING. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
109
<PAGE> 113
FINANCIAL STATEMENTS -- THE COMPANY
F-1
<PAGE> 114
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
DNX Corporation:
We have audited the accompanying consolidated balance sheets of DNX
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of Nextran (a 30 percent owned investee general partnership) as of
and for the year ended December 31, 1994. The Company's investment in Nextran at
December 31, 1995 and 1994 was none and $3,844,000, respectively, and its equity
in the loss of Nextran was $2,700,000 and $1,329,000 for 1995 and 1994,
respectively. The financial statements of Nextran were audited by other auditors
in 1994 whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Nextran in 1994, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors in 1994 provide
a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors in
1994, the consolidated financial statements referred to above present fairly, in
all materials respects, the financial position of DNX Corporation and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Princeton, New Jersey
February 22, 1996
F-2
<PAGE> 115
DNX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................ $ 20,042 4,404
Short-term investments............................................... 1,001 --
Trade accounts receivable, net (note 2).............................. 7,662 6,888
Prepaid expenses and other current assets (note 3)................... 1,351 993
-------- --------
Total current assets.............................................. 30,056 12,285
Property, plant and equipment, net (notes 5 and 9)..................... 16,935 17,585
Investment in Nextran (note 6)......................................... -- 3,844
Intangible assets, net (note 7)........................................ 1,035 991
Other assets........................................................... 44 44
Restricted cash (note 9)............................................... 777 1,724
-------- --------
$ 48,847 36,473
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings (note 8)....................................... 1,399 --
Current portion of long-term debt (note 9)........................... 744 784
Accounts payable..................................................... 2,100 2,072
Accrued expenses (notes 3 and 4)..................................... 2,992 4,729
Deferred revenue..................................................... 3,456 3,584
-------- --------
Total current liabilities......................................... 10,691 11,169
Long-term debt, excluding current portion (note 9)..................... 7,830 8,502
Deferred income taxes (note 13)........................................ 2,045 1,921
Other liabilities (notes 4 and 15)..................................... 948 1,180
-------- --------
Total liabilities................................................. 21,514 22,772
-------- --------
Stockholders' equity (notes 10 and 11):
Serial preferred stock, $.01 par value, 5,000,000 shares authorized;
no shares issued and outstanding.................................. -- --
Common stock, $.01 par value, 20,000,000 shares authorized; issued
and outstanding 8,606,194 in 1995 and 8,456,383 in 1994........... 86 85
Additional paid-in capital........................................... 57,000 56,820
Deferred compensation................................................ -- (104)
Translation adjustment............................................... 1,095 314
Accumulated deficit.................................................. (30,848) (43,414)
-------- --------
Total stockholders' equity........................................ 27,333 13,701
-------- --------
Commitments and contingencies (notes 14 and 15)........................ $ 48,847 36,473
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 116
DNX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS EXPECT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Revenues:
Commercial services....................................... $ 24,396 25,775 23,077
License fees and other contracts (note 12)................ 927 754 642
-------- ------- --------
25,323 26,529 23,719
-------- ------- --------
Operating expenses:
Cost of commercial services............................... 21,323 19,981 17,902
Research and development (notes 1 and 12)................. 1,095 4,359 11,134
General, administrative and marketing..................... 5,506 7,237 7,247
Special charge (note 4)................................... -- -- 7,095
-------- ------- --------
27,924 31,577 43,378
-------- ------- --------
Loss from operations................................... (2,601) (5,048) (19,659)
-------- ------- --------
Other income (expense):
Interest income........................................... 563 453 757
Interest expense (note 9)................................. (815) (676) (524)
Other (note 14)........................................... 562 253 (13)
-------- ------- --------
310 30 220
-------- ------- --------
Loss before equity in net loss of Nextran, gain
on sale of Nextran and income taxes.................... (2,291) (5,018) (19,439)
Equity in net loss of Nextran (note 6)...................... 2,700 1,329 --
Gain on sale of Nextran, net of taxes of $200 (note 6)...... 17,266 -- --
Income tax expense (benefit) (note 13)...................... (291) 332 (50)
-------- ------- --------
Net income (loss)...................................... $ 12,566 (6,679) (19,389)
======== ======= ========
Earnings (loss) per common and common equivalent share...... $ 1.39 (0.76) (2.23)
======== ======= ========
Shares used in computing per share amounts.................. 9,042 8,755 8,700
======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 117
DNX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN DEFERRED TRANSLATION ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL COMPENSATION ADJUSTMENT DEFICIT EQUITY
------- ---------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992.......... $ 83 56,555 (821) -- (17,346) 38,471
Issuance of 14,918 shares of
common stock upon exercise of
stock options (note 11)......... -- 9 -- -- -- 9
Issuance of 31,504 shares of
common stock pursuant to 401(k)
plan (note 15).................. 1 131 -- -- -- 132
Amortization of deferred
compensation (note 11).......... -- -- 300 -- -- 300
Adjustment to deferred
compensation (note 11).......... -- (56) 56 -- -- --
Translation adjustment............ -- -- -- (644) -- (644)
Net loss.......................... -- -- -- -- (19,389) (19,389)
------- ---------- ------------ ----------- ----------- -------------
Balance, December 31, 1993.......... 84 56,639 (465) (644) (36,735) 18,879
Issuance of 49,319 shares of
common stock upon exercise of
stock options (note 11)......... 1 37 -- -- -- 38
Issuance of 30,977 shares of
common stock pursuant to 401(k)
plan (note 15).................. -- 134 -- -- -- 134
Issuance of warrants (note 10).... -- 40 -- -- -- 40
Amortization of deferred
compensation (note 11).......... -- -- 331 -- -- 331
Adjustment to deferred
compensation (note 11).......... -- (30) 30 -- -- --
Translation adjustment............ -- -- -- 958 -- 958
Net loss.......................... -- -- -- -- (6,679) (6,679)
------- ---------- ------------ ----------- ----------- -------------
Balance, December 31, 1994.......... 85 56,820 (104) 314 (43,414) 13,701
Issuance of 135,248 shares of
common stock upon exercise of
stock options (note 11)......... 1 124 -- -- -- 125
Issuance of 14,563 shares of
common stock pursuant to 401(k)
plan (note 15).................. -- 56 -- -- -- 56
Amortization of deferred
compensation (note 11).......... -- -- 104 -- -- 104
Translation adjustment............ -- -- -- 781 -- 781
Net income........................ -- -- -- -- 12,566 12,566
------- ---------- ------------ ----------- ----------- -------------
Balance, December 31, 1995.......... $ 86 57,000 -- 1,095 (30,848) 27,333
======== ========= ============ ========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 118
DNX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................... $ 12,566 (6,679) (19,389)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Non-cash items:
Depreciation and amortization................................... 2,674 3,292 3,446
Deferred income tax expense (benefit)........................... (291) 12 (216)
Non-cash portion of special charge.............................. -- -- 5,968
Loss on disposal of property, plant and equipment............... 43 18 71
Loss on write-off of intangible assets.......................... -- -- 70
Amortization of premium on short and long-term investments...... 54 97 454
Non-cash charges................................................ 56 173 132
Equity in net loss of Nextran................................... 2,700 1,329 --
Gain on sale of partnership interest in Nextran................. (17,266) -- --
Change in operating assets and liabilities:
Increase in accounts receivable, net............................ (408) (1,010) (894)
(Increase) decrease in prepaid expenses and other current
assets....................................................... 79 1,035 (552)
Decrease in other assets........................................ -- 46 421
Increase (decrease) in accounts payable......................... (99) (1,053) 857
Increase (decrease) in accrued expenses......................... (1,895) 814 (99)
Increase (decrease) in deferred revenue......................... (384) 476 1,226
Increase (decrease) in other liabilities........................ 10 (713) 429
-------- ------- --------
Net cash used in operating activities........................ (2,161) (2,163) (8,076)
-------- ------- --------
Cash flows from investing activities:
Investment in Nextran including out-of-pocket expenses.............. -- (2,822) --
(Increase) decrease in restricted cash.............................. 947 (294) (1,420)
Purchases of property, plant and equipment.......................... (848) (2,959) (8,935)
Proceeds from disposal of property, plant and equipment............. 6 52 5
Purchases of intangible assets...................................... (18) (31) (111)
Purchases of investments............................................ (2,055) -- (9,314)
Proceeds from maturities of investments............................. 1,000 6,006 21,230
Proceeds from sale of partnership interest in Nextran............... 18,000 -- --
-------- ------- --------
Net cash provided by (used in) investing activities.......... 17,032 (48) 1,455
-------- ------- --------
Cash flows from financing activities:
Proceeds from short-term borrowings................................. 1,416 -- --
Proceeds from borrowings of long-term debt.......................... -- 2,796 3,358
Principal payments on long-term debt................................ (719) (3,350) (686)
Proceeds from stock options exercised and warrants issued........... 125 39 9
-------- ------- --------
Net cash provided by (used in) financing activities.......... 822 (515) 2,681
-------- ------- --------
Effect of exchange rate changes on cash............................... (55) (47) (84)
-------- ------- --------
Increase (decrease) in cash and cash equivalents...................... 15,638 (2,773) (4,024)
Cash and cash equivalents, beginning of year.......................... 4,404 7,177 11,201
-------- ------- --------
Cash and cash equivalents, end of year................................ $ 20,042 4,404 7,177
======== ======= ========
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest........................................................ $ 793 814 451
Income taxes.................................................... 1,030 29 157
======== ======= ========
- ---------------
<FN>
Non-cash investing and financing activities:
In connection with the formation of Nextran in 1994, the Company transferred
net assets (excluding cash) of $2,400 to Nextran (note 6).
In 1993, the Company entered into capital lease obligations for laboratory
equipment in the amount of $192 (note 14).
In 1995, the Company entered into capital lease obligations for laboratory
equipment in the amount of $60 (note 14).
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 119
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization:
DNX Corporation, a Delaware corporation (the Company) is a contract
research organization whose principal activities consist of preclinical drug
development services conducted through its two wholly-owned subsidiaries,
Pharmakon Research International, Inc. (Pharmakon) and DNX Biotherapeutics,
Inc., currently doing business as DNX Transgenics, (DNX Biotherapeutics,
together with Pharmakon, the Subsidiaries).
Pharmakon provides preclinical drug development services, including in
vitro and in vivo toxicological, pharmacological and pharmacokinetics testing
services, to the pharmaceutical, biotechnology, chemical and other industries
through its United States operations and its European subsidiary, Pharmakon
Europe (Pharmakon Europe). DNX Transgenics utilizes its expertise and
proprietary technological position in transgenic animal technology by providing
specialty drug development services via the development of laboratory animal
models that more closely mimic human biological processes than do conventional
laboratory animal models for use in in vivo testing for drug discovery and
development for the pharmaceutical, biotechnology and medical communities. The
Company also grants sublicenses of its proprietary DNA Microinjection
technology.
On August 29, 1994, DNX Biotherapeutics and Baxter Transplant Holdings,
Inc. (Holdings), a wholly-owned subsidiary of Baxter Healthcare Corporation
(Baxter), which is a subsidiary of Baxter International, Inc., entered into a
Joint Venture Agreement (the Joint Venture Agreement). Under the Joint Venture
Agreement, DNX Biotherapeutics and Holdings formed Nextran (Nextran), a Delaware
general partnership dedicated to the commercialization of innovative
technologies, products and services developed to improve the success and
increase the availability of organ transplantation, in which DNX Biotherapeutics
had a 30% partnership interest and Holdings had a 70% partnership interest.
Pursuant to the terms of the Purchase Agreement, dated September 22, 1995, as
amended, DNX Biotherapeutics consummated the sale of its 30% partnership
interest in Nextran to Transplant Acquisition Inc. (Acquisition), a wholly-owned
subsidiary of Baxter, for a cash purchase price of $18 million (note 6).
Principles of consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
Investment in Nextran:
The Company's investment in Nextran was accounted for under the equity
method. The excess of the Company's proportionate share of Nextran's net assets
over the cost of the investment at inception was being amortized over a three
year period. As a result of the sale of its partnership interest in Nextran, the
Company will no longer record a share of Nextran's financial results of
operations in its consolidated financial statements, subsequent to September 30,
1995.
Revenue recognition:
Revenues from commercial services are generally recognized in accordance
with the terms of the contract and in the periods in which the related services
have been rendered and the related costs incurred. Costs of commercial services
revenues include payroll, research animals, laboratory supplies and facility and
equipment costs and are expensed currently when incurred or used. Funds received
that relate to future performance under such commercial services are deferred
and recognized as revenue in the period when earned.
F-7
<PAGE> 120
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue from other contracts, primarily cost plus fixed-fee government
contracts, is recognized in the period in which the related services have been
rendered and costs incurred.
Revenue from license fees is recognized upon issuance or renewal of
technology licenses. Additionally, sublicenses of the Company's proprietary DNA
Microinjection technology entitle the Company to receive additional revenues
consisting of royalties and milestone payments, which amounts are recognized as
revenue when received. To date, no material revenues have been received from
royalties and milestone payments.
Research and development:
All research and development costs are charged to operations as incurred.
Costs incurred under government funded research and development contracts
aggregated approximately $173,000, $392,000 and $317,000, during the years ended
December 31, 1995, 1994 and 1993, respectively.
Cash and cash equivalents and short-term investments:
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist primarily of money market funds, corporate obligations and U.S.
Government obligations and are carried at cost, which approximates market value.
Short-term investments consist primarily of U.S. Government and corporate
obligations which mature in 1996. The Company has both the intent and ability to
hold its investments until maturity, and accordingly, all investments are
carried at amortized cost. At December 31, 1995, the market value of the
Company's short-term investments amounted to $1,001,000.
The Company adopted Statement of Financial Accounting Standards No. 115
Accounting for Certain Investments in Debt and Equity Securities (FAS 115) as of
January 1, 1994. Adoption of FAS 115 had no material effect on the Company's
consolidated financial position or results of operations.
Concentration of credit risks:
The Company invests its excess cash in deposits with major financial
institutions, money market funds and notes issued by the U.S. Government and
companies with strong credit ratings. The Company has established guidelines
relating to diversification and maturities that maintain safety and liquidity.
To date, the Company has not experienced any losses on its cash equivalents and
short-term investments.
The Company extends unsecured trade credit in connection with its
commercial services to a diversified customer base comprised of both foreign and
domestic entities, most of which are concentrated in the pharmaceutical,
biotechnology and chemical industries.
Property, plant and equipment:
Major additions and replacements of assets are capitalized at cost.
Maintenance, repairs and minor replacements are expensed as incurred. Property,
plant and equipment are depreciated using the straight-line method over the
following periods: buildings and improvements -- twenty to forty years;
laboratory equipment -- five to seven years; and vehicles, office equipment,
furniture, computer equipment and software -- three to seven years. Leasehold
improvements are amortized using the straight-line method over the estimated
useful life of the asset or the lease term, whichever is shorter. Upon
retirement or sale, the cost of the assets disposed of and the related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is credited or charged to operations. Equipment leased under capital leases
is capitalized with corresponding payment obligations recorded in current and
long-term debt.
F-8
<PAGE> 121
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible assets:
Costs in excess of net assets acquired are capitalized and are being
amortized on a straight-line basis over twenty years.
Costs incurred in filing for patents are capitalized. Capitalized costs
related to unsuccessful patent applications are expensed when it becomes
determinable that such applications will be rejected. Capitalized costs related
to successful patent applications are amortized on a straight-line basis over a
period not to exceed seventeen years or the remaining life of the patent,
whichever is shorter.
Earnings (loss) per share:
Earnings (loss) per common and common equivalent share is computed based
upon the weighted average number of common shares outstanding during the periods
plus, when their effect is dilutive, common stock equivalents consisting of
certain shares subject to stock options and warrants. Common and common
equivalent shares issued during the twelve-month period prior to the filing of
the initial public offering in December 1991 have been included in the
calculation as if they were outstanding for all periods presented, in accordance
with Securities and Exchange Commission (SEC) Staff Accounting Bulletin 83, even
when their effect is antidilutive. Primary and fully diluted earnings (loss) per
share are the same.
Exchange rate fluctuations and foreign currency translation:
The Company's consolidated financial statements are denominated in U.S.
dollars and, accordingly, changes in the exchange rate between the French Franc
and the U.S. dollar will affect the translation of Pharmakon Europe's financial
results into U.S. dollars for purposes of reporting the Company's consolidated
financial results, and also affect the U.S. dollar amounts actually received by
the Company from such subsidiary. Based on the assumption that Pharmakon Europe
continues to represent a significant portion of the business of the Company, the
depreciation of the U.S. dollar against the French Franc would have a favorable
impact on the Company's revenues and an unfavorable impact on the Company's
operating expenses due to the effect of such currency translation on Pharmakon
Europe's operating results; however, the appreciation of the U.S. dollar against
the French Franc would have an unfavorable impact on the Company's revenues and
a favorable impact on the Company's operating expenses. The Company does not
hedge its currency translation exposure.
Contracts between Pharmakon Europe and its clients are generally
denominated in French Francs. Because substantially all of Pharmakon Europe's
expenses, such as salaries, services, materials and supplies, are paid in French
Francs, its expenses are not materially affected by fluctuations in exchange
rates. However, given that many of Pharmakon Europe's clients and competitors
are located outside of France, exchange rate fluctuations may materially impact
contract prices and therefore may materially impact the results of operations of
Pharmakon Europe and the Company.
As a result of the acquisition of Pharmakon Europe, the percentage of the
Company's total revenues recorded in French Francs has become significant. For
the years ended December 31, 1995, 1994 and 1993, Pharmakon Europe has accounted
for 69%, 70% and 65% of the Company's revenues, respectively.
The financial statements of Pharmakon Europe are translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation." Substantially all assets and liabilities are
translated at year-end exchange rates and income and expense items are
translated at an average exchange rate. Exchange adjustments resulting from
foreign currency transactions are generally recognized in operations, whereas
adjustments resulting from the translation of financial statements are reflected
as a separate component of stockholders' equity. Net foreign currency
transaction gains or losses were not material in any of the years presented.
F-9
<PAGE> 122
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principals 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.
Stock-based compensation:
In October 1995, the FASB issued Statement 123, "Accounting for Stock-based
Compensation" (SFAS 123). SFAS 123 presents companies with the alternative of
retaining the current accounting for stock-based compensation or adopting a new
accounting method based on the estimated fair value of equity instruments
granted during the year. Companies that do not adopt the fair value based method
of accounting will be required to adopt the disclosure provisions of SFAS 123
for the year ending December 31, 1996. The Company expects to continue applying
its current accounting principles and upon adoption in 1996 will present the
required footnote disclosure.
Reclassification:
Certain amounts contained in the 1994 and 1993 consolidated financial
statements have been reclassified to conform to the 1995 presentation.
(2) TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable as of December 31, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
(IN THOUSANDS)
Trade accounts receivable -- billed................................ $5,699 5,238
Trade accounts receivable -- unbilled.............................. 2,018 1,702
------ ------
7,717 6,940
Less: allowance for doubtful accounts.............................. 55 52
------ ------
$7,662 6,888
====== ======
</TABLE>
Trade accounts receivable -- unbilled relates to revenues earned on
commercial services when the related services have been rendered and costs
incurred, but which were not billed to the customer as of the end of the
reporting period. At December 31, 1995, there are no prerequisites for billing
such unbilled trade accounts receivable.
F-10
<PAGE> 123
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
(3) SUPPLEMENTAL BALANCE SHEET INFORMATION
Prepaid expenses and other current assets as of December 31, 1995 and 1994
consist of the following:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Prepaid expenses................................................... $ 221 337
Deferred income taxes (note 13).................................... 329 72
Accrued interest and other receivables............................. 118 107
Inventory.......................................................... 169 203
Other current assets............................................... 514 274
------ ------
$1,351 993
====== ======
</TABLE>
Accrued expenses as of December 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Facilities costs................................................... $ 161 671
Payroll and fringe benefits........................................ 1,799 2,106
Professional fees.................................................. 51 123
French value-added and income taxes................................ 453 834
Costs related to the curtailment of the blood substitute program
(note 4)......................................................... -- 262
Other.............................................................. 528 733
------ ------
$2,992 4,729
====== ======
</TABLE>
(4) SPECIAL CHARGE
In 1993, the Company initiated a plan to curtail research and development
efforts on its hemoglobin-based blood substitute program and thereby downsized
and reorganized its DNX Biotherapeutics operations. In accordance with this
decision, the Company recorded a special charge of $7,095,000, or $.82 per
share, which included $706,000 for severance-related costs, $1,736,000 for
future rents and related obligations on vacated facilities, net of anticipated
recoveries, $4,376,000 for the write-down of equipment and leasehold
improvements to net realizable values and $277,000 for other related costs. As
of December 31, 1995, all liabilities previously accrued for in connection with
this special charge have been satisfied.
(5) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment as of December 31, 1995 and 1994
is as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land............................................................. $ 557 525
Buildings and improvements....................................... 12,761 11,881
Leasehold improvements........................................... 294 281
Laboratory equipment............................................. 7,943 7,109
Vehicles......................................................... 41 41
Office equipment, furniture, computer equipment and software..... 2,648 2,306
------- -------
24,244 22,143
Less accumulated depreciation and amortization................... 7,309 4,558
------- -------
$16,935 17,585
======= =======
</TABLE>
F-11
<PAGE> 124
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
(6) NEXTRAN
On August 29, 1994, DNX Biotherapeutics entered into a Joint Venture
Agreement with Holdings, a wholly-owned subsidiary of Baxter, which is a
subsidiary of Baxter International, Inc. Under the Joint Venture Agreement, DNX
Biotherapeutics and Holdings formed Nextran, a Delaware general partnership, in
which DNX Biotherapeutics had a 30% partnership interest and Holdings had a 70%
partnership interest.
In connection with the formation of Nextran, the Company, DNX
Biotherapeutics, Baxter and Holdings entered into an Asset Transfer Agreement
dated August 29, 1994 (the "Transfer Agreement"), under which DNX
Biotherapeutics contributed $2.5 million in cash and certain rights under patent
licenses, research agreements, and other intangible assets related to its organ
transplantation and blood substitute programs. In addition, DNX Biotherapeutics
contributed laboratory and office space in Princeton, New Jersey, swine research
facilities near Athens, Ohio and other related assets (collectively, the "DNX
Assets"), with a book value of $2.4 million, to Nextran. Holdings contributed to
Nextran $20 million in cash and certain rights under research and product
marketing programs between Baxter and various third parties related to certain
of its transplantation programs. Additionally, under the Transfer Agreement,
Nextran assumed certain of DNX Biotherapeutics' liabilities associated with the
organ transplantation and blood substitute programs, including the operating
lease on the Princeton, New Jersey facility. DNX Biotherapeutics' cash
contribution and the book value of the DNX Assets and the liabilities assumed by
Nextran, plus expenses incurred by the Company in the formation of Nextran,
aggregated $5.2 million.
In accordance with the Services Agreement, dated August 29, 1994 by and
between DNX Biotherapeutics and Nextran (the "Services Agreement"), the Company
provides temporary services, consisting primarily of animal colony management
and microinjection services, provided by certain of its technical employees, on
an allocated cost basis under the Services Agreement. Similarly, on a temporary
basis, Nextran provides DNX Biotherapeutics with lab and office space on an
allocated cost basis under the Services Agreement. In addition, DNX
Biotherapeutics receives a fee for providing Nextran the use of certain lab and
office equipment.
DNX Biotherapeutics consummated the sale of its 30% partnership interest in
Nextran to Acquisition for a cash purchase price of $18 million. The disposition
of the partnership interest was consummated pursuant to the terms of the
Purchase Agreement, dated September 22, 1995, as amended, between the Company,
DNX Biotherapeutics, Baxter and Acquisition. Although the Company has sold its
partnership interest in Nextran, in the event that Nextran develops and
commercializes hemoglobin blood substitutes using technologies licensed to
Nextran by the Company, the Company will receive royalty income. Additionally,
the Company remains obligated with respect to certain environmental
representations and warranties which expire on August 27, 1997. Such
representations and warranties are also limited by certain financial
indemnification provisions.
Prior to the sale of its partnership interest in Nextran, the Company
recorded its share of Nextran's financial results of operations in its
consolidated financial statements according to the equity method of accounting.
As a result of the sale of its partnership interest in Nextran, the Company will
no longer record a share of Nextran's financial results of operations in its
consolidated financial statements, subsequent to September 30, 1995.
F-12
<PAGE> 125
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
(6) NEXTRAN (CONTINUED)
The Company's investment in Nextran, which was accounted for under the
equity method, amounted to $3,844,000 at December 31, 1994, a reduction from the
original investment of $5,173,000 as a result of the recording of the Company's
share of Nextran's losses. As a result of the sale of its partnership interest
in Nextran, the Company eliminated the remaining balance of the investment in
Nextran from the balance sheet and recorded a non-recurring gain, net of
expenses, income taxes and related accruals, of $17,266,000. The Company's share
of Nextran's losses for the period ended September 30, 1995 and for the period
from August 29, 1994 (inception) to December 31, 1994 are summarized below:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
30% of Nextran's net loss...................................... $(3,600) (1,729)
Amortization of the excess of the Company's share of Nextran's
underlying net assets over the cost of the investment at
August 29, 1994 ($3,598,000)................................ 900 400
------- -------
$(2,700) (1,329)
======= =======
</TABLE>
(7) INTANGIBLE ASSETS
Intangible assets consist of the following components at December 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Costs in excess of net assets acquired............................. $1,205 1,107
Licensed technology................................................ 61 61
Patent application costs........................................... 40 22
------- -------
1,306 1,190
Less accumulated amortization...................................... 271 199
------- -------
$1,035 991
======= =======
</TABLE>
(8) SHORT-TERM BORROWINGS
Pharmakon Europe has lines of credit and overdraft privileges with French
banks in the aggregate amount of 10.5 million French Francs ($2.1 million at the
exchange rates in effect on December 31, 1995). At December 31, 1995, there were
short-term borrowings outstanding under these facilities in the amount of 6.9
million French Francs ($1.4 million at the exchange rate in effect on December
31, 1995).
F-13
<PAGE> 126
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
(9) LONG-TERM DEBT
Long-term debt consists of the following components at December 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Debt associated with the Pharmakon Europe acquisition:
Promissory notes in the original principal amount of $7,000,000.
Requires quarterly interest payments at the prime rate (8.5%
as of December 31, 1995) and two annual principal payments,
$500,000 and $1,500,000 which were paid in December 1993 and
1994, respectively, plus a balloon payment of $5,000,000 due
December 1997................................................. $5,000 5,000
Mortgage with a commercial bank, bearing interest at the prime rate
plus 1 1/2%, due in monthly installments through 2009............ 1,459 1,490
Mortgage with a Pennsylvania state agency, bearing interest at 2%,
due in monthly installments through 2009......................... 1,119 1,189
Equipment line of credit........................................... 485 1,011
Equipment loan with Pennsylvania state agency...................... 397 463
Obligation under capital lease (note 14)........................... 114 133
------ ------
8,574 9,286
Less: Current portion.............................................. 744 784
------ ------
$7,830 8,502
====== ======
</TABLE>
Future principal maturities of long-term debt at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996......................................... $ 744
1997......................................... 5,240
1998......................................... 221
1999......................................... 224
2000......................................... 236
Thereafter................................... 1,909
------
$8,574
======
</TABLE>
The promissory notes in the original principal amount of $7,000,000 issued
by Pharmakon in the Pharmakon Europe acquisition are guaranteed by the Company
and are secured by a pledge of Pharmakon Europe's common stock, the unsecured
assets of Pharmakon, and an interest in any royalties derived by DNX
Biotherapeutics under certain sublicense agreements. The promissory notes
require prepayments in specified amounts upon the Company selling any of its
shares of common stock of Pharmakon. Also, if the Company is reimbursed by the
sellers of Pharmakon Europe for any losses suffered with respect to contractual
representations and warranties made by the sellers, such reimbursement can be
set-off against the principal balance on the promissory notes. The promissory
notes contain various covenants, the most restrictive of which prohibit the
payment of dividends by Pharmakon to the Company and the sale of any Pharmakon
Europe assets that are not made in the ordinary course of business.
F-14
<PAGE> 127
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
(9) LONG-TERM DEBT (CONTINUED)
In connection with the construction of its new facility, Pharmakon secured
(i) a $1.5 million 15-year mortgage with a bank, which originally required cash
collateral of $180,000, and (ii) a $1.2 million 15-year mortgage from a
Pennsylvania agency, which required cash collateral of $450,000. These two loans
are also secured by mortgages on the property acquired. As a result of achieving
certain financial covenants, the cash collateral on the mortgage loan with the
bank has been released. The cash collateral on the mortgage with the
Pennsylvania agency is classified as restricted cash as of December 31, 1995. If
the Company achieves certain financial milestones, this $450,000 of cash
collateral will be released. Additionally, the favorable interest rate on the
mortgage with the Pennsylvania agency is subject to change upon review by the
agency of certain future conditions. As of December 31, 1995, the Company was in
violation of one of the financial covenants on the mortgage loan with the bank,
primarily as a result of $329,000 of expenses recorded in 1995 in association
with cost reduction programs in Europe. This violation was waived by the bank.
In March 1993, DNX Biotherapeutics obtained a $3.0 million debt financing
facility from a bank in the form of an equipment line of credit which is
guaranteed by the Company. In connection with the curtailment of the blood
substitute program (note 4), DNX Biotherapeutics discontinued borrowings under
this line of credit and is paying the principal balance of $485,000 outstanding
on December 31, 1995 in monthly installments, with interest at the prime rate,
through January 1997. In June 1995, the Company and the bank restructured
certain terms of this loan and the bank released from collateral a certificate
of deposit in the amount of $750,000, which had previously been classified as
restricted cash. The loan is secured by a security interest in the equipment
acquired and the payments due to the Company under the installment sale of
certain equipment associated with the transfer of the lease obligation on the
Plainsboro pilot plant facility. In connection with the formation of Nextran,
the Company entered into a services/lease agreement whereby Nextran leases 49%
of the equipment subject to this loan and makes monthly payments to the Company
equal to Nextran's proportionate share of the monthly payment due under this
loan based on the equipment.
In May 1994, Pharmakon obtained a $500,000 equipment loan from a
Pennsylvania agency secured by certain of the equipment required in connection
with the expansion of Pharmakon's United States operations. The loan is payable
in equal monthly installments, with interest at 3.5%, through June 2001. As of
December 31, 1995 $288,000 of the proceeds from this equipment loan, plus
accrued interest, remains in escrow and is classified as restricted cash. The
funding period for this loan ended on December 31, 1995. These remaining
proceeds will be returned to the Pennsylvania agency and the corresponding debt
reduced in the first half of 1996.
(10) STOCKHOLDERS' EQUITY
Warrants:
In 1991, in conjunction with an equipment leasing agreement, a warrant to
purchase 2,800 shares of Common Stock exercisable at $4.84 per share was granted
to a lessor to the Company. This warrant is currently exercisable and expires in
2001.
In 1994, in conjunction with a financial consulting and advisory
arrangement, the Company issued a warrant to purchase 110,000 shares of Common
Stock exercisable at $4.25 per share to the advisor. The warrant is currently
exercisable and expires on December 31, 1996.
F-15
<PAGE> 128
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
(11) STOCK OPTION PLANS
The Company maintains two stock incentive plans, the 1988 Stock Plan and
the 1991 Stock Option Plan (the Plans), which provide for the granting of
options to officers, directors, employees and consultants at an option price
which approximates the fair market value of such common shares at the date of
grant as determined by the Board of Directors. The Plans provide for an
aggregate of 2,110,250 options to be granted. The options are exercisable for a
period of ten years after the date of grant and generally vest over a four-year
period.
A summary of activity under the Plans for the years ending December 31,
1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
COMMON STOCK OPTIONS
OUTSTANDING
-----------------------------
SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Balance, December 31, 1992........................................ 1,017,298 0.40 - 10.50
Granted......................................................... 752,938 4.00 - 5.25
Exercised....................................................... (14,918) 0.40 - 2.50
Canceled........................................................ (247,224) 0.40 - 6.50
---------
Balance, December 31, 1993........................................ 1,508,094 0.40 - 10.50
Granted......................................................... 67,425 3.875 - 4.75
Exercised....................................................... (49,319) 0.40 - 2.50
Canceled........................................................ (233,857) 0.40 - 6.50
---------
Balance, December 31, 1994........................................ 1,292,343 0.40 - 10.50
Granted......................................................... 557,475 3.00 - 4.38
Exercised....................................................... (135,248) 0.40 - 2.50
Canceled........................................................ (111,176) 0.40 - 6.25
---------
Balance, December 31, 1995........................................ 1,603,394 0.40 - 10.50
=========
Shares exercisable at December 31, 1995........................... 879,571
=========
</TABLE>
For certain options granted prior to the Company's initial public offering
in 1991, the Company recognized as deferred compensation the excess of the
estimated fair value for accounting purposes of the common stock issuable upon
exercise of such options over the aggregate exercise price of such options. Such
deferred compensation aggregated $1,200,000 and is being amortized ratably over
the four-year vesting period commencing October 1, 1991. Compensation expense
recognized amounted to $104,000, $331,000 and $300,000 during 1995, 1994 and
1993, respectively. In addition, the transfer of certain employees to Nextran in
1994 (note 6), and employee terminations related to the curtailment of the blood
substitute program in 1993 (note 4), resulted in certain of these options being
forfeited. As a result, related deferred compensation of $30,000 and $56,000 was
reduced and charged to additional paid-in capital in 1994 and 1993,
respectively.
F-16
<PAGE> 129
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
(12) GOVERNMENT CONTRACTS
In 1990, the Company commenced working on a cost plus fixed fee services
contract to serve as the National Transgenic Mouse Development Facility with the
National Institute of Child Health and Human Development (NICHD) at a cost of
$1,655,210 plus a fixed fee of 7%. Revenues recognized under this contract
amounted to approximately $182,380, $422,000 and $275,000 during 1995, 1994 and
1993, respectively. This contract terminated on May 15, 1995.
In 1993, the Company completed work on a cost plus fixed fee research and
development contract with the National Institute of Environmental Health
Sciences (NIEHS) at a cost of $1,663,710 plus a fixed fee of 6.9%. Revenues
recognized under this contract amounted to approximately $49,000 during 1993.
(13) INCOME TAXES
Income tax expense (benefit) attributable to the net income (loss) consists
of the following during the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
U.S. Federal.......................................... $ 200 -- --
State and local....................................... -- -- 56
Foreign............................................... 320 110
---- ---- ----
200 320 166
---- ---- ----
Deferred
U.S. Federal.......................................... -- -- --
State and local....................................... -- -- --
Foreign............................................... (291) 12 (216)
---- ---- ----
(291) 12 (216)
---- ---- ----
$ (91) 332 (50)
==== ==== ====
</TABLE>
Income tax expense (benefit) attributable to the net income (loss) for the
years ended December 31, 1995, 1994 and 1993 differed from the amounts computed
by applying the U.S. federal income tax rate of 34 percent to the income (loss)
before income tax expense (benefit) as a result of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" income tax expense (benefit)....... $4,272 (2,158) (6,609)
Increase (reduction) in income taxes resulting from:
Change in the beginning-of-the-year balance of the
valuation allowance for Federal deferred tax
assets allocated to income tax expense............ (4,173) 2,514 6,527
Equity (income) loss in foreign subsidiary not
(taxable) deductible for federal income tax
purposes.......................................... 310 (198) 36
Foreign, state and local income taxes, net of federal
income tax benefit................................ (291) 332 (69)
Other, net........................................... (209) (158) 65
------ ------- -------
$ (91) 332 (50)
====== ======= =======
</TABLE>
F-17
<PAGE> 130
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
(13) INCOME TAXES (CONTINUED)
The significant components of deferred income tax expense (benefit)
attributable to net income (loss) from operations for 1995, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred income tax expense (benefit) (exclusive of the
effect of the component listed below)................ $3,875 (5,689) (7,621)
(Decrease) increase in beginning-of-the-year balance of
the valuation allowance for deferred tax assets...... (4,166) 5,701 7,405
------ ------- -------
$ (291) 12 (216)
====== ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Retirement indemnities of Pharmakon Europe..................... $ 176 210
Deferred compensation.......................................... 376 335
Investment in Nextran, due to difference in allocation of
losses...................................................... -- 176
Other.......................................................... 230 5
Capitalized research and development costs..................... 543 635
Plant and equipment, due to write-offs......................... 2,470 2,736
Net operating loss carryforwards............................... 8,256 11,503
Tax credit carryforward........................................ 3,182 2,915
------- -------
Total gross deferred tax assets........................ 15,233 18,515
Less valuations allowance...................................... 13,735 17,901
------- -------
Net deferred tax assets................................ 1,498 614
------- -------
Deferred tax liabilities:
Plant and equipment, principally due to allocation of the
Pharmakon Europe purchase price and differences in
depreciation and capitalized interest....................... (2,803) (2,126)
Accrued expenses............................................... (253) (337)
------- -------
Total gross deferred liabilities....................... (3,056) (2,463)
------- -------
Net deferred tax liability............................. $(1,558) (1,849)
======= =======
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1993 was
$4,795,000. The net change in the total valuation allowance for the years ended
December 31, 1995, 1994 and 1993 were (decreases) increases of ($4,166,000),
$5,701,000 and $7,405,000, respectively.
At December 31, 1995, the Company has net operating loss carryforwards for
Federal and state income tax purposes of approximately $20,318,000 which are
available to offset future Federal and state taxable income, if any, through
2009 and 2001, respectively.
The Company also has research and development tax credit carryforwards of
approximately $2,982,000 for federal income tax reporting purposes which are
available to reduce federal income taxes, if any, through 2010. The Company has
alternative minimum tax credit carryforwards of approximately $200,000 for
federal income tax reporting purposes which are available to reduce federal
income taxes, if any. These tax credits have an unlimited carryforward period.
F-18
<PAGE> 131
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
(14) COMMITMENTS
The Company leases office, laboratory facilities and equipment under
various noncancellable operating and capital lease agreements. Assets recorded
under capital leases as of December 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Laboratory equipment.......................................... $291 213
Less accumulated depreciation................................. 183 89
---- ----
$108 124
==== ====
</TABLE>
Future minimum rental commitments for the next five years as of December
31, 1995 on the aforementioned operating and capital leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1996.............................................................. $ 91 288
1997.............................................................. 22 287
1998.............................................................. 8 252
1999.............................................................. -- 161
2000.............................................................. -- --
Thereafter........................................................ -- --
---- ----
Total minimum lease payments.................................... 121 988
====
Less amount representing interest............................... 7
----
Present value of net minimum lease payments under capital
leases....................................................... 114
Less current portion of obligation under capital leases......... 86
----
Obligation under capital leases, non-current portion............ $ 28
====
</TABLE>
Rental expense aggregated $301,000, $528,000 and $1,066,000 in 1995, 1994
and 1993, respectively.
In 1994, the Company reversed into income $300,000 which was previously an
accrued liability, established in connection with the Company's curtailment of
the blood substitute program for the estimated restoration costs of its
Plainsboro pilot plant facility, when the Company was relieved of these
obligations upon a new tenant assuming the lease for this facility without
requiring restoration. In addition, in connection with this transaction, in
January 1995 the Company sold certain equipment associated with the pilot plant
to this new tenant for a total of $600,000 to be paid over 21 months.
As part of the Pharmakon acquisition in 1991, the Company entered into a
lease agreement with a stockholder, former officer and former board member of
the Company to lease certain laboratory facilities occupied by Pharmakon. This
lease agreement, expiring in August 1999, requires monthly rental payments of
$19,167 and is being treated as an operating lease for financial statement
reporting purposes.
F-19
<PAGE> 132
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
(15) EMPLOYEE BENEFIT PLANS
Retirement indemnities of Pharmakon Europe:
Most retirement benefits in France are paid out under the auspices of
a government-sponsored defined contribution retirement plan. Under the
terms of labor agreements, however, employees are entitled to an additional
lump sum payment at retirement provided they are still employed by
Pharmakon Europe at their normal retirement date.
Net periodic pension cost for 1995, 1994 and 1993 includes the
following components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service costs-benefits earned during the period................. $39 31 30
Interest cost on projected benefit obligation................... 27 24 22
Net amortization and deferral................................... 19 17 17
--- --- ---
Net periodic pension cost..................................... $85 72 69
=== === ===
</TABLE>
The present value of benefit obligations and the funded status of
Pharmakon Europe's retirement indemnities recognized in the Company's
consolidated balance sheets as of December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated benefit obligations (no amounts
are vested)......................................................... $470 232
Additional amounts related to salary increases........................ 10 200
---- ----
Total projected benefit obligation.................................. 480 432
Plan assets at fair value............................................. -- --
---- ----
Accrued pension cost................................................ $480 432
==== ====
</TABLE>
Assumptions used in the actuarial computations for 1995, 1994 and 1993
are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Discount rate................................................... 6.0 % 6.0 % 6.5 %
Rate of compensation increases.................................. 3.0 % 3.0 % 3.5 %
</TABLE>
Profit-sharing of Pharmakon Europe:
Profit-sharing is a requirement under French law. The payments are made to
employees after a period of 5 years unless certain conditions are met and
payment can be made earlier. During 1995, 1994 and 1993, profit sharing costs
aggregated $0, $190,000 and $108,000, respectively.
F-20
<PAGE> 133
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
(15) EMPLOYEE BENEFIT PLANS (CONTINUED)
Savings Plan:
The Company has an employee savings plan ("Savings Plan"), that qualifies
as a deferred salary arrangement under Section 401(k) of the Internal Revenue
Code. Under the Savings Plan, participating U.S. employees may defer a portion
of their pretax earnings, up to the Internal Revenue Service annual contribution
limit. Effective May 1, 1993, the company amended the Savings Plan to provide
for a Company match of 50% of each employee's contributions with newly issued
common stock of the Company. For the years ended December 31, 1995, 1994 and
1993, the Company issued 14,563, 30,977 and 31,504 shares of common stock,
respectively, to participants in the savings plan. Charges to operations for the
years ended December 31, 1995, 1994 and 1993 aggregated $56,000, $134,000 and
$132,000, respectively, under this plan.
(16) BUSINESS SEGMENT INFORMATION
The Company operates in two geographic areas. Information on the Company's
geographic operations is set forth in the table below. Domestic operations in
1994 and 1993 include operating costs associated with the blood-substitute and
organ transplantation programs.
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Domestic Operations............................... $ 7,334 7,660 8,025
European Operations............................... 17,463 18,567 15,375
Corporate licensing............................... 526 302 319
------- ------- -------
Total revenues................................. $25,323 26,529 23,719
======= ======= =======
Operating income (loss):
Domestic operations............................... $(1,105) (4,061) (17,034)
European operations............................... (600) 1,172 156
General corporate................................. (896) (2,159) (2,781)
------- ------- -------
Total operating loss........................... $(2,601) (5,048) (19,659)
======= ======= =======
Identifiable assets:
Domestic operations............................... $ 8,198 12,547 10,650
European operations............................... 19,872 19,183 18,019
General corporate................................. 20,777 4,743 13,502
------- ------- -------
Total identifiable assets...................... $48,847 36,473 42,171
======= ======= =======
</TABLE>
The Company operates through two subsidiaries, Pharmakon and DNX
Biotherapeutics. Pharmakon provides preclinical drug development and safety
assessment services to the pharmaceutical, biotechnology, chemical and other
industries. DNX Biotherapeutics is engaged in the research, development and
commercialization of products based primarily on/or employing transgenic animal
technology for the pharmaceutical, biotechnology and medical communities. Prior
to the formation of Nextran, these products included therapeutic products for
solid organ transplantation. Business segment information is summarized in the
table below. Pharmakon's operating income (loss) includes an allocation of
research and development expenses and corporate services.
F-21
<PAGE> 134
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
(16) BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Pharmakon............................................... $23,949 25,605 22,958
DNX Biotherapeutics..................................... 1,048 831 674
Corporate licensing..................................... 526 302 319
Eliminations............................................ (200) (209) (232)
-------- -------- --------
Total revenues....................................... 25,323 26,529 23,719
-------- -------- --------
Operating income (loss):
Pharmakon............................................... (1,522) 616 740
DNX Biotherapeutics..................................... (210) (3,505) (17,618)
General corporate....................................... (869) (2,159) (2,781)
-------- -------- --------
Total operating loss................................. (2,601) (5,048) (19,659)
-------- -------- --------
Interest income........................................... 563 453 757
Interest expense.......................................... (815) (676) (524)
Other..................................................... 562 253 (13)
-------- -------- --------
Loss before equity in net loss of Nextran, gain on
sale of Nextran and income tax expense (benefit)... $(2,291) (5,018) (19,439)
======== ======== ========
Identifiable assets:
Pharmakon............................................... $27,152 26,886 24,234
DNX Biotherapeutics..................................... 883 4,844 4,435
General corporate....................................... 20,812 4,743 13,502
-------- -------- --------
Total identifiable assets............................ $48,847 36,473 42,171
======== ======== ========
Capital additions:
Pharmakon............................................... $ 865 2,935 5,038
DNX Biotherapeutics..................................... 9 24 4,089
General corporate....................................... 34 -- --
-------- -------- --------
Total capital additions.............................. $ 908 2,959 9,127
======== ======== ========
Depreciation and amortization:
Pharmakon............................................... $ 2,298 2,100 1,685
DNX Biotherapeutics..................................... 46 534 1,330
General corporate....................................... 330 658 431
-------- -------- --------
Total depreciation and amortization.................. $ 2,674 3,292 3,446
======== ======== ========
</TABLE>
(17) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, short-term investments, trade accounts
receivable, accrued interest receivable, restricted cash, accounts payable, and
accrued expenses:
The carrying amount approximates fair value because of the short term
maturity of these instruments.
Long-term debt:
The carrying amount of long-term debt with variable interest rates
approximates fair value due to its variable nature. The fair value of long-term
debt with fixed interest rates is estimated on the current rates offered to the
Company for debt of the same remaining maturities. The carrying amount of
long-term debt with fixed interest rates aggregated $1,378,000 while the fair
value approximated $783,000 as of December 31, 1995.
F-22
<PAGE> 135
DNX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................ $ 15,456 20,042
Short-term investments................................... 5,233 1,001
Trade accounts receivable, net........................... 7,167 7,662
Prepaid expenses and other current assets................ 983 1,351
-------- --------
Total current assets.................................. 28,839 30,056
Property, plant and equipment, net......................... 15,190 16,935
Intangible assets, net..................................... 964 1,035
Other assets............................................... 797 44
Restricted cash............................................ 460 777
-------- --------
$ 46,250 48,847
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings.................................... -- 1,399
Current portion of long-term debt........................ 246 744
Accounts payable......................................... 2,455 2,100
Accrued expenses......................................... 3,533 2,992
Deferred revenue......................................... 2,598 3,456
-------- --------
Total current liabilities............................. 8,832 10,691
Long-term debt, excluding current portion.................. 7,431 7,830
Deferred income taxes...................................... 1,779 2,045
Other liabilities.......................................... 876 948
-------- --------
Total liabilities..................................... 18,918 21,514
-------- --------
Stockholders' equity
Serial preferred stock, $.01 par value, 5,000,000
shares authorized; no shares issued and outstanding... -- --
Common stock, $.01 par value, 20,000,000 shares
authorized; issued and outstanding 8,713,353 in 1996
and 8,606,194 in 1995................................. 87 86
Additional paid-in capital............................... 57,157 57,000
Translation adjustment................................... 640 1,095
Accumulated deficit...................................... (30,552) (30,848)
-------- --------
Total stockholders' equity............................ 27,332 27,333
-------- --------
Commitments and contingencies
$ 46,250 48,847
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE> 136
DNX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS EXPECT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Commercial services............................... $ 7,286 5,267 21,606 18,317
License fees and other contracts.................. 105 248 351 784
------- ------- ------- -------
7,391 5,515 21,957 19,101
------- ------- ------- -------
Operating expenses:
Cost of commercial services....................... 5,691 4,791 16,966 15,529
Research and development.......................... 93 252 329 773
General, administrative and marketing............. 1,504 1,806 4,530 4,600
------- ------- ------- -------
7,288 6,849 21,825 20,902
------- ------- ------- -------
Income (loss) from operations................ 103 (1,334) 132 (1,801)
------- ------- ------- -------
Other income (expense):
Interest income................................... 271 85 852 246
Interest expense.................................. (154) (202) (488) (613)
Other............................................. 82 122 254 474
------- ------- ------- -------
199 5 618 107
------- ------- ------- -------
Income (loss) before equity in net loss of Nextran
and income taxes............................... 302 (1,329) 750 (1,694)
Equity in net loss of Nextran....................... -- 519 -- 2,700
Gain on sale of Nextran, net of income taxes of
$200.............................................. -- 17,266 -- 17,266
Provision (benefit) for income taxes................ 246 (49) 454 (45)
------- ------- ------- -------
Net income................................... $ 56 15,467 296 12,917
======= ======= ======= =======
Earnings per common and common equivalent share:
Primary........................................... $ 0.01 1.70 0.03 1.43
======= ======= ======= =======
Fully Diluted..................................... $ 0.01 1.70 0.03 1.43
======= ======= ======= =======
Shares used in computing per share amounts
Primary........................................... 9,381 9,072 9,287 9,018
======= ======= ======= =======
Fully Diluted..................................... 9,381 9,096 9,343 9,056
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 137
DNX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS EXCEPT SHARES)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN TRANSLATION ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL ADJUSTMENT DEFICIT EQUITY
------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995....... $ 86 57,000 1,095 (30,848) 27,333
Issuance of 95,024 shares of
common stock upon exercise of
stock options and warrants..... 1 90 -- -- 91
Issuance of 12,135 shares of
common stock pursuant to 401(k)
plan........................... -- 67 -- -- 67
Translation adjustment........... -- -- (455) -- (455)
Net income....................... -- -- -- 296 296
------- ------- ------- --------- --------
Balance, September 30, 1996...... $ 87 57,157 640 (30,552) 27,332
======= ======= ======= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 138
DNX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................. $ 296 12,917
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Non-cash items:
Depreciation and amortization....................................... 1,881 2,076
Deferred income tax expense (benefit)............................... 13 (98)
(Gain) loss on disposal of property, plant and equipment............ (3) 43
Amortization of premium on short-term investments................... 177 44
Non-cash charges.................................................... 67 55
Equity in net loss of Nextran....................................... -- 2,700
Gain on sale of partnership interest in Nextran..................... -- (17,266)
Change in operating assets and liabilities:
Decrease in accounts receivable..................................... 227 983
Decrease in prepaid expenses and other current assets............... 93 74
(Increase) decrease in other assets................................. (752) 54
Increase (decrease) in accounts payable............................. 463 (144)
Increase (decrease) in accrued expenses............................. 669 (1,265)
Decrease in deferred revenue........................................ (746) (1,447)
Increase (decrease) in other liabilities............................ (35) 64
-------- --------
Net cash provided by (used in) operating activities............ 2,350 (1,210)
-------- --------
Cash flows from investing activities:
Decrease in restricted cash................................................ 317 950
Increase in cash in escrow................................................. -- (18,000)
Purchase of property, plant and equipment.................................. (706) (623)
Proceeds from disposal of property, plant and equipment.................... 36 6
Purchases of intangibles assets............................................ (21) (19)
Purchases of short-term investments........................................ (5,409) (2,055)
Proceeds from maturities of short-term investments......................... 1,000 --
Proceeds from sale of partnership interest in Nextran...................... -- 18,000
-------- --------
Net cash used in investing activities.......................... (4,783) (1,741)
-------- --------
Cash flows from financing activities:
Proceeds (payments) on short-term borrowings............................... (1,361) 623
Proceeds from borrowings of long-term debt................................. -- 61
Principal payments on long-term debt....................................... (893) (582)
Proceeds from stock options exercised...................................... 91 36
-------- --------
Net cash provided by (used in) financing activities............ (2,163) 138
-------- --------
Effect of exchange rate changes on cash...................................... 10 (38)
-------- --------
Decrease in cash and cash equivalents........................................ (4,586) (2,851)
Cash and cash equivalents, beginning of period............................... 20,042 4,404
-------- --------
Cash and cash equivalents, end of period..................................... 15,456 1,553
======== ========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest................................................................. 495 637
Income taxes............................................................. 7 825
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE> 139
DNX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 1. STATEMENT OF ACCOUNTING PRESENTATION
In the opinion of DNX Corporation and Subsidiaries (as defined below) (the
"Company" or "DNX"), the accompanying unaudited consolidated financial
statements include all significant adjustments (consisting only of normal
recurring accruals) necessary to fairly state the Company's consolidated
financial position as of September 30, 1996, and the consolidated results of
operations and for the three and nine month periods ended September 30, 1996 and
1995 and consolidated cash flows for the nine month periods ended September 30,
1996 and 1995. The consolidated financial statements have been prepared in
accordance with the requirements for Form 10-Q and, therefore, do not include
all disclosures of financial information required by generally accepted
accounting principles. The accompanying consolidated financial statements should
be read in conjunction with the financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995. The information
set forth in the accompanying consolidated balance sheet as of December 31, 1995
has been derived from the audited consolidated balance sheet included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
Interim results are not necessarily indicative of the results for the full
year.
NOTE 2. EARNINGS (LOSS) PER SHARE
Earnings (loss) per common and common equivalent share is computed based
upon the weighted average number of common shares outstanding during the
periods, plus when their effect is dilutive, common stock equivalents consisting
of certain shares subject to stock options and warrants, and gives effect to
certain adjustments as prescribed by Securities and Exchange Commission Staff
Accounting Bulletin 83.
NOTE 3. PROPOSED TRANSACTION
On August 19, 1996, the Company entered into certain agreements ("the
Transaction Agreements") providing for the acquisition by the Company of all of
the outstanding capital stock of, or equity interests in, BioClin, Inc., BioClin
Europe AG, BioClin GmbH, Kilmer N.V. and BioClin Institute of Clinical
Pharmacology GmbH (collectively, the "BioClin Group") in consideration and
exchange for 2,632,600 shares of Common Stock (the "Proposed Transaction"). The
BioClin Group is an international contract research organization engaged in
clinical drug development services in the United States, all major European
countries, Israel, Turkey and Australia. The Proposed Transaction has been
structured, and the legal agreements have been drafted, in a manner intended to
qualify the Proposed Transaction for "pooling-of-interests" accounting
treatment. Pursuant to the Transaction Agreements, the closing of the Proposed
Transaction is subject to a number of conditions, including DNX stockholder
approval and regulatory approvals. The Proposed Transaction is expected to close
during the late fourth quarter of fiscal 1996.
F-27
<PAGE> 140
FINANCIAL STATEMENTS -- THE BIOCLIN GROUP
X-1
<PAGE> 141
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
DNX Corporation:
We have audited the accompanying combined balance sheets of the BioClin
Group as of December 31, 1995 and 1994 and the related combined statements of
operations, deficit in stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1995. These combined financial
statements are the responsibility of the BioClin Group's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the BioClin Group as
of December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1995, in conformity with generally accepted accounting principles.
The accompanying combined financial statements have been prepared assuming
the BioClin Group will continue as a going concern. As discussed in note 1 to
the combined financial statements, the BioClin Group has suffered recurring net
losses and has a net capital deficiency that 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 1. The combined financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
KPMG PEAT MARWICK LLP
August 19, 1996
X-2
<PAGE> 142
THE BIOCLIN GROUP
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................. $ 1,126 995
Marketable debt securities (note 3).................................. 386 --
Trade accounts receivable (note 4)................................... 3,245 2,452
Prepaid expenses and other current assets............................ 187 336
-------- --------
Total current assets.............................................. 4,944 3,783
Marketable debt securities (note 3).................................... 547 835
Property and equipment, net (note 5)................................... 871 963
Other assets........................................................... 215 81
-------- --------
Total assets...................................................... $ 6,577 5,662
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Short-term borrowings (note 6)....................................... 9,834 9,589
Note payable -- related party (note 7)............................... 326 287
Accounts payable..................................................... 1,073 2,607
Accrued expenses (note 8)............................................ 3,102 990
Deferred revenue..................................................... 2,569 2,065
-------- --------
Total current liabilities......................................... 16,904 15,538
Deferred income taxes (note 11)...................................... 14 154
-------- --------
Total liabilities................................................. 16,918 15,692
-------- --------
Stockholders' deficiency:
Series I redeemable, noncumulative preferred stock, BioClin, Inc.,
par value $.01 per share, with a liquidation preference in the
amount of $1,374 plus 10% per annum from date of issuance;
authorized, issued and outstanding 91 shares in 1995 and 1994
(note 9).......................................................... 1 1
Common stock, BioClin, Inc., par value $.01 per share; authorized
50,000 shares, issued and outstanding 9 shares in 1995 and 1994... -- --
Common stock, BioClin Europe AG, par value SFr500 per share;
authorized 100 shares, issued and outstanding 100 bearer shares in
1995 and 1994..................................................... 105 105
Common stock, BioClin Institute of Clinical Pharmacology GmbH, par
value DM100 per share; authorized 1,500 shares, issued and
outstanding 1,500 shares in 1995 and 1994......................... 86 86
Additional paid-in capital........................................... 125 125
Foreign currency translation adjustment.............................. (409) (234)
Employee stock purchase loans........................................ (93) (99)
Accumulated deficit.................................................. (10,233) (10,092)
Net unrealized gain on marketable debt securities (note 3)........... 77 78
-------- --------
Total stockholders' deficiency.................................... (10,341) (10,030)
-------- --------
Commitments and contingencies (note 13)
Total liabilities and stockholders' deficiency.................. $ 6,577 5,662
======== ========
</TABLE>
See accompanying notes to combined financial statements.
X-3
<PAGE> 143
THE BIOCLIN GROUP
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Gross revenues.............................................. $ 18,837 11,386 8,536
Less reimbursed costs (note 2).............................. (4,551) (1,727) (1,361)
-------- ------- --------
Net revenues (note 2)..................................... 14,286 9,659 7,175
-------- ------- --------
Operating costs and expenses:
Direct costs.............................................. 8,456 7,528 6,072
Selling, general and administrative....................... 4,467 3,537 2,824
Depreciation and amortization............................. 445 366 237
-------- ------- --------
13,368 11,431 9,133
-------- ------- --------
Income (loss) from operations........................ 918 (1,772) (1,958)
Other income (expense):
Interest income........................................... 85 66 142
Interest expense (notes 6 and 7).......................... (700) (599) (450)
Foreign currency losses, net (note 2)..................... (292) (25) (215)
Other..................................................... (38) 3 72
-------- ------- --------
(945) (555) (451)
-------- ------- --------
Loss before income taxes............................. (27) (2,327) (2,409)
Income taxes (note 11)...................................... 114 58 28
-------- ------- --------
Net loss............................................. $ (141) (2,385) (2,437)
======== ======= ========
</TABLE>
See accompanying notes to combined financial statements.
X-4
<PAGE> 144
THE BIOCLIN GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES I COMMON STOCK,
REDEEMABLE, BIOCLIN
NONCUMULATIVE COMMON INSTITUTE OF FOREIGN
PREFERRED COMMON STOCK, CLINICAL ADDITIONAL CURRENCY
STOCK, STOCK, BIOCLIN PHARMACOLOGY PAID-IN TRANSLATION
BIOCLIN. INC. BIOCLIN. INC. EUROPE AG GMBH CAPITAL ADJUSTMENT
------------- ------------- --------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992
(unaudited)............... $ 1 -- 105 86 125 (489)
Cash received on employee
stock purchase loan..... -- -- -- -- -- --
Translation adjustment.... -- -- -- -- -- 579
Net loss.................. -- -- -- -- -- --
----- --- --- --- ---- ----
Balance, December 31,
1993...................... 1 -- 105 86 125 90
Cash received on employee
stock purchase loan..... -- -- -- -- -- --
Translation adjustment.... -- -- -- -- -- (324)
Decrease in net unrealized
gain on marketable debt
securities.............. -- -- -- -- -- --
Net loss.................. -- -- -- -- -- --
----- --- --- --- ---- ----
Balance, December 31,
1994...................... 1 -- 105 86 125 (234)
Cash received on employee
stock purchase loan..... -- -- -- -- -- --
Translation adjustment.... -- -- -- -- -- (175)
Decrease in net unrealized
gain on marketable debt
securities.............. -- -- -- -- -- --
Net loss.................. -- -- -- -- -- --
----- --- --- --- ---- ----
Balance, December 31,
1995...................... $ 1 -- 105 86 125 (409)
===== === === === ==== ====
<CAPTION>
NET UNREALIZED
GAIN (LOSS)
EMPLOYEE ON
STOCK MARKETABLE TOTAL
PURCHASE ACCUMULATED DEBT STOCKHOLDERS'
LOANS DEFICIT SECURITIES DEFICIENCY
-------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992
(unaudited)............... (124) (5,270) (15) (5,581)
Cash received on employee
stock purchase loan..... 6 -- -- 6
Translation adjustment.... 9 -- -- 588
Net loss.................. -- (2,437) -- (2,437)
---- ------- --- -------
Balance, December 31,
1993...................... (109) (7,707) (15) (7,424)
Cash received on employee
stock purchase loan..... 10 -- -- 10
Translation adjustment.... -- -- -- (324)
Decrease in net unrealized
gain on marketable debt
securities.............. -- -- 93 93
Net loss.................. -- (2,385) -- (2,385)
---- ------- --- -------
Balance, December 31,
1994...................... (99) (10,092) 78 (10,030)
Cash received on employee
stock purchase loan..... 6 -- -- 6
Translation adjustment.... -- -- -- (175)
Decrease in net unrealized
gain on marketable debt
securities.............. -- -- (1) (1)
Net loss.................. -- (141) -- (141)
---- ------- --- -------
Balance, December 31,
1995...................... (93) (10,233) 77 (10,341)
==== ======= === =======
</TABLE>
See accompanying notes to combined financial statements.
X-5
<PAGE> 145
THE BIOCLIN GROUP
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (141) (2,385) (2,437)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Noncash items:
Depreciation and amortization........................ 445 366 237
Foreign currency transaction loss.................... 292 25 215
Change in operating assets and liabilities:
Increase in trade accounts receivable................ (641) (209) (350)
Decrease in prepaid expenses and other current
assets............................................ 124 12 229
(Increase) decrease in other assets.................. (126) 11 (54)
Increase (decrease) in accounts payable.............. (1,560) 1,083 581
Increase (decrease) in accrued expenses.............. 2,516 440 (285)
Increase in deferred revenues........................ 375 768 500
Increase (decrease) in deferred income taxes......... (172) 125 (125)
-------- ------- --------
Net cash provided by (used in) operating activities.... 1,112 236 (1,489)
-------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (312) (688) (218)
-------- ------- --------
Net cash used in investing activities.................. (312) (688) (218)
-------- ------- --------
Cash flows from financing activities:
Proceeds from short-term borrowings....................... 483 1,819 2,039
Principal payments on short-term borrowings............... (944) (610) --
Payments received on employee stock purchase loans........ 7 12 6
Increase in note payable -- related party................. 20 34 207
-------- ------- --------
Net cash provided by (used in) financing activities.... (434) 1,255 2,252
-------- ------- --------
Effect of exchange rate changes on cash................... (235) (467) (374)
Net increase in cash...................................... 131 336 171
Cash, beginning of year................................... 995 659 488
-------- ------- --------
Cash, end of year......................................... $ 1,126 995 659
======== ======= ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest............................................... $ 657 571 416
Income taxes........................................... 5 -- 28
======== ======= ========
Noncash investing and financing activities:
Unrealized gain (loss) on marketable debt securities...... $ 77 78 (15)
======== ======= ========
</TABLE>
See accompanying notes to combined financial statements.
X-6
<PAGE> 146
THE BIOCLIN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(1) BASIS OF PRESENTATION
The combined financial statements of the BioClin Group include the accounts
of BioClin, Inc. (BioClin U.S.), BioClin Europe AG (BioClin Europe), BioClin
Europe's wholly-owned subsidiaries BioClin AG (BioClin Cham) and Merlik C.V.
(Merlik), BioClin Europe's majority-owned subsidiary BioClin GmbH (BioClin
Germany), Kilmer N.V. (Kilmer) and BioClin Institute of Clinical Pharmacology
GmbH (BioClin Institute). The accounts have been combined due to the common
ownership of the companies and in contemplation of the proposed transaction with
DNX Corporation which is more fully described below.
The combined financial statements of the BioClin Group have been prepared
assuming the BioClin Group will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities and commitments in
the normal course of business. The BioClin Group has financed its operations
primarily through debt, has a net stockholders' deficiency of approximately
$10,233 and has short-term borrowings due on demand or due during 1996 amounting
to approximately $10,160 at December 31, 1995.
At December 31, 1995, the BioClin Group had cash and marketable securities
totalling approximately $2,059. In contemplation of the proposed transaction
with DNX Corporation, which is more fully described below, it is anticipated
that a portion of the combined company's cash resources may be used to retire
the majority or possibly all of the BioClin Group's outstanding short-term
borrowings.
On August 19, 1996, DNX Corporation announced that it had entered into
agreements ("Transaction Agreements") providing for the acquisition of all of
the outstanding capital stock of, or equity interests in, the BioClin Group
companies in exchange for 2,632,600 shares of DNX Corporation Common Stock (the
"Proposed Transaction"). The Proposed Transaction has been structured, and the
legal agreements have been drafted, in a manner intended to qualify the Proposed
Transaction for pooling-of-interests accounting treatment. Pursuant to the
Transaction Agreements, the closing of the Proposed Transaction is subject to a
number of conditions including DNX Corporation stockholder approval and
regulatory approvals. The Proposed Transaction is expected to close late in the
fourth quarter of fiscal 1996.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization:
The BioClin Group is an international, full-service contract research
organization (CRO) serving the pharmaceutical, biotechnology and medical device
industries. The BioClin Group designs, monitors, manages and analyzes clinical
trials, assists with regulatory affairs, provides data management expertise, and
offers other related services and products.
Principles of combination:
The combined financial statements include the accounts of the BioClin Group
as described in note 1. All significant intercompany transactions and balances
have been eliminated.
Concentration of credit risk:
The BioClin Group extends unsecured trade credit in connection with its
commercial services to a customer base comprised of both foreign and domestic
entities, which are concentrated in the pharmaceutical and biotechnology
industries.
X-7
<PAGE> 147
THE BIOCLIN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Marketable debt securities:
Effective January 1, 1994, the BioClin Group adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115). Under this standard, the BioClin Group is required
to classify its marketable debt securities into one or more of the following
categories: held-to-maturity, trading or available-for-sale. All of the BioClin
Group's marketable debt securities are foreign corporate debt securities and are
classified as available-for-sale. In accordance with FAS 115, securities
available-for-sale are recorded at fair market value and any unrealized gains or
losses are recorded as part of stockholders' deficiency.
Property and equipment:
Major additions and replacements of assets are capitalized at cost.
Maintenance, repairs and minor replacements are expensed as incurred. Property
and equipment are depreciated utilizing the straight-line method over the
estimated useful lives of the related assets which range from three to ten
years. Leasehold improvements are amortized utilizing the straight-line method
over the estimated useful life of the asset or the lease term, whichever is
shorter. Upon retirement or sale, the cost of the assets disposed of and the
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is credited or charged to operations.
Fair value of financial instruments:
Financial Accounting Standards Board Statement No. 107, "Disclosure about
Fair Value of Financial Instruments," defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties. Cash, trade accounts receivable, prepaid
expenses and other current assets, short-term borrowings, note
payable -- related party, accounts payable, accrued expenses and deferred
revenue reported in the combined balance sheets equal or approximate fair
values.
Revenue recognition:
Substantially all revenues are earned by performing services under
contracts with various pharmaceutical and biotechnology companies. Certain
contracts require the BioClin Group to perform services for a specified number
of patients. Revenues are recognized based on the status of the work completed
as of a given time as a percentage of the total activity required under the
contract. Billings and payment terms are specified in the contract. Revenue
related to contract modifications is recognized after performance and when
realization is assured and the amounts are reasonably determinable. Adjustments
to contract cost estimates are made in the period in which the facts which
require the revisions become known. When the revised estimate indicates a loss,
such loss is provided for currently in its entirety.
Revenues earned but not billed as of a given date are reflected in the
accompanying combined balance sheets as trade accounts receivable -- unbilled.
Funds received that relate to future performance under service contracts are
deferred and recognized as revenue when earned.
Reimbursed costs:
Substantially all amounts recorded as reimbursed costs in the accompanying
combined statements of operations relate to independent investigator and travel
costs. These costs are reimbursed by sponsors of the respective studies in
accordance with the respective contract terms. Payments received from sponsors
for investigator and travel costs in excess of costs incurred are classified as
deferred revenue and costs incurred in excess of amounts paid by sponsors are
classified as trade accounts receivable -- unbilled.
X-8
<PAGE> 148
THE BIOCLIN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes:
The BioClin Group accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" (FAS 109).
Under the asset and liability method of FAS 109, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled. Valuation allowances are established to reduce deferred tax assets if
it is determined to be "more likely than not" that all or some portion of the
potential deferred tax assets will not be realized. Under FAS 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date of the tax rate change.
Foreign currency translation:
The financial statements of the European companies of the BioClin Group
companies are translated into U.S. dollars in accordance with Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation."
Substantially all assets and liabilities of the European companies of the
BioClin Group companies are translated at year-end exchange rates and income and
expense items are translated at an average exchange rate. Exchange adjustments
resulting from foreign currency transactions are generally recognized in
operations, whereas adjustments resulting from the translation of financial
statements are reflected as a separate component of stockholders' deficiency.
The BioClin Group does not hedge its currency translation exposure.
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 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.
Recent accounting pronouncements:
In June 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of" (FAS 121), which requires
companies to review long-lived assets and certain identifiable intangibles to be
held, used or disposed of, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The BioClin Group is required to adopt FAS 121 for 1996. The
BioClin Group believes the adoption of FAS 121 will not have a significant
effect on its combined financial statements.
In October 1995, FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (FAS 123), which is effective
for transactions entered into in fiscal years beginning after December 15, 1995.
As there are no stock options or warrants outstanding, management expects that
the adoption of FAS 123 will not have a significant effect on its combined
financial statements.
(3) MARKETABLE DEBT SECURITIES
Marketable debt securities outstanding at December 31, 1995 and 1994 are
available for sale and are recorded in the accompanying combined balance sheets
at fair value.
X-9
<PAGE> 149
THE BIOCLIN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(3) MARKETABLE DEBT SECURITIES (CONTINUED)
The amortized cost, gross unrealized holding gains and fair value for
available-for-sale foreign corporate debt securities as of December 31, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
GROSS
UNREALIZED
AMORTIZED HOLDING FAIR
COST GAINS VALUE
--------- ---------- -----
<S> <C> <C> <C>
1995.................................................... $ 856 77 933
==== === ====
1994.................................................... $ 757 78 835
==== === ====
</TABLE>
Maturities of corporate debt securities classified as available-for-sale as
of December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- -----
<S> <C> <C>
1995:
Due within one year.............................................. $ 389 386
Due after one year through five years............................ 467 547
---- ----
$ 856 933
==== ====
1994:
Due within one year.............................................. $ -- --
Due after one year through five years............................ 757 835
---- ----
$ 757 835
==== ====
</TABLE>
(4) TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable as of December 31, 1995 and 1994 consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Trade accounts receivable -- billed................................ $1,731 1,398
Trade accounts receivable -- unbilled.............................. 1,514 1,054
------ ------
$3,245 2,452
====== ======
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1995 and 1994 consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Equipment........................................................ $ 1,518 1,364
Furniture and fixtures........................................... 298 330
Leasehold improvements........................................... 59 63
Study facility improvements...................................... 329 302
------- -------
2,204 2,059
Less accumulated depreciation and amortization................... (1,333) (1,096)
------- -------
$ 871 963
======= =======
</TABLE>
X-10
<PAGE> 150
THE BIOCLIN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(6) SHORT-TERM BORROWINGS
The BioClin Group has line of credit arrangements with domestic and foreign
banks totalling approximately $10,656 and $9,546 as of December 31, 1995 and
1994, respectively. Amounts outstanding under the line of credit arrangements
amounted to approximately $9,834 and $9,589 as of December 31, 1995 and 1994,
respectively, and are personally guaranteed by certain stockholders. The lines
are payable on demand or due in 1996 and bear interest at local bank rates or
LIBOR plus .5% to .75% (resulting in interest rates ranging from 6.47% to 10.25%
as of December 31, 1995, and 6.38% to 12.25% as of December 31, 1994). Certain
lines are collateralized by domestic and foreign standby letters of credit
aggregating approximately $5,477 and $5,344 as of December 31, 1995 and 1994,
respectively. Each letter of credit automatically renews for a one year term
unless the bank notifies the BioClin Group of its plan to terminate within 30
days of expiration.
(7) NOTE PAYABLE -- RELATED PARTY
As of December 31, 1995 and 1994, BioClin Europe owed approximately $326
and $287, respectively, to a relative of an officer and major stockholder in the
BioClin Group. The note payable bears interest at a rate of 6.75% and is
unsecured and due upon demand. Amounts outstanding as of December 31, 1995 and
1994 include accrued interest of approximately $48 and $28, respectively.
(8) ACCRUED EXPENSES
Accrued expenses as of December 31, 1995 and 1994 consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
------ ----
<S> <C> <C>
Income taxes........................................................ $ 382 --
Interest............................................................ 145 --
Investigator payments and contract expenses......................... 1,662 449
Payroll and fringe benefits......................................... 379 179
Professional fees................................................... 126 63
Other............................................................... 408 299
------ ----
$3,102 990
====== ====
</TABLE>
(9) SERIES I REDEEMABLE PREFERRED STOCK
Series I redeemable, 10% noncumulative preferred stock was issued in
December 1988, and is entitled to a preference in involuntary and voluntary
liquidation in an amount equal to the sum of $1,374 plus 10% per annum from the
date of issuance. The Series I redeemable noncumulative preferred stock is also
redeemable at any time at the option of the BioClin U.S. at $1,374 plus 10% per
annum from the date of issuance.
(10) EMPLOYEE BENEFIT PLANS
The BioClin Group maintains a pension plan for its key management employees
in Germany, one of whom is also a major shareholder in the BioClin Group. The
plan provides benefits based upon age, years of service, and remuneration.
Contributions to the plan are discretionary. The plan is an unfunded book
reserve plan. Expenses for this plan totaled approximately $172, $153 and $100
for the years ended December 31, 1995, 1994 and 1993, respectively.
X-11
<PAGE> 151
THE BIOCLIN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(11) INCOME TAXES
Income tax expense (benefit) attributable to the net loss consists of the
following during the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
Current:
U.S. Federal....................................................... $ 32 -- --
State and local.................................................... -- -- --
Foreign............................................................ 326 104 6
----- ---- ---
358 104 6
----- ---- ---
Deferred:
U.S. Federal....................................................... -- -- --
State and local.................................................... -- -- --
Foreign............................................................ (244) (46) 22
----- ---- ---
(244) (46) 22
----- ---- ---
$ 114 58 28
===== ==== ===
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, income tax expense
differed from the amounts computed by applying the U.S. Federal income tax rate
of 34% as a result of the following:
<TABLE>
<CAPTION>
1995 1994 1993
----- ------ ------
<S> <C> <C> <C>
Computed "expected" income tax benefit............................ $ (9) (791) (819)
Increase (decrease) in income taxes resulting from:
Change in the beginning-of-the-year balance of the valuation
allowance for deferred tax assets............................ 342 1,267 1,336
Foreign tax rate differential................................... (413) (333) (520)
Changes in enacted tax rates.................................... -- (124) 115
Alternative minimum taxes....................................... 32 -- --
Other, net...................................................... 162 39 (84)
----- ------ ------
Provision for income taxes.............................. $ 114 58 28
===== ====== ======
</TABLE>
X-12
<PAGE> 152
THE BIOCLIN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(11) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................... $ 4,615 4,298
Deferred revenue............................................... 613 377
Accrued expenses............................................... 187 120
other.......................................................... 601 395
------- -------
Total gross deferred tax assets........................ 6,016 5,190
Less valuation allowance....................................... (5,932) (5,190)
------- -------
Net deferred tax assets................................ 84 --
------- -------
Deferred tax liabilities:
Other.......................................................... 98 154
------- -------
Total gross deferred liabilities....................... 98 154
------- -------
Net deferred tax liability............................. $ 14 154
======= =======
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1993 was
approximately $5,149. The net change in the total valuation allowance for the
years ended December 31, 1995, 1994 and 1993 was an increase (decrease) of
approximately $742, $1,377 and $(1,336), respectively.
At December 31, 1995, the BioClin Group had net operating loss
carryforwards for Federal, foreign and state income tax purposes of
approximately $3,200, $7,400 and $3,200, respectively. The Federal and state net
operating losses are available to offset future Federal and state taxable
income, if any, through 2009. The foreign net operating losses are available to
offset future foreign taxable income, if any, indefinitely.
(12) RELATED PARTY TRANSACTIONS
An officer and major shareholder in the BioClin Group performed certain
marketing, administrative, and consulting services which aggregated
approximately $26, $84 and $120 in 1995, 1994 and 1993, respectively. These
charges are reflected in selling, general and administrative expenses and direct
costs, according to the nature of the services rendered.
(13) COMMITMENTS AND CONTINGENCIES
The BioClin Group leases its facilities and certain equipment and
automobiles under various noncancellable operating leases. These leases
generally require the BioClin Group to pay insurance, property taxes and other
expenses related to the leased property. Total rental expense charged to
operations aggregated approximately $805, $690 and $661 in 1995, 1994 and 1993,
respectively.
X-13
<PAGE> 153
THE BIOCLIN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(13) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum rental commitments subsequent to December 31, 1995 under the
aforementioned operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
----------------------------------------------------
<S> <C>
1996.............................................. $1,003
1997.............................................. 849
1998.............................................. 757
1999.............................................. 706
2000.............................................. 614
------
$3,929
======
</TABLE>
(14) LEGAL PROCEEDINGS
In the ordinary course of business, the BioClin Group is involved in
various legal actions. In the opinion of management, based upon the advice of
counsel, the resolution of these legal matters will not have a material effect
upon the BioClin Group or its financial condition.
In 1995, the Bioclin Group terminated its relationship with the Virginia
Commonwealth University (VCU), which performed Phase I and analytical services
on behalf of the BioClin Group in the United States. The Bioclin Group expects
to sign a settlement agreement with VCU in fiscal year 1996. The settlement may
be significantly less than the recorded liability of approximately $794, which
could result in a substantial book gain to the Bioclin Group. In accordance with
Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies," the BioClin Group will recognize this gain when, and if,
realized.
(15) BUSINESS SEGMENT AND CUSTOMER INFORMATION
Business segment information:
The BioClin Group operates in two geographic areas. Information on the
Bioclin Group's geographic operations is set forth in the table below:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Net revenues:
Domestic operations......................................... $ 6,859 5,483 5,393
European operations......................................... 7,427 4,176 1,782
------- ------- -------
Total net revenues....................................... $14,286 9,659 7,175
======= ======= =======
Operating income (loss):
Domestic operations......................................... 811 (1,516) (521)
European operations......................................... 107 (256) (1,437)
------- ------- -------
Total operating income (loss)............................ $ 918 (1,772) (1,958)
======= ======= =======
Identifiable assets:
Domestic operations......................................... 1,833 1,831 2,375
European operations......................................... 4,744 3,831 2,042
------- ------- -------
Total identifiable assets................................ $ 6,577 5,662 4,417
======= ======= =======
</TABLE>
X-14
<PAGE> 154
THE BIOCLIN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(15) BUSINESS SEGMENT AND CUSTOMER INFORMATION (CONTINUED)
Customer information:
For the year ended December 31, 1995 net revenues from 3 customers
aggregated approximately 9,435 or 66% of the BioClin Group's total net revenues.
For the year ended December 31, 1994, net revenues from 2 customers aggregated
approximately $4,004 or 42% of the Bioclin Group's total net revenues. For the
year ended December 31, 1993, net revenues from 2 customers aggregated
approximately $1,038 or 15% of the Bioclin Group's total net revenues.
During 1993, the Bioclin Group entered into a significant contract with a
customer to provide worldwide clinical research and data management services
through its U.S. and European companies. In 1995, the scope of the contract was
expanded significantly in that the number of patients and level of data
management services to be performed was increased, and the contract is scheduled
to extend into future years. This single contract provided the Bioclin Group
with approximately $5,513, $2,940, and $410 in net revenues in 1995, 1994, and
1993, respectively.
As described in note 14, in 1995 the Bioclin Group terminated its
relationship with VCU, which performed Phase I and analytical services on behalf
of the BioClin Group in the United States. The combined statements of operations
include net revenues related to these services in the amount of $3,465, $3,514
and $5,043 in 1995, 1994 and 1993, respectively. Future net revenue related to
these services will be discontinued as a result of terminating this
relationship.
X-15
<PAGE> 155
THE BIOCLIN GROUP
COMBINED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................. $ 1,009 1,126
Marketable debt securities........................ 361 386
Trade accounts receivable......................... 3,986 3,245
Prepaid expenses and other current assets......... 378 187
-------- --------
Total current assets........................... 5,734 4,944
Marketable debt securities.......................... 503 547
Property and equipment, net......................... 1,040 871
Other assets........................................ 832 215
-------- --------
Total assets................................... $ 8,109 6,577
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Short-term borrowings............................. 9,683 9,834
Note payable -- related party..................... 300 326
Accounts payable.................................. 1,791 1,073
Accrued expenses.................................. 2,810 3,102
Deferred revenue.................................. 3,472 2,569
-------- --------
Total current liabilities...................... 18,056 16,904
Other liabilities................................. 103 14
-------- --------
Total liabilities.............................. 18,159 16,918
-------- --------
Stockholders' deficiency:
Series I redeemable, noncumulative preferred
stock, BioClin, Inc., par value $.01 per share,
with a liquidation preference in the amount of
$1,374 plus 10% per annum from date of
issuance; authorized, issued and outstanding 91
shares in 1996 and 1995........................ 1 1
Common stock, BioClin, Inc., par value $.01 per
share; authorized 50,000 shares, issued and
outstanding 9 shares in 1996 and 1995.......... -- --
Common stock, BioClin Europe AG, par value SFr500
per share; authorized 100 shares, issued and
outstanding 100 bearer shares in 1996 and
1995........................................... 105 105
Common stock, BioClin Institute of Clinical
Pharmacology GmbH, par value DM100 per share;
authorized 1,500 shares, issued and outstanding
1,500 shares in 1996 and 1995.................. 86 86
Additional paid-in capital........................ 125 125
Foreign currency translation adjustment........... (139) (409)
Employee stock purchase loans..................... (86) (93)
Accumulated deficit............................... (10,219) (10,233)
Net unrealized gain on marketable debt
securities..................................... 77 77
-------- --------
Total stockholders' deficiency................. (10,050) (10,341)
-------- --------
Commitments and contingencies
Total liabilities and stockholders'
deficiency................................... $ 8,109 6,577
======== ========
</TABLE>
See accompanying notes to combined financial statements.
X-16
<PAGE> 156
THE BIOCLIN GROUP
COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1995
------- -------
<S> <C> <C>
Gross revenues........................................................... $13,621 13,256
Less reimbursed costs.................................................... (4,466) (2,224)
-------- --------
Net revenues........................................................ 9,155 11,032
-------- --------
Operating costs and expenses:
Direct costs........................................................... 5,061 7,296
Selling, general and administrative.................................... 3,453 3,112
Depreciation and amortization.......................................... 328 343
-------- --------
8,842 10,751
-------- --------
Income from operations................................................. 313 281
Other income (expense):
Interest income........................................................ 44 65
Interest expense....................................................... (544) (536)
Foreign currency gain (loss), net...................................... 91 (219)
Other.................................................................. 115 (13)
-------- --------
(294) (703)
-------- --------
Income (loss) before income taxes................................... 19 (422)
Income tax expense....................................................... 5 61
-------- --------
Net income (loss)................................................... $ 14 (483)
======== ========
</TABLE>
See accompanying notes to combined financial statements.
X-17
<PAGE> 157
THE BIOCLIN GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON
SERIES I STOCK, NET
REDEEMABLE, BIOCLIN UNREALIZED
NONCUMULATIVE COMMON INSTITUTE OF FOREIGN EMPLOYEE GAIN ON
PREFERRED COMMON STOCK, CLINICAL ADDITIONAL CURRENCY STOCK MARKETABLE
STOCK, STOCK, BIOCLIN PHARMACOLOGY PAID-IN TRANSLATION PURCHASE ACCUMULATED DEBT
BIOCLIN, INC. BIOCLIN, INC. EUROPE AG GMBH CAPITAL ADJUSTMENT LOANS DEFICIT SECURITIES
------------- ------------- --------- ------------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1995........ $ 1 -- 105 86 125 (409) (93) (10,233) 77
Translation
adjustment..... -- -- -- -- -- 270 -- -- --
Cash received on
employee stock
purchase
loans......... -- -- -- -- -- -- 7 -- --
Net income...... -- -- -- -- -- -- -- 14 --
-- -- -- --
--- --- ----- ---- --------
Balance,
September 30,
1996............ $ 1 -- 105 86 125 (139) (86) (10,219) 77
== == === == === ===== ==== ======== ==
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIENCY
-------------
<S> <C>
Balance, December
31, 1995........ (10,341)
Translation
adjustment..... 270
Cash received on
employee stock
purchase
loans......... 7
Net income...... 14
--------
Balance,
September 30,
1996............ (10,050)
========
</TABLE>
See accompanying notes to combined financial statements.
X-18
<PAGE> 158
THE BIOCLIN GROUP
COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................ $ 14 (483)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Noncash items:
Depreciation and amortization....................................... 328 343
Gain on disposal of assets.......................................... (27) --
Foreign currency transaction (gain) loss............................ (91) 219
Change in operating assets and liabilities:
Increase in trade accounts receivable............................... (920) (575)
Increase in prepaid expenses and other current assets............... (205) (242)
Increase in other assets............................................ (638) (87)
Decrease in accounts payable........................................ 753 26
Increase (decrease) in accrued expenses............................. (177) 1,525
Increase (decrease) in deferred revenues............................ 1,052 (874)
Increase (decrease) in other liabilities............................ 89 (171)
------- -------
- -
Net cash provided by (used in) operating activities................... 178 (319)
------- -------
- -
Cash flows from investing activities:
Purchases of property and equipment...................................... (540) (261)
Proceeds from disposals of property and equipment........................ 34 --
------- -------
- -
Net cash used in investing activities................................. (506) (261)
------- -------
- -
Cash flows from financing activities:
Proceeds from short-term borrowings...................................... 1,389 313
Principal payments on short-term borrowings.............................. (1,102) (433)
Payments received on employee stock purchase loans....................... 7 --
------- -------
- -
Net cash provided by (used in) financing activities................... 294 (120)
------- -------
- -
Effect of exchange rate changes on cash.................................... (83) 42
Net decrease in cash....................................................... (117) (658)
Cash, beginning of period.................................................. 1,126 995
------- -------
- -
Cash, end of period........................................................ $1,009 337
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.............................................................. $ 278 561
Income taxes.......................................................... 67 5
======== ========
Noncash investing and financing activities:
Unrealized gain on marketable debt securities............................ $ 77 72
======== ========
</TABLE>
See accompanying notes to combined financial statements.
X-19
<PAGE> 159
THE BIOCLIN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
Note 1. BASIS OF PRESENTATION
The combined financial statements of the BioClin Group (the Bioclin Group)
include the accounts of BioClin, Inc. (BioClin U.S.), BioClin Europe AG (BioClin
Europe), BioClin Europe's wholly-owned subsidiaries BioClin AG (BioClin Cham)
and Merlick C.V. (Merlick), BioClin Europe's majority-owned subsidiaries BioClin
GmbH (BioClin Germany), Kilmer N.V. (Kilmer) and BioClin Institute of Clinical
Pharmacology GmbH (BioClin Institute). The accounts have been combined due to
the common ownership of the companies and in contemplation of the proposed
transaction with DNX Corporation which is more fully described in Note 2.
In the opinion of the Bioclin Group's management, the accompanying
unaudited combined financial statements include all significant adjustments
(consisting only of normal recurring adjustments) necessary to fairly state the
Bioclin Group's combined financial position as of September 30, 1996, and the
combined results of operations and cash flows for the nine month periods ended
September 30, 1996 and 1995. The accompanying combined financial statements
should be read in conjunction with the combined financial statements and notes
thereto for the year ended December 31, 1995 included elsewhere herein.
The nine-month interim results are not necessarily indicative of the
results to be expected for the full year.
Note 2. PROPOSED TRANSACTION WITH DNX CORPORATION
On August 19, 1996, DNX Corporation announced that it had entered into
agreements ("Transaction Agreements") providing for the acquisition of all of
the outstanding capital stock of, or equity interest in, the BioClin Group
companies in exchange for 2,632,600 shares of DNX Corporation Common Stock (the
"Proposed Transaction"). The Proposed Transaction has been structured, and the
legal agreements have been drafted, in a manner intended to qualify the Proposed
Transaction for pooling-of-interests accounting treatment. Pursuant to the
Transaction Agreements, the closing of the Proposed Transaction is subject to a
number of conditions including DNX Corporation stockholder approval and
regulatory approvals. The Proposed Transaction is expected to close late in the
fourth quarter of fiscal 1996.
Note 3. CUSTOMER INFORMATION
For the nine months ended September 30, 1996, net revenues from three
customers aggregated approximately $6,408,000 or 70% of the BioClin Group's
total net revenues.
During 1993, the Bioclin Group entered into a significant contract with a
customer to provide worldwide clinical research and data management services
through its U.S. and European companies. In 1995, the scope of the contract was
expanded significantly in that the number of patients and level of data
management services to be performed was increased, and the contract is scheduled
to extend into future years. This single contract provided the Bioclin Group
with approximately $3,975,000 in net revenues for the nine months ended
September 30, 1996.
In 1995, the Bioclin Group terminated its relationship with Virginia
Commonwealth University, which performed Phase I and analytical services on
behalf of the BioClin Group in the United States. The combined statements of
operations include net revenues related to these services in the amount of
approximately $3,369,000 for the nine months ended September 30, 1995. There was
no revenue related to these services in 1996.
X-20
<PAGE> 160
APPENDIX A
VECTOR SECURITIES
INTERNATIONAL, INC.
1751 LAKE COOK ROAD, SUITE
350
DEERFIELD, ILLINOIS 60015
TELEPHONE (847) 940-1970
FAX (847) 940-0774
OCTOBER 1, 1996
The Board of Directors
DNX Corporation
575 Route 28
Raritan, NJ 08869
Members of the Board:
We understand that DNX Corporation, a Delaware corporation ("DNX"), has
agreed to acquire all of the outstanding capital stock of, or equity interests
in, BioClin Inc., a Delaware corporation ("BioClin U.S."), BioClin Europe AG, a
Swiss corporation, BioClin GmbH, a Germany corporation, and Kilmer N.V., a
Netherlands Antilles corporation (collectively, "BioClin Europe"), BioClin
Institute of Clinical Pharmacology GmbH, a German corporation ("BioClin
Institute" and together with BioClin U.S. and BioClin Europe, the "BioClin
Group") pursuant to a Merger Agreement, dated as August 19, 1996 among DNX, DNX
Acquisition Corporation, a Delaware corporation, Dr. Jack Barbut ("Barbut"),
Alec Hackel ("Hackel"), Dr. John Christian Jensen ("Jensen"), Sherby N.V., a
Netherlands Antilles corporation, and BioClin U.S., a Share Exchange Agreement,
dated as of August 19, 1996, among DNX, Dr. Gerald R. Rittershaus, as Trustee
(the "Trustee"), Barbut, Hackel, Jensen and BioClin Institute, and a Share
Exchange Agreement, dated as of August 19, 1996 among DNX, Manfred Wissman, as
Trustee, the Trustee, Barbut, Hackel, Jensen, Bettina Donhardt, Christian
Dune-Kraatz and BioClin Europe (such agreements collectively referred to as, the
"Transaction Agreements").
Under the terms and conditions of the Transaction Agreements, the Company,
will, among other things, acquire (the "Transaction") all of the outstanding
capital stock of, or equity interests in, the BioClin Group in consideration and
exchange for the issuance of an aggregate of 2,632,600 shares of the common
stock, par value $.0l per share, of DNX (the "Aggregate Consideration"). The
terms and conditions of the Transaction are more fully set forth in the
Transaction Agreements.
You have requested our opinion as investment bankers with respect to the
fairness, as of the date hereof, from a financial point of view, to DNX of the
Aggregate Consideration to be paid by DNX in connection with the Transaction.
In arriving at our opinion, we, among other things: (i) reviewed the
Transaction Agreements; (ii) held discussions with certain members of the
management of DNX and the BioClin Group concerning their respective businesses,
operations and prospects, as well as other matters we believe relevant to our
inquiry; (iii) visited the facilities of DNX and the BioClin Group; (iv)
reviewed certain business and financial information of DNX and the Bioclin
Group, including financial forecasts, prepared and provided by the respective
managements of DNX and the BioClin Group; (v) compared certain financial data of
DNX and the BioClin Group with such other publicly traded companies as we deemed
reasonably comparable; (vi) compared the financial terms of the Transaction with
those of other transactions which we deemed reasonably comparable; (vii)
reviewed the pro forma impact of the Transaction on DNX's financial results and
condition; (viii) reviewed certain documents filed by DNX with the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934, as
amended; (ix) reviewed the price and trading history of the common stock of DNX;
and (x) performed such other studies, analyses and investigations as we deemed
appropriate.
In connection with our opinion, we neither attempted independently to
verify nor assumed any responsibility for independent verification of any
information publicly available or supplied or otherwise made
VECTOR
SECURITIES
INTERNATIONAL
<PAGE> 161
available to us regarding DNX and the BioClin Group and we have assumed and
relied on such information being accurate and complete in all respects. We have
not made or obtained, or assumed any responsibility for making or obtaining, any
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of DNX or the BioClin Group, nor have we been furnished any such
evaluations or appraisals. With respect to the financial projections of DNX and
the BioClin Group referred to above, we have assumed that they have been
reasonably prepared on bases reflecting the best available estimates and
judgments of the management of DNX and the BioClin Group as to the future
financial performance of DNX and the BioClin Group, respectively, and that DNX
and the BioClin Group will perform substantially in accordance with such
projections. We assume no responsibility for and express no view as to such
forecasts or the assumptions under which they were prepared. We have also taken
into account our assessment of general economic, market and financial conditions
and our knowledge of the contract research organization (CRO) industry, as well
as our experience in connection with similar transactions and securities
valuation generally. Our conclusions are based solely on information available
to us on or before the date hereof and reflect economic, market, and other
conditions as of such date. It should be understood that, although subsequent
developments may affect this opinion, we assume no responsibility and do not
have any obligation to update, revise, or reaffirm this opinion. In rendering
our opinion, we have assumed that the Transaction will qualify as a "pooling of
interests" under the United States generally accepted accounting principles. We
also assumed that the Transaction will be consummated on the terms described in
the Transaction Agreements, without any material waiver of or modification by
DNX or the BioClin Group, and that obtaining any necessary regulatory approvals
for the transaction will not have an adverse effect on DNX or the BioClin Group.
We are familiar with DNX, having acted as its financial advisor in
connection with the Transaction, for which we will receive a fee, substantially
all of which is contingent on the closing of the transactions contemplated by
the Transaction Agreements. In addition, DNX has agreed to indemnify us for
certain liabilities arising out of our advisory services and the rendering of
this opinion. Vector Securities International, Inc. is a full service securities
firm, and in the course of its normal trading activities may from time to time
effect transactions and hold positions in securities of DNX.
Our opinion set forth below is directed to the Board of Directors of DNX
and does not address DNX's underlying business decision to effect the
Transaction or constitute a recommendation to the Board of Directors or any
stockholder of DNX with respect to the approval of the Transaction. Our opinion
is not to be reproduced, quoted or published in any manner without our prior
written consent, except that this letter may be reproduced in full in the proxy
statement to be filed with the Securities and Exchange Commission in connection
with the Transaction.
On the basis of and subject to the foregoing, including the various
assumptions and limitations set forth herein, and based upon such other matters
as we consider relevant, it is our opinion as of the date hereof that the
Aggregate Consideration to be paid by DNX in connection with the Transaction is
fair to DNX from a financial point of view.
Very truly yours,
VECTOR SECURITIES INTERNATIONAL, INC.
LOGO
Shahab Fatheazam
Managing Director
A-2
<PAGE> 162
APPENDIX B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MERGER AGREEMENT
AMONG
DNX CORPORATION
(A DELAWARE CORPORATION),
DNX ACQUISITION CORPORATION
(A DELAWARE CORPORATION),
DR. JACK BARBUT,
ALEC HACKEL,
DR. JOHN CHRISTIAN JENSEN,
SHERBY N.V.
(A NETHERLANDS ANTILLES CORPORATION)
AND
BIOCLIN, INC.
(A DELAWARE CORPORATION)
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TABLE OF CONTENTS
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Recitals................................................................................ 1
ARTICLE I DEFINITIONS.................................................................. 2
ARTICLE II THE MERGER.................................................................. 7
2.1. The Merger.................................................................. 7
2.2. The Closing................................................................. 7
2.3. Effective Time.............................................................. 7
2.4. Certificate of Incorporation and By-Laws of
Surviving Corporation....................................................... 7
2.5. Directors and Officers of Surviving Corporation............................. 7
2.6. Conversion of Securities.................................................... 7
2.7. Dissenting Company Shares................................................... 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR................................. 8
3.1. Authorization, Validity and Effect.......................................... 8
3.2. Acquiror Shares............................................................. 9
3.3. Conflicts; Defaults......................................................... 9
3.4. Exchange Act Filings........................................................ 9
3.5. Absence of Material Adverse Changes......................................... 9
3.6. Taxes....................................................................... 9
3.7. Legal Proceedings; Orders................................................... 10
3.8. Absence Of Certain Changes and Events....................................... 10
3.9. Contracts; No Defaults...................................................... 11
3.10. Insurance................................................................... 11
3.11. Environmental Matters....................................................... 11
3.12. Labor Relations; Compliance................................................. 11
3.13. Intellectual Property....................................................... 12
3.14. Disclosure.................................................................. 12
3.15. Brokers and Finders......................................................... 12
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT
REGARDING PARENT AND THE PARENT SHARES................................. 12
4.1. Authorization, Validity and Effect.......................................... 12
4.2. Consents and Approvals; No Violation........................................ 12
4.3. Title and Power............................................................. 12
4.4. Litigation.................................................................. 13
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE INTEREST HOLDERS WITH RESPECT TO THE COMPANY........................ 13
5.1. Organization, Authority and Authorization................................... 13
5.2. Consents and Approvals; No Violation........................................ 13
5.3. Title and Power............................................................. 13
5.4. Capitalization of the Company; Subsidiaries................................. 13
5.5. Company Financial Statements................................................ 14
5.6. Books and Records........................................................... 14
5.7. Reports..................................................................... 14
5.8. Absence of Material Adverse Changes......................................... 14
5.9. Title to Properties; Encumbrances........................................... 14
5.10. Condition and Sufficiency of Assets......................................... 15
5.11. Accounts Receivable......................................................... 15
5.12. No Undisclosed Liabilities.................................................. 15
5.13. Taxes....................................................................... 15
5.14. Compliance with Legal Requirements; Governmental Authorizations............. 16
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5.15. Legal Proceedings; Orders................................................... 17
5.16. Absence Of Certain Changes and Events....................................... 17
5.17. Contracts; No Defaults...................................................... 18
5.18. Insurance................................................................... 20
5.19. Environmental Matters....................................................... 20
5.20. Employees................................................................... 21
5.21. Labor Relations; Compliance................................................. 22
5.22. Intellectual Property....................................................... 22
5.23. Certain Payments............................................................ 24
5.24. Disclosure.................................................................. 25
5.25. Relationships with Related Persons.......................................... 25
5.26. Brokers and Finders......................................................... 25
5.27. Employee Benefit Plans...................................................... 25
5.28. Investment Intent; Accredited Investor...................................... 26
ARTICLE VI CONDUCT OF BUSINESS PRIOR TO THE CLOSING.................................... 26
6.1. Conduct Prior to Closing.................................................... 26
6.2. Consents and Approvals...................................................... 27
6.3. Bookkeeping, Accounting and Financial Reporting
Capabilities................................................................ 28
ARTICLE VII ADDITIONAL AGREEMENTS...................................................... 28
7.1. Current Information......................................................... 28
7.2. Access and Investigation.................................................... 29
7.3. Effect of Investigations.................................................... 29
7.4. Press Releases, Etc......................................................... 29
7.5. Acquisition Proposals....................................................... 29
7.6. Notification of Certain Matters............................................. 29
7.7. Customers................................................................... 31
7.8. Preservation of Relationships............................................... 31
7.9. Resale; Legends............................................................. 31
7.10. Pooling Treatment........................................................... 31
7.11. Shareholder Approval; Proxy Statement....................................... 31
ARTICLE VIII CONDITIONS................................................................ 32
8.1. Conditions to Each Party's Obligation to Consummate the Closing............. 32
8.2. Conditions to Obligation of Acquiror and Sub to Consummate the Closing...... 32
8.3. Conditions to Obligation of Parent, the Company and the Interest Holders to
Consummate the Closing...................................................... 33
ARTICLE IX TERMINATION................................................................. 34
9.1. Termination................................................................. 34
9.2. Effect of Termination....................................................... 34
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ARTICLE X GENERAL PROVISIONS........................................................... 35
10.1. Survival of Representations, Warranties and Agreements...................... 35
10.2. Expenses.................................................................... 35
10.3. Confidentiality............................................................. 35
10.4. Notices..................................................................... 35
10.5. Jurisdiction; Service of Process............................................ 37
10.6. Further Assurances.......................................................... 37
10.7. Waiver...................................................................... 37
10.8. Entire Agreement and Modification........................................... 37
10.9. Assignments, Successors, and No Third-Party Rights.......................... 37
10.10. Severability................................................................ 38
10.11. Section Headings, Construction.............................................. 38
10.12. Governing Law............................................................... 38
10.13. Specific Performance........................................................ 38
10.14. Counterparts................................................................ 38
EXHIBITS
A-1 Employment Agreement between Acquiror and Dr. Jack Barbut
A-2 Consulting Agreement between Acquiror and Dr. Jack Barbut
A-3 Employment Agreement between Acquiror and Dr. J. Chris Jensen
B Stockholders' Agreement
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<PAGE> 166
MERGER AGREEMENT
This Merger Agreement (this "Agreement") made as of the 19th day of August,
1996 by and among DNX Corporation, a Delaware corporation ("Acquiror"), with its
principal offices at 575 Route 28, Raritan, New Jersey, DNX Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of Acquiror
("Sub"), Dr. Jack Barbut whose address is c/o Piper & Marbury, L.L.P., 1251
Avenue of the Americas, New York, New York 10020-1104 ("Barbut"), Alec Hackel
whose address is Flueliweg 3, 6045 Meggen, Switzerland ("Hackel"), Dr. John
Christian Jensen whose address is Bohlstrasse 9a, 6300 Zug, Switzerland
("Jensen," collectively with Barbut and Hackel, the "Interest Holders"), as the
holders of all of the equity interests of Sherby N.V., a Netherlands Antilles
corporation ("Parent"), as controlling stockholder of the Company, Parent and
BioClin, Inc., a Delaware corporation (the "Company").
RECITALS
A. Hackel, Barbut and Jensen hold equity interests in Parent (the "Parent
Shares"), which constitute all of the equity interests in Parent.
B. Parent holds 6 shares of the Common Stock, par value $0.01 per share, of
the Company (the "Company Common") and 91 shares of Series I Preferred Stock,
par value $0.01 per share, of the Company (the "Company Preferred" and, together
with the Company Common, collectively, the "Company Shares"), representing 97%
of the outstanding capital stock and voting power of the Company.
C. Dr. William H. Barr ("Barr") owns 3 shares of Company Common,
representing the remaining 3% of the outstanding capital stock and voting power
of the Company and each of Ms. Martha Lee Reynolds and Mr. Barry Dvorchik
(collectively, the "Employee Rightholders") possess a contractual right to
purchase 1% of the outstanding capital stock of the Company (each a "Right," and
collectively, the "Rights"):
D. Acquiror, Sub and the Company desire to effect a merger of Sub with and
into the Company pursuant to the terms and provisions of this Agreement and the
General Corporation Law of the State of Delaware (the "DGCL").
E. The respective Boards of Directors of the Company, Parent, Sub and
Acquiror have determined that it is advisable and in the best interests of each
corporation that Sub merge with and into the Company upon the terms and subject
to the conditions provided herein.
F. The Board of Directors of Acquiror has, by resolution duly adopted,
approved this Agreement and directed that it be executed by the undersigned
officer and that it be submitted to a vote of Acquiror's stockholders.
G. The Board of Directors of Sub has, by resolution duly adopted, approved
this Agreement and directed that it be executed by the undersigned officer.
H. The Board of Directors of Parent has, by resolution duly adopted,
approved this Agreement and directed that it be executed by the undersigned
officer.
I. The Board of Directors of the Company has, by resolution duly adopted,
approved this Agreement and directed that it be executed by the undersigned
officer and that it be submitted to a vote of the Company's stockholders by
means of a written consent in lieu of a meeting.
J. As a condition hereto and simultaneously herewith, Acquiror shall
purchase and acquire all of the issued and outstanding capital stock or equity
interests of BioClin Europe AG, a Swiss corporation, BioClin GmbH, a German
corporation, and Kilmer N.V., a Netherlands Antilles corporation (collectively,
"BioClin/ Europe"), and BioClin Institute of Clinical Pharmacology GmbH, a
German corporation ("BioClin Institute" and collectively with BioClin/Europe,
the "BioClin Affiliates").
K. Acquiror, Sub, the Interest Holders, Parent and the Company wish to
enter into this Agreement for the purpose of making certain representations and
warranties to each other and entering into certain other obligations in favor of
each other.
<PAGE> 167
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties agree that Sub shall be merged with
and into the Company and that the terms and conditions of the Merger, the mode
of carrying the Merger into effect, the manner of converting securities in
connection with the Merger and certain other provisions relating thereto shall
be as hereinafter set forth.
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article I:
"Acquiror" has the meaning given in the first paragraph of this Agreement.
"Accounts Receivable" has the meaning given in Section 5.11.
"Acquiror's Advisors" has the meaning given in Section 7.2.
"Acquiror Common Stock" has the meaning given in Section 2.6(a).
"Acquiror Letter" means the disclosure letter delivered by Acquiror to the
Interest Holders concurrently with the execution and delivery of this Agreement.
"Acquiror Shares" has the meaning given in Section 2.6(a).
"Affiliate" of a specified Person is a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the Person specified.
"Agreement" has the meaning given in the first paragraph of this Agreement.
"Applicable Contract" means any Contract (a) under which the Company has or
may acquire any rights, (b) under which the Company has or may become subject to
any obligation or liability, or (c) by which the Company or any of the assets
owned or used by it is or may become bound.
"Balance Sheet" has the meaning given in Section 5.5.
"Barbut" has the meaning given in the first paragraph of this Agreement.
"Barr" has the meaning given in the Recitals of this Agreement.
"BioClin Affiliates" has the meaning given in the Recitals of this
Agreement.
"BioClin/Europe" has the meaning given in the Recitals of this Agreement.
"BioClin Institute" has the meaning given in the Recitals of this
Agreement.
"Business Day" means any day on which banks are generally open to conduct
business in New York, New York.
"CERCLA" has the meaning given in the definition of Environmental, Health,
and Safety Liabilities in this Agreement.
"Closing" has the meaning given in Section 2.2.
"Closing Date" has the meaning given in Section 2.2.
"Common Acquiror Shares" has the meaning given in Section 2.6(a).
"Company" has the meaning given in the first paragraph of this Agreement.
"Company Common" has the meaning given in the Recitals of this Agreement.
"Company Preferred" has the meaning given in the Recitals of this
Agreement.
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<PAGE> 168
"Company Reports" has the meaning given in Section 5.7.
"Company Shares" has the meaning given in the Recitals of this Agreement.
"Competing Business" has the meaning given in Section 5.25.
"Consent" means any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Consideration" has the meaning given in Section 2.6(b).
"Contract" means any agreement, contract, obligation, promise or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Copyrights" has the meaning given in Section 5.22(a).
"CRAs" has the meaning given in Section 5.17(a)(ix).
"DGCL" has the meaning given in the Recitals of this Agreement.
"Disclosure Letter" means the disclosure letter delivered by the Interest
Holders to Acquiror concurrently with the execution and delivery of this
Agreement.
"Dissenting Shares" has the meaning given in Section 2.7.
"Effective Time" has the meaning given in Section 2.3.
"Employee Acquiror Shares" has the meaning given in Section 2.6(e).
"Employee Rightholders" has the meaning given in the Recitals of this
Agreement.
"Employment Agreements" means collectively the Employment Agreements to be
entered at the Closing by and between Acquiror and each of Barbut and Jensen, in
substantially the form attached hereto as Exhibits A-1 and A-2.
"Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"Environment" means soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental, Health, and Safety Liabilities" means any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to: (a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products); (b) fines, penalties,
judgments, awards, settlements, legal or administrative proceedings, damages,
losses, claims, demands and response, investigative, remedial, or inspection
costs and expenses arising under Environmental Law or Occupational Safety and
Health Law; (c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or response
actions ("Cleanup") required by applicable Environmental Law or Occupational
Safety and Health Law (whether or not such Cleanup has been required or
requested by any Governmental Body or any other Person) and for any natural
resource damages; or (d) any other compliance, corrective, investigative, or
remedial measures required under Environmental Law or Occupational Safety and
Health Law. The terms "removal," "remedial," and "response action" include the
types of activities covered by the United States Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. sec. 9601 et seq., as
amended ("CERCLA").
"Environmental Law" means any Legal Requirement that requires or relates
to: (a) advising appropriate authorities, employees, and the public of intended
or actual releases of pollutants or hazardous substances or
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<PAGE> 169
materials, violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction, that
could have significant impact on the Environment; (b) preventing or reducing to
acceptable levels the release of pollutants or hazardous substances or materials
into the Environment; (c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated; (d)
assuring that products are designed, formulated, packaged, and used so that they
do not present unreasonable risks to human health or the Environment when used
or disposed of; (e) protecting resources, species, or ecological amenities; (f)
reducing to acceptable levels the risks inherent in the transportation of
hazardous substances, pollutants, oil, or other potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing the threat of
release, or paying the costs of such clean up or prevention; or (h) making
responsible parties pay private parties, or groups of them, for damages done to
their health or the Environment, or permitting self-appointed representatives of
the public interest to recover for injuries done to public assets.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"Exchange Act" has the meaning given in Section 3.4.
"Facilities" means any real property, leaseholds or other interests
currently or formerly owned or operated by the Company and any buildings,
plants, structures or equipment currently or formerly owned or operated by the
Company.
"Governmental Authorization" means any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" means any: (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal); (d)
multi-national organization or body; or (e) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
"Hackel" has the meaning given in the first paragraph of this Agreement.
"Hazardous Activity" means the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment, and any
other act, business, operation, or thing that increases the danger, or risk of
danger, or poses an unreasonable risk of harm to persons or property on or off
the Facilities, or that may affect the value of the Facilities or the Acquired
Companies.
"Hazardous Materials" means any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"Intellectual Property Assets" has the meaning given in Section 5.22(a).
"Interest Holders" has the meaning given in the first paragraph of this
Agreement.
"IRC" has the meaning given in the definition of "Tax Laws" in Article I.
"IRS" has the meaning given in the definition of "Tax Laws" in Article I.
"Jensen" has the meaning given in the first paragraph of this Agreement.
"Knowledge" has the meaning given in Section 7.6(e).
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<PAGE> 170
"Legal Requirement" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Marks" has the meaning given in Section 5.22(a).
"Merger" has the meaning given in Section 2.1(a).
"Occupational Safety and Health Law" means any Legal Requirement designed
to provide safe and healthful working conditions and to reduce occupational
safety and health hazards, and any program, whether governmental or private
(including those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Parent" has the meaning given in the first paragraph of the Agreement.
"Patents" has the meaning given in Section 5.22(a).
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Preferred Acquiror Shares" has the meaning given in Section 2.6(a).
"Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Proprietary Rights Agreement" has the meaning given in Section 5.20(b).
"Proxy Statement" has the meaning given in Section 7.11(a).
"Related Person" means (i) with respect to a particular individual: (a)
each other member of such individual's Family; (b) any Person that is directly
or indirectly controlled by such individual or one or more members of such
individual's Family; (c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material Interest;
and (d) any Person with respect to which such individual or one or more members
of such individual's Family serves as a director, officer, partner, executor, or
trustee (or in a similar capacity); and (ii) with respect to a specified Person
other than an individual: (a) any Person that directly or indirectly controls,
is directly or indirectly controlled by, or is directly or indirectly under
common control with such specified Person; (b) any Person that holds a Material
Interest in such specified Person; (c) each Person that serves as a director,
officer, partner, executor, or trustee of such specified Person (or in a similar
capacity); (d) any Person in which such specified Person holds a Material
Interest; (e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and (f) any Related
Person of any individual described in clause (b) or (c). For purposes of this
definition, (a) the "Family" of an individual includes (i) the individual, (ii)
the individual's spouse and former spouses, (iii) any other natural person who
is related to the individual or the individual's spouse within the second
degree, and (iv) any other natural person who resides with such individual, and
(b) "Material Interest" means direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting
securities or other voting interests representing at least 5% of the outstanding
voting power of a Person or equity securities or other equity interests
representing at least 5% of the outstanding equity securities or equity
interests in a Person.
"Release" means any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"Report Date" has the meaning given in the Stockholders' Agreement.
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<PAGE> 171
"Representative" means, with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Right" has the meaning given in the Recitals of this Agreement.
"SEC" has the meaning given in Section 3.4.
"SEC Documents" has the meaning given in Section 3.4.
"Securities Act" means the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"Stockholders' Agreement" means the Stockholders' Agreement to be entered
into at the Closing by, among others, Acquiror, the Interest Holders, Sherby
N.V., Martha Lee Reynolds, Barry Dvorchik, Christine Dune-Kraatz, Dr. Gerald
Rittershaus, acting solely in his capacity as trustee (the "Employee Trustee")
pursuant to a Trust Agreement between the Employee Trustee and Christine
Dune-Kraatz, and Bettina Donhardt, in substantially the form attached hereto as
Exhibit B.
"Stockholders Meeting" has the meaning given in Section 7.11(b).
"Sub" has the meaning given in the first paragraph of this Agreement.
"Sub Shares" has the meaning given in Section 2.6(c).
"Subsidiary" means, with respect to any Person, any corporation or other
Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"Surviving Corporation" has the meaning given in Section 2.1(a).
"Surviving Shares" has the meaning given in Section 2.6(c).
"Taxes" means, to the extent applicable to any party hereto, all U.S. or
foreign and all state, municipal and local taxes, charges, fees, levies or other
assessments of whatever kind or nature, including without limitation, all net
income, gross income, gross receipts, sales, value added, use, services, ad
valorem, occupation, transfer, franchise, capital stock, profits, license,
withholding, payroll, employment, unemployment, excise, estimated, severance,
stamp, occupancy or property taxes, custom duties, assessments or governmental
fiscal charges of any kind whatever (together with any interest, penalty, or
addition to tax).
"Taxing Authority" means, to the extent applicable to any party hereto, the
United States Internal Revenue Service (the "IRS") or any successor agency, and,
to the extent applicable to any party hereto, any similar foreign, state,
municipal or local Governmental Body.
"Tax Laws" means, to the extent applicable to any party hereto, the
Internal Revenue Code of 1986, as amended (the "IRC"), and regulations issued by
the IRS thereunder, or any successor law or regulations, and, to the extent
applicable to any party hereto, any similar foreign, state, municipal or local
laws and regulations.
"Tax Return" means any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threat of Release" means a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
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"Trade Secrets" has the meaning given in Section 5.22(a).
"U.S. GAAP" has the meaning given in Section 3.4.
ARTICLE II
THE MERGER
2.1. The Merger. (a) On the terms and subject to the conditions of this
Agreement, at the Effective Time, Sub will be merged with and into the Company
in accordance with this Agreement and the applicable provisions of the DGCL, and
the separate corporate existence of Sub will thereupon cease (the "Merger"). The
Company will be the surviving corporation in the Merger (as such, the "Surviving
Corporation").
(b) At the Effective Time, the corporate existence of the Company with all
its rights, privileges, powers and franchises will continue unaffected and
unimpaired by the Merger. The Merger will have the effects specified in this
Agreement and the DGCL.
2.2. The Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement will take place at the New York offices of Jones,
Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York 10022, at 10:00
a.m., local time, on such date within five Business Days following the date on
which the last of the conditions (excluding conditions that by their terms
cannot be satisfied until the Closing Date) set forth in Article VIII is
satisfied or waived in accordance herewith or at such other place, time or date
as the parties may agree upon in writing. The date on which the Closing occurs
is hereinafter referred to as the "Closing Date."
2.3. Effective Time. On the Closing Date, Sub and the Company will cause a
certificate of merger to be filed with the Secretary of State of the State of
Delaware as provided in Section 251 of the DGCL. Upon completion of such filing,
the Merger will become effective in accordance with the DGCL. The time and date
on which the Merger becomes effective is herein referred to as the "Effective
Time."
2.4. Certificate of Incorporation and By-Laws of Surviving
Corporation. (a) The certificate of incorporation of the Surviving Corporation
to be in effect from and after the Effective Time until amended in accordance
with its terms and the DGCL will be the certificate of incorporation of Sub
immediately prior to the Effective Time, as amended and restated.
(b) The by-laws of the Surviving Corporation to be in effect from and after
the Effective Time until amended in accordance with their terms and the DGCL
will be the by-laws of Sub immediately prior to the Effective Time, as amended
and restated.
2.5. Directors and Officers of Surviving Corporation. (a) The members of
the initial Board of Directors of the Surviving Corporation will be the members
of the Board of Directors of Sub immediately prior to the Effective Time. All of
the members of the Board of Directors of the Surviving Corporation will serve
until their successors are duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the certificate
of incorporation and the by-laws of the Surviving Corporation.
(b) The officers of the Surviving Corporation will consist of the officers
of Sub immediately prior to the Effective Time. Such persons will continue as
officers of the Surviving Corporation until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the certificate of incorporation and the by-laws of
the Surviving Corporation.
2.6. Conversion of Securities. (a) At the Effective Time, (i) each share
of Company Common issued and outstanding immediately prior to the Effective Time
will, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into 6,450 shares (the "Common Acquiror Shares") of Common
Stock, par value $0.01 per share, of Acquiror (the "Acquiror Common Stock") and
(ii) each share of Company Preferred issued and outstanding immediately prior to
the Effective Time will, by virtue of the Merger and without any action the part
of the holder thereof, be converted into 6,450 shares of Acquiror
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Common Stock (the "Preferred Acquiror Shares," and together with the Common
Acquiror Shares and the Employee Acquiror Shares, collectively, the "Acquiror
Shares").
(b) All Company Shares to be converted into Acquiror Shares pursuant to
Section 2.6(a) will, by virtue of the Merger and without any action on the part
of the holders thereof, cease to be outstanding, be cancelled and retired and
cease to exist, and each holder of a certificate previously representing any
such Company Shares will thereafter cease to have any rights with respect to
such Company Shares, except the right to receive for each of the Company Shares,
upon the surrender of such certificate, the number of Acquiror Shares specified
above (together with the number of Employee Acquiror Shares specified in 2.6(e),
collectively, the "Consideration").
(c) At the Effective Time, each share of common stock, par value $0.01 per
share, of Sub (the "Sub Shares") issued and outstanding immediately prior to the
Effective Time will, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into one share of common stock, par value
$0.01 per share, of the Surviving Corporation (the "Surviving Shares"), with the
result that the Surviving Corporation will be a wholly-owned subsidiary of
Acquiror.
(d) All Sub Shares to be converted into Surviving Shares pursuant to
Section (c) will, by virtue of the Merger and without any action on the part of
the holders thereof, cease to be outstanding, be cancelled and retired and cease
to exist, and each holder of a certificate previously representing any such Sub
Shares will thereafter cease to have any rights with respect to such Sub Shares,
except the right to receive for each of the Sub Shares, upon the surrender of
such certificate, the number of Surviving Shares specified above.
(e) At the Effective Time, each of the Employee Rightholders shall, by
virtue of the Merger and without any action on their part, and in consideration
for his or her Right, receive 6,575 shares (the "Employee Acquiror Shares") of
Acquiror Common Stock, and, upon such conversion, each such Right, shall, by
virtue of the Merger and without any action on their part, be extinguished.
(f) At the Closing, Acquiror shall deliver to each holder of the Company
Shares and to each Employee Rightholder certificates evidencing the respective
number of Acquiror Shares specified in this Section 2.6, subject to the
provisions of Section 4.7 of the Stockholders' Agreement and the restrictions on
transfer contemplated by Section 7.9 of this Agreement.
2.7. Dissenting Company Shares. Notwithstanding the provisions of Section
2.6 or any other provision of this Agreement to the contrary, the Company Shares
that are issued and outstanding immediately prior to the Effective Time and are
held by stockholders of the Company who have not voted such Company Shares in
favor of the adoption of this Agreement and who properly demand appraisal of
such Company Shares in accordance with Section 262 of the DGCL (the "Dissenting
Shares") will not be converted as provided in Section 2.6 at or after the
Effective Time unless and until the holder of such Dissenting Shares fails to
perfect or effectively withdraws or loses such right to appraisal and payment
under the DGCL. If a holder of Dissenting Shares so fails to perfect or
effectively withdraws or loses such right to appraisal and payment, then, as of
the Effective Time or the occurrence of such event, whichever last occurs, such
holder's Dissenting Shares will be converted into and represent solely the
rights provided in Section 2.6.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUB
Acquiror and Sub represent and warrant to the Company, Parent and the
Interest Holders as follows:
3.1. Authorization, Validity and Effect. (a) Acquiror is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Acquiror has the requisite corporate power and authority to
execute and deliver this Agreement and all agreements and documents contemplated
hereby to be executed and delivered by it, and subject to receipt of necessary
shareholder approval with respect to this Agreement and the other agreements
with the BioClin Affiliates with respect to the acquisition of all of the equity
interests of the BioClin Affiliates, to consummate the transactions contemplated
hereby. The execution
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and delivery of this Agreement and such other agreements and documents, and the
consummation of the transactions contemplated herein and therein, have been duly
and validly authorized by all necessary corporate action in respect thereof on
the part of Acquiror, subject, with respect to this Agreement, to the approval
of the stockholders of Acquiror. This Agreement has been duly and validly
executed and delivered by Acquiror and, once approved by the stockholders of
Acquiror, represents the legal, valid and binding obligation of Acquiror,
enforceable against Acquiror in accordance with its terms.
(b) Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Sub has the requisite
corporate power and authority to execute and deliver this Agreement and all
agreements and documents contemplated hereby to be executed and delivered by it
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and such other agreements and documents, and the
consummation of the transactions contemplated herein and therein, have been duly
and validly authorized by all necessary corporate action in respect thereof on
the part of Sub. This Agreement has been duly and validly executed and delivered
by Sub and represents the legal, valid and binding obligation of Sub,
enforceable against Sub in accordance with its terms.
3.2. Acquiror Shares. Assuming that all required stockholder action has
been taken and all conditions set forth in Article VIII have been satisfied or
waived, the Acquiror Shares to be issued to holders of Company Shares and the
Employee Rightholders hereunder have been duly authorized and, when issued in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable.
3.3. Conflicts; Defaults. (a) Neither the execution and delivery of this
Agreement by Acquiror, nor the performance of its obligations hereunder, will
conflict with or constitute a default under any of the terms or provisions of
Acquiror's Second Restated Certificate of Incorporation or Second Amended and
Restated By-Laws or any material agreement or other material instrument to which
Acquiror is a party or by which it or its properties are bound or subject.
(b) Neither the execution and delivery of this Agreement by Sub, nor the
performance of its obligations hereunder, will conflict with or constitute a
default under any of the terms or provisions of Sub's Certificate of
Incorporation or By-Laws or any material agreement or other material instrument
to which Sub is a party or by which it or its properties are bound or subject.
3.4. Exchange Act Filings. Since December 10, 1991, Acquiror has filed all
documents (the "SEC Documents") required to be filed by it with the Securities
and Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of
1934 (the "Exchange Act"). As of their respective filing dates (and as amended
through the date hereof), the SEC Documents complied in all material respects
with the requirements of the Exchange Act and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances in which they were made, not
misleading except to the extent corrected by a subsequently filed SEC Document.
The financial statements of Acquiror included in the SEC Documents complied as
to form in all material respects with then applicable accounting requirements
and with the published rules and regulations of the SEC with respect thereto,
were prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP") applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto, or in the case of
unaudited statements, as permitted by Form 10-Q and Regulation S-X of the SEC)
and fairly present the consolidated financial position of Acquiror and its
consolidated subsidiaries as at the dates thereof and the consolidated results
of operations and changes in financial position for the periods then ended
(subject, in the case of unaudited statements, to normal, recurring audit
adjustments).
3.5. Absence of Material Adverse Changes. Except as set forth in Part 3.5
of the Acquiror Letter or in any SEC Document, since March 31, 1996, there has
not been any material adverse change in the business, operations, properties,
prospects, assets or condition of Acquiror that would be required to be
disclosed by Acquiror in a report required to be filed with the SEC pursuant to
the Exchange Act, and no event has occurred or circumstance exists that may
result in such a material adverse change that would be required to be disclosed
by Acquiror in any such report.
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3.6. Taxes. (a) Except as set forth in Part 3.6 of the Acquiror Letter,
(i) all Tax Returns with respect to Taxes that were required to be filed by or
on behalf of Acquiror at and prior to the date of this Agreement have been duly
filed on a timely basis (giving effect to any extensions granted to Acquiror)
and are true, correct and complete in all material respects, (ii) all Taxes due
with respect to periods covered by the Tax Returns referred to in clause (i)
have been paid in full or Acquiror has adequately reserved or made adequate
accruals (in accordance with U.S. GAAP) with respect to any such Taxes which are
due and payable by Acquiror and Acquiror has not had and will not have any
liability for Taxes materially in excess of the amounts so paid or so reserved
or accrued, and (iii) Acquiror is not a party to or the subject of any action,
investigation or proceeding, exclusive of normal recurring audits, nor, to the
knowledge of Acquiror, is any such action, investigation or proceeding
threatened, by any Governmental Authority for the assessment or collection of
any Taxes and no deficiency notices or reports have been received by Acquiror
with respect to any deficiency of Acquiror for any Taxes.
(b) The statute of limitations for the assessment of U.S. federal income
taxes and all state income taxes of Acquiror has expired for each period through
December 31, 1990.
3.7. Legal Proceedings; Orders. (a) Except as set forth in Part 3.7 of the
Acquiror Letter or in any SEC Document, since March 31, 1996, no Proceeding has
been instituted or threatened by or against Acquiror or that otherwise relates
to or may materially affect the business of, or any of the assets owned or used
by, Acquiror that would be required to be disclosed by Acquiror in a report
required to be filed with the SEC pursuant to the Exchange Act.
(b) Except as set forth in Part 3.7 of the Acquiror Letter or in any SEC
Document, since March 31, 1996, no Order has arisen or been threatened to which
Acquiror or any of the assets owned or used by Acquiror is subject that would be
required to be disclosed by Acquiror in a report required to be filed with the
SEC pursuant to the Exchange Act.
3.8. Absence Of Certain Changes and Events. Except as set forth in Part
3.8 of the Acquiror Letter or in any SEC Document, since March 31, 1996,
Acquiror has conducted its business only in the ordinary course of business and
there has not occurred any:
(a) change in Acquiror's authorized or issued capital stock; grant of
any stock option or right to purchase shares of capital stock of Acquiror
(other than as contemplated by this Agreement); issuance of any security
convertible into such capital stock; grant of any registration rights;
purchase, redemption, retirement, or other acquisition by Acquiror of any
shares of any such capital stock; or declaration or payment of any dividend
or other distribution or payment in respect of shares of capital stock;
(b) amendment to the Second Restated Certificate of Incorporation of
Acquiror;
(c) payment or increase by Acquiror of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the
ordinary course of business consistent with past practice) employee or
entry into any employment, severance, or similar Contract with any
director, officer, or employee;
(d) adoption of, or increase (except in the ordinary course of
business consistent with past practice) in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or with
any employees of Acquiror;
(e) damage to or destruction or loss of any asset or property of
Acquiror, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or
prospects of Acquiror, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of
(i) any material Contract or any material license, distributorship, dealer,
sales representative, joint venture, credit, or similar agreement, or (ii)
transaction involving a total remaining commitment by or to Acquiror of at
least U.S. $500,000;
(g) sale (other than sales of inventory in the ordinary course of
business), lease, or other disposition of any material asset or property of
Acquiror;
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(h) cancellation or waiver of any claims or rights with a value to
Acquiror in excess of U.S. $500,000;
(i) material change in the accounting methods used by Acquiror, except
for any change required as a result of a change in U.S. GAAP;
(j) incurrence or payment of any indebtedness for borrowed money other
than pursuant to Acquiror's financing arrangements in existence on March
31, 1996;
(k) acquisition of any assets or properties or any commitment to do so
other than in the ordinary course of business; or
(l) agreement, whether oral or written, by Acquiror to do any of the
foregoing.
3.9. Contracts; No Defaults. (a) Except as set forth in Part 3.9(a) of the
Acquiror Letter, the SEC Documents contain as exhibits all of the material
Contracts, other than those entered into by Acquiror subsequent to March 31,
1996, to which Acquiror is a party or by which it or its properties or assets
are bound or subject.
(b) Part 3.9(b) of the Acquiror Letter sets forth a summary schedule of
certain of such Contracts produced by Acquiror in the ordinary course of its
business which sets forth, among other things, the parties to such Contracts and
the amount of the remaining commitment of Acquiror under such Contracts.
3.10. Insurance. Except as set forth in Part 3.10 of the Acquiror Letter:
(i) All insurance policies to which Acquiror is a party or that
provide coverage to any of Acquiror or any director or officer of Acquiror:
(A) to Acquiror's knowledge, are valid, outstanding, and enforceable; (B)
are issued by an insurer that is financially sound and reputable; (C) taken
together, provide adequate insurance coverage for the assets and the
operations of Acquiror for all risks to which Acquiror is normally exposed;
(D) are sufficient for compliance in all material respects with all Legal
Requirements that are or were applicable to Acquiror or to the conduct or
operation of its business or the ownership or use of any of its properties
or assets and all Contracts to which Acquiror is a party or by which it is
bound; (E) will continue in full force and effect following the
consummation of the transactions contemplated hereby; and (F) do not
provide for any retrospective premium adjustment or other experienced-based
liability on the part of Acquiror.
(ii) Acquiror has not received (A) any refusal of coverage or any
notice that a defense will be afforded with reservation of rights, or (B)
any notice of cancellation or any other indication that any insurance
policy is no longer in full force or effect or will not be renewed or that
the issuer of any insurance policy is not willing or able to perform its
obligations thereunder.
(iii) Acquiror has paid all premiums due, and has otherwise performed
in all material respects all of its obligations, under each insurance
policy to which Acquiror is a party or that provides coverage to Acquiror
or any director or officer thereof.
(iv) Acquiror has given notice to the insurer of all claims that may
be insured thereby.
3.11. Environmental Matters. Except as set forth in Part 3.11 of the
Acquiror Letter or in any SEC Document, since March 31, 1996, Acquiror has not
been in material violation of or liable under, any Environmental Law to an
extent that would be required to be disclosed by Acquiror in a report required
to be filed with the SEC pursuant to the Exchange Act.
3.12. Labor Relations; Compliance. Part 3.12 of the Acquiror Letter sets
forth each collective bargaining or other labor contract to which Acquiror is a
party or otherwise subject. Since December 10, 1991, there has not been, there
is not presently pending or existing, and there is not threatened, (a) any
strike, slowdown, picketing, work stoppage, or employee grievance process, (b)
any Proceeding against or affecting Acquiror relating to the alleged material
violation of any Legal Requirement applicable to Acquiror pertaining to labor
relations or employment matters, including any charge or complaint filed by an
employee or union
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with any Governmental Body, organizational activity, or other labor or
employment dispute against or affecting Acquiror or its premises, or (c) any
application for certification of a collective bargaining agent. No event has
occurred or circumstance exists that could provide the basis for any work
stoppage or other labor dispute. There is no lockout of any employees by
Acquiror, and no such action is contemplated by Acquiror. Acquiror has complied
in all material respects with all Legal Requirements applicable to Acquiror
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, occupational safety and health, and plant
closing. Acquiror is not liable for the payment of any compensation, damages,
taxes, fines, penalties, or other amounts, however designated, for failure to
materially comply with any of the foregoing Legal Requirements.
3.13. Intellectual Property. Except as set forth in Part 3.13 of the
Acquiror Letter, all intellectual property necessary for the conduct of
Acquiror's business as currently conducted has been disclosed in the SEC
Documents.
3.14. Disclosure. No notice given by Acquiror pursuant to Section 7.6 will
contain any untrue statement or omit to state a material fact necessary to make
the statements therein or in this Agreement, in light of the circumstances in
which they were made, not misleading.
3.15. Brokers and Finders. Except with respect to arrangements with Vector
Securities International, Inc., neither Acquiror nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
finder's fees, and no broker or finder has acted directly or indirectly for
Acquiror in connection with this Agreement or the transactions contemplated
hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
REGARDING PARENT AND THE PARENT SHARES
Parent represents and warrants to Acquiror as follows:
4.1. Authorization, Validity and Effect. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the
Netherland Antilles. Parent has all requisite power and authority to carry out
its obligations arising in connection with the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and such other
agreements and documents, and the consummation of the transactions contemplated
herein and therein, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of Parent. This Agreement and
all other agreements and documents to be executed and delivered by Parent in
connection with this Agreement constitute in all respects the legal, valid and
binding obligation of Parent, enforceable against Parent in accordance with
their respective terms.
4.2. Consents and Approvals; No Violation. The execution, delivery and
performance of this Agreement by Parent and the consummation of the transactions
contemplated hereby do not and will not (i) require the advance consent or
approval of, or filing with, any person or public authority or (ii) constitute
or result in the breach of any provision of, or constitute a default under, the
organizational and organic documents of Parent or any material agreement or
other material instrument to which Parent is a party or by which it (or the
Company Shares) is bound or subject.
4.3. Title and Power. Parent is the legal owner of 97% of the Company
Shares, which, together with the Company Shares owned by Barr, constitute all of
the outstanding equity interests of the Company. Good, valid and marketable
title to such Company Shares is held by Parent free and clear of any claims,
liens, restrictions on transfer or voting or encumbrances. The Company Shares
owned by Parent are validly issued, fully paid and non-assessable. Parent has
full power and authority to vote the Company Shares owned by it in favor of the
adoption of this Agreement and the Merger and to cause the Company to consummate
the transactions contemplated by this Agreement. Except as set forth in Part 4.3
of the Disclosure Letter, there are no voting
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trusts or other agreements or understandings to which Parent is a party with
respect to the voting of the equity interests of the Company.
4.4. Litigation. As of the date of this Agreement, there is no action,
suit or proceeding pending against, or to the knowledge of Parent, threatened
against or affecting, Parent or any of its Affiliates or any of its properties
(including, without limitation, the Company Shares owned by it before any court
or arbitrator or any Governmental Body or official which in any manner
challenges or seeks to prevent, enjoin, alter or materially delay any of the
transactions contemplated by this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE INTEREST HOLDERS WITH RESPECT TO THE COMPANY
Each of the Company and the Interest Holders hereby jointly and severally
represent and warrant to Acquiror that:
5.1. Organization, Authority and Authorization. (a) The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has the requisite corporate power and
authority to execute and deliver this Agreement and all agreements and documents
contemplated hereby to be executed and delivered by it, and subject to receipt
of necessary shareholder approval, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and such other agreements
and documents, and the consummation of the transactions contemplated herein and
therein, have been duly and validly authorized by all necessary corporate action
in respect thereof on the part of the Company, subject, with respect to this
Agreement, to the approval of the stockholders of the Company. This Agreement
has been duly and validly executed and delivered by the Company and, once
approved by the stockholders of the Company, represents the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
(b) The Company has the full corporate power and authority to own its
properties and assets, to carry on the Company's business as it is now being
conducted and to perform all its obligations under Applicable Contracts and this
Agreement. The Company is not required to qualify to do business in any
jurisdiction where not already so qualified except where a failure to so qualify
would not, individually or in the aggregate, have a material adverse effect on
the financial condition, business or results of operations of the Company. The
Company has all Governmental Authorizations required in order to own or lease
its properties and assets and to carry on its business as now being conducted in
all respects material to the financial condition, business or results of
operations of the Company. The Interest Holders have delivered to Acquiror
copies of the Certificate of Incorporation of the Company, as currently in
effect.
5.2. Consents and Approvals; No Violation. The execution, delivery and
performance of this Agreement by the Company and each of the Interest Holders
and the consummation of the transactions contemplated hereby do not and will not
(i) require the advance consent or approval of, or filing with, any person or
public authority (other than the stockholders of the Company) or (ii) constitute
or result in the breach of any provision of, or constitute a default under, the
Certificate of Incorporation of the Company or any material agreement or other
material instrument to which the Company or any Interest Holder is a party or by
which such Person (or the Company Shares or Parent Shares) is bound or subject.
5.3. Title and Power. Hackel, Barbut and Jensen are the legal owners of
the Parent Shares, which constitute all of the equity interests of Parent. Good,
valid and marketable title to such equity interests in Parent is held by the
Interest Holders free and clear of any claims, liens, restrictions on transfer
or voting or encumbrances. Each of the Parent Shares and the Company Shares are
validly issued, fully paid and non-assessable. Hackel, Barbut and Jensen have
full power and authority to cause Parent to vote the Company Shares owned by it
in favor of the adoption of this Agreement and the Merger and to cause the
Company to consummate the transactions contemplated hereby.
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5.4. Capitalization of the Company; Subsidiaries. (a) The Company has
outstanding 9 shares of Common Stock, par value $0.01 per share, and 91 shares
of Series I Preferred Stock, par value $0.01 per share. Parent owns 6 shares of
Common Stock and all 91 shares of Series I Preferred Stock. Barr owns 3 shares
of Common Stock. Other than the Rights, there are no other equity interests in
the Company and no outstanding options, warrants, scrip, rights to subscribe to,
calls, commitments or agreements of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, equity interests of
the Company. The Company does not hold any treasury shares. Except as set forth
in Part 5.4 of the Disclosure Letter, there are no voting trusts or other
agreements or understandings to which the Company or the Interest Holders are a
party with respect to the voting of the equity interests of the Company.
(b) The Company does not hold, directly or indirectly, nor is it a member
nor does it have any Contract to acquire, any share, equity or other interest in
any corporation or limited liability company, partnership, or other entity
including silent partnerships, cooperatives and joint ventures.
5.5. Company Financial Statements. The Company and the Interest Holders
have delivered to Acquiror as Part 5.5 of the Disclosure Letter: (i) an
unaudited combined consolidated balance sheet of the Company and the BioClin
Affiliates as at December 31, 1994, and the related unaudited combined
consolidated statement of income for the fiscal year then ended as well as the
fiscal year ended December 31, 1993, and (ii) an unaudited combined consolidated
balance sheet of the Company and the BioClin Affiliates as at December 31, 1995
(the "Balance Sheet") and the related unaudited combined consolidated statement
of income for the fiscal year then ended. Such financial statements have been
prepared in accordance with U.S. GAAP (which except where noted therein, have
been consistently applied), and fairly present the financial condition and
results of operations, changes in stockholders' equity and cash flow of the
Company as at the respective dates and for the periods referred to in such
financial statements.
5.6. Books and Records. Except as set forth in Part 5.6 of the Disclosure
Letter, the books of account and other records of the Company, including records
of all meetings held by, and the corporate action taken by, the shareholders of
the Company and the board of directors of the Company, all of which have been
made available to Acquiror, are complete and correct and have been maintained in
accordance with sound business practices and in compliance in all material
respects with all applicable Legal Requirements and accounting requirements. At
the Closing, all of the foregoing books and records will be in the possession of
the Company.
5.7. Reports. Except as set forth in Part 5.7 of the Disclosure Letter,
since December 16, 1988, the Company has filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that were required to be filed with respect to the Company with any
Governmental Body with jurisdiction over the Company or its employees, assets or
properties (all such reports and statements are collectively referred to herein
as the "Company Reports"). As of their respective dates, the Company Reports
complied in all material respects with the statutes, rules, regulations and
orders enforced or promulgated by the regulatory authority with which they were
filed.
5.8. Absence of Material Adverse Changes. Except as set forth in Part 5.8
of the Disclosure Letter, since December 31, 1995, there has not been any
material adverse change in the business, operations, properties, prospects,
assets or condition of the Company, and no event has occurred or circumstance
exists that may result in such a material adverse change.
5.9. Title to Properties; Encumbrances. The Company does not own any real
property. Part 5.9 of the Disclosure Letter contains a complete and accurate
list of all leaseholds or other interests in real property held or possessed by
the Company and a summary of the material provisions of any lease or other
Applicable Contract relating to such leasehold or other interest, including the
identity of the other party thereto, a description of the interest held, the
location of the real property, the duration thereof, payment terms and any
rights of termination. The Company and the Interest Holders have made available
to Acquiror copies of all leases and other instruments (as recorded) by which
the Company acquired such real property interests, and copies of any title
insurance policies, opinions, abstracts and surveys in the possession of the
Interest Holders or the Company and relating to such interests. The Company owns
all of the properties and assets (whether
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real, personal or mixed and whether tangible or intangible) that it purports to
own, including all of the properties and assets reflected in the Balance Sheet
(except for assets held under capitalized leases disclosed or not required to be
disclosed on Part 5.9 of the Disclosure Letter, licenses for intangible personal
property (including software licenses) and personal property sold since the date
of the Balance Sheet, in the ordinary course of business), and all of the
properties and assets purchased or otherwise acquired by the Company since the
date of the Balance Sheet. Except as set forth in Part 5.9 of the Disclosure
Letter, all material properties and assets reflected in the Balance Sheet are
free and clear of all Encumbrances and are not, in the case of real property
interests, subject to any rights of way, building use restrictions, exceptions,
variances, reservations or limitations of any nature except, with respect to all
such properties and assets (i) security interests shown on the Balance Sheet, as
securing specified liabilities or obligations, with respect to which no default
(or event that, with notice or lapse of time or both, would constitute a
default) exists, (ii) security interests incurred in connection with the
purchase of property or assets after the date of the Balance Sheet (such
security interests being limited to the property or assets so acquired), with
respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, and (iii) liens for current taxes not
yet due. To the Company's knowledge, all buildings and structures occupied by
the Company lie wholly within the boundaries of the real property leased by the
Company and do not encroach upon the property of, or otherwise conflict with the
property rights of, any other Person.
5.10. Condition and Sufficiency of Assets. Except as set forth in Part
5.10 of the Disclosure Letter, the buildings and structures conform to
applicable code requirements and commercial standards for the localities where
the premises are located, and the equipment and other tangible personal property
of the Company are in good operating condition and repair, and are adequate for
the uses to which they are being put, and none of such equipment and other
tangible personal property is in need of maintenance or repair, except ordinary,
routine maintenance and repairs that are not material in nature or cost. The
buildings, structures, equipment and other tangible personal property of the
Company are sufficient for the continued conduct of the Company's business after
the Closing in substantially the same manner as conducted prior to the Closing.
5.11. Accounts Receivable. All accounts receivable of the Company that are
reflected on the Balance Sheet (collectively, the "Accounts Receivable")
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. Except as set forth in
Part 5.11 of the Disclosure Letter, unless paid prior to the Closing Date, the
Accounts Receivable are or will be as of the Closing Date current and
collectible net of the reserves, if any, shown on the Balance Sheet or on the
accounting records of the Company on the Closing Date (which, in the case of the
reserve as of the Closing Date, is adequate and will not represent a material
adverse change in the composition of such Accounts Receivable in terms of aging
since the date of the Balance Sheet). To the knowledge of the Company and the
Interest Holders, no event has occurred nor circumstances exist which make it
improbable that the Company will be able collect the Accounts Receivable
outstanding as of the date of this Agreement or as of the Closing Date
consistent with its prior collection experience.
5.12. No Undisclosed Liabilities. Except as set forth in Part 5.12 of the
Disclosure Letter, the Company has no material liabilities or obligations of any
nature (whether known or unknown and whether absolute, accrued, contingent or
otherwise) except for liabilities or obligations reflected or reserved against
in the Balance Sheet and current liabilities incurred in the ordinary course of
business since the date thereof.
5.13. Taxes. (a) Except as set forth in Part 5.13 of the Disclosure
Letter, (i) all Tax Returns with respect to Taxes that were required to be filed
by or on behalf of the Company at or prior to the date of this Agreement have
been duly filed on a timely basis (giving effect to any extensions granted to
the Company) and are true, correct and complete in all material respects, (ii)
all Taxes due with respect to periods covered by the Tax Returns referred to in
clause (i) have been paid in full or the Company has adequately reserved or made
adequate accruals in accordance with U.S. GAAP (which are reflected on the
Balance Sheet) with respect to any such Taxes which are due and payable by the
Company and the Company has not had and will not have any liability for Taxes
materially in excess of the amounts so paid, reserved or accrued, and (iii) the
Company is not a party to or the subject of any action, investigation or
proceeding, exclusive of normal recurring audits, nor to the knowledge of the
Company and the Interest Holders, is any such action,
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investigation or proceeding threatened, by any Governmental Authority for the
assessment or collection of any Taxes and no deficiency notices or reports have
been received by either the Company or any of the Interest Holders with respect
to any deficiency of the Company for any Taxes.
(b) The statute of limitations for the assessment of U.S. federal income
Taxes and all other Taxes of the Company has expired for each period through
December 31, 1990.
(c) No Tax is required to be withheld pursuant to the IRC, including,
without limitation, section 1445 thereof, as a result of the transactions
contemplated by this Agreement.
(d) As a result of compliance with this Agreement and the matters referred
to herein, neither the Company nor the Interest Holders will be obligated to
make any payment to any individual that would be a "parachute payment" to a
"disqualified individual" as those terms are defined in Section 280G of the IRC
without regard to whether such payment is to be made in the future.
5.14. Compliance with Legal Requirements; Governmental
Authorizations. (a) Except as set forth in Part 5.14(a) of the Disclosure
Letter: (i) the Company is, and has been, in compliance in all material respects
with each Legal Requirement that is or was applicable to the Company or to the
conduct or operation of its business or the ownership or use of any of its
properties or assets; (ii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) (A) may constitute or result in a
material violation by the Company of, or a failure on the part of the Company to
comply in all material respects with, any Legal Requirement that is or was
applicable to the Company or to the conduct or operation of its business or the
ownership or use of any of its properties or assets, or (B) may give rise to any
material obligation on the part of the Company to undertake, or to bear all or
any portion of the cost of, any remedial action of any nature; and (iii) the
Company has not received any notice or other communication (whether oral or
written) from any Governmental Body or any other Person regarding (A) any
actual, alleged, possible, or potential violation of, or failure to comply with,
any Legal Requirement that is or was applicable to the Company or to the conduct
or operation of its business or the ownership or use of any of its properties or
assets, or (B) any actual, alleged, possible, or potential obligation on the
part of the Company to undertake, or to bear all or any portion of the cost of,
any remedial action of any nature.
(b) Except as set forth in Part 5.14 (b) of the Disclosure Letter: (i) the
Company is, and has been, in full compliance with all of the terms and
requirements of each Governmental Authorization owned, possessed or otherwise
applicable to the Company, the conduct of its business or any assets owned or
used by the Company; (ii) no event has occurred or circumstance exists that may
(with or without notice or lapse of time) (A) constitute or result directly or
indirectly in a violation of or a failure to comply with any term or requirement
of any Governmental Authorization owned, possessed or otherwise applicable to
the Company, the conduct of its business or any assets owned or used by the
Company, or (B) result directly or indirectly in the revocation, withdrawal,
suspension, cancellation, or termination of, or any modification to, any such
Governmental Authorization; (iii) the Company has not received any notice or
other communication (whether oral or written) from any Governmental Body or any
other Person regarding (A) any actual, alleged, possible, or potential violation
of or failure to comply with any term or requirement of any Governmental
Authorization owned, possessed or otherwise applicable to the Company, the
conduct of its business or any assets owned or used by the Company, or (B) any
actual, proposed, possible, or potential revocation, withdrawal, suspension,
cancellation, termination of, or modification to any such Governmental
Authorization; and (iv) all applications required to have been filed for the
renewal of the Governmental Authorizations owned, possessed or otherwise
applicable to the Company, the conduct of its business or any assets owned or
used by the Company have been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other filings required to have been made with
respect to such Governmental Authorizations have been duly made on a timely
basis with the appropriate Governmental Bodies.
(c) Except as set forth in Part 5.14(c) of the Disclosure Letter, the
Governmental Authorizations owned, possessed or otherwise applicable to the
Company, the conduct of its business or any assets owned or used by the Company
collectively constitute all of the Governmental Authorizations required in order
to permit the Company to lawfully conduct and operate its business in the manner
it currently conducts and
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operates such business and to permit the Company to own and use its assets in
the manner in which it currently owns and uses such assets.
5.15. Legal Proceedings; Orders. (a) Except as set forth in Part 5.15(a)
of the Disclosure Letter, there is no pending Proceeding: (i) that has been
commenced by or against the Company or any of the Interest Holders or that
otherwise relates to or may materially affect the business of, or any of the
assets owned or used by, the Company; or (ii) that challenges, or that may have
the effect of preventing, delaying, making illegal, or otherwise interfering
with, any of the transactions contemplated by this Agreement.
(b) Except as set forth in Part 5.15(b) of the Disclosure Letter, to the
knowledge of the Company and the Interest Holders, (i) no such Proceeding has
been threatened, and (ii) no event has occurred or circumstance exists that may
give rise to or serve as a basis for the commencement of any such Proceeding.
The Company and the Interest Holders have delivered to Acquiror copies of all
pleadings, correspondence with third parties, and other non-privileged documents
relating to each Proceeding listed in Part 5.15 of the Disclosure Letter. The
Proceedings listed in Part 5.15 of the Disclosure Letter will not have a
material adverse effect on the business, operations, assets, condition, or
prospects of the Company.
(c) Except as set forth in Part 5.15(c) of the Disclosure Letter: (i) there
is no Order to which the Company, or any of the assets owned or used by the
Company, is subject; (ii) none of the Interest Holders is subject to any Order
that relates to the business of, or any of the assets owned or used by, the
Company; and (iii) no officer, director, agent or employee of the Company is
subject to any Order that prohibits such officer, director, agent or employee
from engaging in or continuing any conduct, activity, or practice relating to
the business of the Company.
(d) Except as set forth in Part 5.15(d) of the Disclosure Letter: (i) the
Company is, and at all times has been, in compliance in all material respects
with all of the terms and requirements of each Order to which it, or any of the
assets owned or used by it, is or has been subject; (ii) no event has occurred
or circumstance exists that may constitute or result in (with or without notice
or lapse of time) a material violation of or failure to comply in all material
respects with any term or requirement of any Order to which the Company, or any
of the assets owned or used by the Company, is subject; and (iii) the Company
has not received any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding any actual, alleged,
possible, or potential violation of, or failure to comply with, any term or
requirement of any Order to which the Company, or any of the assets owned or
used by the Company, is or has been subject.
5.16. Absence Of Certain Changes and Events. Except as set forth in Part
5.16 of the Disclosure Letter, since the date of the Balance Sheet, the Company
has conducted its business only in the ordinary course of business and there has
not been any:
(a) change in the Company's stated capital or equity interests; grant
of any option or right to purchase shares of the Company; issuance of any
security convertible into such shares; grant of any registration rights;
purchase, redemption, retirement, or other acquisition by the Company of
any such shares; or declaration or payment of any shares in the Company's
profits;
(b) amendment to the Certificate of Incorporation of the Company;
(c) payment or increase by the Company of any bonuses, salaries, or
other compensation to any shareholder, director, officer, or (except in the
ordinary course of business consistent with past practice) employee or
entry into any employment, severance, or similar Contract with any
director, officer, or employee;
(d) adoption of, or increase (except in the ordinary course of
business consistent with past practice) in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or with
any employees of the Company;
(e) damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or
prospects of the Company, taken as a whole;
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(f) entry into, termination of, or receipt of notice of termination of
(i) any Contract, any license, distributorship, dealer, sales
representative, joint venture, credit, or similar agreement, or (ii) any
transaction involving a total remaining commitment by or to the Company of
at least U.S. $50,000;
(g) sale (other than sales of inventory in the ordinary course of
business), lease, or other disposition of any asset or property of the
Company or mortgage, pledge, or imposition of any Encumbrance on any
material asset or property of the Company, including the sale, lease, or
other disposition of any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to the
Company in excess of U.S. $50,000;
(i) material change in the accounting methods used by the Company;
(j) incurrence or payment (other than regularly scheduled payments
under debt obligations existing as of the date of this Agreement) of any
indebtedness for borrowed money or any incurrence of or commitment to incur
any material capital expenditures, in each case in excess of U.S. $30,000;
(k) acquisition of any assets or properties or any commitment to do so
other than in the ordinary course of business; or
(l) agreement, whether oral or written, by the Company to do any of
the foregoing.
5.17. Contracts; No Defaults. (a) Part 5.17(a) of the Disclosure Letter
contains a complete and accurate list, and the Company and the Interest Holders
have delivered to Acquiror true and complete copies, of:
(i) each Applicable Contract that involves performance of services by
the Company of an amount or value in excess of U.S. $100,000, except any
such Applicable Contract that can be terminated without cause by either
party thereto without penalty on 30 days or less notice;
(ii) each Applicable Contract that involves performance of services or
delivery of goods or materials to the Company of an amount or value in
excess of U.S. $100,000, except any such Applicable Contract that can be
terminated without cause by either party thereto without penalty on 30 days
or less notice;
(iii) each Applicable Contract that was not entered into in the
ordinary course of business and that involves expenditures or receipts by
Company in excess of U.S. $100,000, except any such Applicable Contract
that can be terminated without cause by either party thereto without
penalty on 30 days or less notice;
(iv) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any personal property (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than U.S. $20,000);
(v) each licensing agreement or other Applicable Contract with respect
to patents, trademarks, copyrights, or other intellectual property,
including agreements with current or former employees, consultants, or
contractors regarding the appropriation or the non-disclosure of any of the
Intellectual Property Assets;
(vi) each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee representative of a
group of employees or with a group of employees;
(vii) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by the Company with any other Person;
(viii) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of the Company or any Affiliate
of the Company or limit the freedom of the Company or any Affiliate of the
Company to engage in any line of business or to compete with any Person;
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(ix) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments
for goods, except that, with respect to all Applicable Contracts relating
to the retaining of Clinical Research Assistants ("CRAs") by the Company,
Part 5.17(a) of the Disclosure Letter need only set forth the aggregate
payments made by the Company to such CRAs during fiscal 1995;
(x) each power of attorney that is currently effective and
outstanding;
(xi) each Applicable Contract entered into other than in the ordinary
course of business that contains or provides for an express undertaking by
the Company to be responsible for consequential damages;
(xii) each Applicable Contract for capital expenditures in excess U.S.
$50,000;
(xiii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by the Company
other than in the ordinary course of business; and
(xiv) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
(b) Except as set forth in Part 5.17(b) of the Disclosure Letter: (i) none
of the Interest Holders (and no Related Person of any Interest Holder) has or
may acquire any material rights under, and none of the Interest Holders have or
may become subject to any material obligation or liability under, any Contract
that relates to the business of, or any of the assets owned or used by, the
Company; and (ii) no officer, director, agent, employee, consultant, or
contractor of the Company is bound by any Contract that purports to limit the
ability of such officer, director, agent, employee, consultant, or contractor to
(A) engage in or continue any conduct, activity, or practice relating to the
business of the Company, or (B) assign to the Company or to any other Person any
rights to any invention, improvement, or discovery.
(c) Except as set forth in Part 5.17(c) of the Disclosure Letter, each
Contract identified or required to be identified in Part 5.17(a) of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.
(d) Except as set forth in Part 5.17(d) of the Disclosure Letter:
(i) the Company is, and at all times has been, in full compliance with
all material terms and requirements of each Contract under which it has or
had any obligation or liability or by which it or any of its assets is or
was bound;
(ii) each other Person that has or had any obligation or liability
under any Contract under which the Company has or had any rights is, and at
all times has been, in full compliance with all material terms and
requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene in any material respect,
conflict in any material respect with, or result in a material violation or
breach of, or give the Company or other Person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Applicable
Contract; and
(iv) the Company has not given to or received from any other Person,
at any time any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential material violation or
breach of, or default under, any Contract.
(e) Except as set forth in Part 5.17(e) of the Disclosure Letter, there are
no renegotiations of, attempts to renegotiate, written demands to renegotiate or
outstanding rights to renegotiate any material amounts paid or payable to or by
the Company under current or completed Contracts with any Person, other than any
reduction of less than 10% of the aggregate amount due to the Company under any
Applicable Contract with a sponsor which is proportional to a corresponding
reduction of services to be performed by the Company under such Contract.
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(f) Except as set forth in Part 5.23 of the Disclosure Letter, the
Contracts relating to the sale, design, manufacture, or provision of products or
services by the Company have been entered into in the ordinary course of
business and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been paid or
promised, that is or would be in material violation of any Legal Requirement
that is or was applicable to the Company or to the conduct or operation of its
business or the ownership or use of any of its properties or assets.
5.18. Insurance. (a) The Company and the Interest Holders have delivered
to Acquiror: (i) true and complete copies of all policies of insurance to which
the Company is a party or under which the Company, or any director of the
Company, is or has been covered at any time within the two years preceding the
date of this Agreement; (ii) true and complete copies of all pending
applications for policies of insurance; and (iii) any statement by the auditor
of the Company's financial statements with regard to the adequacy of such
entity's coverage or of the reserves for claims.
(b) Except as set forth on Part 5.18(b) of the Disclosure Letter:
(i) All insurance policies to which the Company is a party or that
provide coverage to any of the Interest Holders, the Company or any
director, or officer of the Company: (A) to the Company's knowledge, are
valid, outstanding, and enforceable; (B) are issued by an insurer that is
financially sound and reputable; (C) taken together, provide adequate
insurance coverage for the assets and the operations of the Company for all
risks to which the Company is normally exposed; (D) are sufficient for
compliance in all material respects with all Legal Requirements that are or
were applicable to the Company or to the conduct or operation of its
business or the ownership or use of any of its properties or assets and all
Contracts to which the Company is a party or by which it is bound; (E) will
continue in full force and effect following the consummation of the
transactions contemplated hereby; and (F) do not provide for any
retrospective premium adjustment or other experienced-based liability on
the part of the Company.
(ii) None of the Interest Holders or the Company has received (A) any
refusal of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other
indication that any insurance policy is no longer in full force or effect
or will not be renewed or that the issuer of any insurance policy is not
willing or able to perform its obligations thereunder.
(iii) The Company has paid all premiums due, and have otherwise
performed in all material respects all of their respective obligations,
under each insurance policy to which the Company is a party or that
provides coverage to the Company or an officer or director thereof.
(iv) The Company has given notice to the insurer of all claims that
may be insured thereby.
5.19. Environmental Matters. Except as set forth in Part 5.19 of the
Disclosure Letter:
(a) The Company is, and at all times has been, in compliance in all
material respects with, and has not been and is not in material violation of or
liable under, any Environmental Law that is or was applicable to the Company or
to the conduct or operation of its business or the ownership or use of any of
its properties or assets. None of the Interest Holders or the Company has any
basis to expect, nor has any of them or any other Person for whose conduct they
are or may be held to be responsible received, any actual or threatened order,
notice, or other communication from (i) any Governmental Body or private citizen
acting or purporting to act in the public interest, or (ii) the current or prior
owner or operator of any Facilities, of any actual or potential material
violation or failure to comply in all material respects with any Environmental
Law that is or was applicable to the Company or to the conduct or operation of
its business or the ownership or use of any of its properties or assets, or of
any actual or threatened obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal, or mixed)
in which any of the Interest Holders or the Company has or had an interest, or
with respect to any property or Facility at or to which Hazardous Materials were
generated, manufactured, refined, transferred, imported, used, or processed by
Interest Holders, the Company, or any other Person for whose conduct they are or
may be held responsible, or from which Hazardous Materials have been
transported, treated, stored, handled, transferred, disposed, recycled, or
received.
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(b) There are no pending or, to the knowledge of the Company or the
Interest Holders, threatened claims, Encumbrances, or other restrictions of a
material nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law that is or was
applicable to the Company or to the conduct or operation of its business or the
ownership or use of any of its properties or assets, with respect to or
affecting any of the Facilities or any other properties and assets (whether
real, personal, or mixed) in which any of the Interest Holders or the Company
has or had an interest.
(c) None of the Company or the Interest Holders has any basis to expect,
nor has any of them or any other Person for whose conduct they are or may be
held responsible, received, any citation, directive, inquiry, notice, Order,
summons, warning, or other communication that relates to Hazardous Activity,
Hazardous Materials, or any alleged, actual, or potential material violation or
failure to comply in all material respects with any Environmental Law that is or
was applicable to the Company or to the conduct or operation of its business or
the ownership or use of any of its properties or assets, or of any alleged,
actual, or potential obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal, or mixed)
in which any of the Interest Holders or the Company has or had an interest, or
with respect to any property or facility to which Hazardous Materials generated,
manufactured, refined, transferred, imported, used, or processed by the Interest
Holders, the Company, or any other Person for whose conduct they are or may be
held responsible, have been transported, treated, stored, handled, transferred,
disposed, recycled, or received.
(d) None of the Company or the Interest Holders, or any other Person for
whose conduct they are or may be held responsible, has any material
Environmental, Health, and Safety Liabilities with respect to the Facilities or
with respect to any other properties and assets (whether real, personal, or
mixed) in which any of the Interest Holders or the Company (or any predecessor),
has or had an interest, or at any property geologically or hydrologically
adjoining the Facilities or any such other property or assets.
(e) There are no Hazardous Materials present on or in the Environment at
the Facilities or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited or
located in land, water or any other part of the Facilities or such adjoining
property, or incorporated into any structure therein or thereon. None of the
Interest Holders, the Company, any other Person for whose conduct they are or
may be held responsible, or any other Person, has permitted or conducted, or is
aware of, any Hazardous Activity conducted with respect to the Facilities or any
other properties or assets (whether real, personal, or mixed) in which any of
the Interest Holders or the Company has or had an interest except in compliance
in all material respects with all Environmental Laws that are or were applicable
to the Company or to the conduct or operation of its business or the ownership
or use of any of its properties or assets.
(f) There has been no Release or, to the knowledge of Interest Holders,
Threat of Release, of any Hazardous Materials at or from the Facilities or at
any other locations where any Hazardous Materials were generated, manufactured,
refined, transferred, produced, imported, used, or processed from or by the
Facilities, or from or by any other properties and assets (whether real,
personal, or mixed) in which any of the Interest Holders or the Company has or
had an interest, or any geologically or hydrologically adjoining property,
whether by the Interest Holders, the Company, or any other Person.
(g) the Interest Holders have delivered to Acquiror true and complete
copies and results of any reports, studies, analyses, tests, or monitoring
possessed or initiated by the Interest Holders or the Company pertaining to
Hazardous Materials or Hazardous Activities in, on, or under the Facilities, or
concerning compliance by the Interest Holders, the Company, or any other Person
for whose conduct they are or may be held responsible, with Environmental Laws
that are or were applicable to the Company or to the conduct or operation of its
business or the ownership or use of any of its properties or assets.
5.20. Employees. (a) Part 5.20 of the Disclosure Letter contains a
complete and accurate summary of the following information for each employee,
officer or director of the Company, including each employee on leave of absence
or layoff status: name; job title; current compensation paid or payable and any
change in compensation since December 31, 1995; vacation accrued; and service
credited for purposes of vesting and
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eligibility to participate under the Company's pension, retirement,
profit-sharing, thrift-savings, deferred compensation, stock bonus, stock
option, cash bonus, employee stock ownership (including investment credit or
payroll stock ownership), other equity participation arrangement, severance pay,
insurance, medical, welfare, or vacation plan or any other employee benefit
plan.
(b) Except as set forth in Part 5.20 of the Disclosure Letter, no employee,
officer or director of the Company is a party to, or is otherwise bound by, any
agreement or arrangement, including any confidentiality, noncompetition, or
proprietary rights agreement, between such employee, officer or director and any
other Person ("Proprietary Rights Agreement") that in any way adversely affects
or will affect the ability of the Company to conduct its business, including any
Proprietary Rights Agreement with the Interest Holders or the Company by any
such employee, officer or director. Except as set forth in Part 5.20 of the
Disclosure Letter, to the knowledge of the Company and the Interest Holders, no
director, officer, or other key employee of the Company intends to terminate his
employment with the Company.
(c) Part 5.20 of the Disclosure Letter also contains a complete and
accurate list of the following information for each retired employee, officer or
director of the Company, or their dependents, receiving benefits or scheduled to
receive benefits in the future: name, pension benefit, pension option election,
retiree medical insurance coverage, retiree life insurance coverage, and other
benefits.
5.21. Labor Relations; Compliance. Except as set forth in Part 5.21 of the
Disclosure Letter, since December 16, 1988, the Company has not been nor is it
currently a party to any collective bargaining or other labor Contract. Since
December 16, 1988, there has not been, there is not presently pending or
existing, and, to the Company's knowledge, there is not threatened, (a) any
strike, slowdown, picketing, work stoppage, or employee grievance process, (b)
any Proceeding against or affecting the Company relating to the alleged material
violation of any Legal Requirement applicable to the Company pertaining to labor
relations or employment matters, including any charge or complaint filed by an
employee or union with any Governmental Body, organizational activity, or other
labor or employment dispute against or affecting the Company or its premises, or
(c) any application for certification of a collective bargaining agent. Except
as set forth in Part 5.21 of the Disclosure Letter, no event has occurred or
circumstance exists that could provide the basis for any work stoppage or other
labor dispute. There is no lockout of any employees by the Company, and no such
action is contemplated by the Company. Except as set forth in Part 5.21 of the
Disclosure Letter, the Company has complied in all material respects with all
Legal Requirements applicable to the Company relating to employment, equal
employment opportunity, nondiscrimination, immigration, wages, hours, benefits,
collective bargaining, the payment of social security and similar taxes,
occupational safety and health, and plant closing. Except as set forth in Part
5.21 of the Disclosure Letter, the Company is not liable for the payment of any
compensation, damages, Taxes, fines, penalties, or other amounts, however
designated, for failure to comply in all material respects with any of the
foregoing Legal Requirements.
5.22. Intellectual Property. (a) The term "Intellectual Property Assets"
includes: (i) the name "BioClin, Inc.", all fictional business names, trading
names, registered and unregistered trademarks, service marks, and applications
(collectively, "Marks"); (ii) all patents, patent applications, and inventions
and discoveries that may be patentable (collectively, "Patents"); (iii) all
copyrights in both published works and unpublished works (collectively,
"Copyrights"); and (iv) all know-how, trade secrets, confidential information,
customer lists, software, technical information, data, process technology,
plans, drawings, and blue prints (collectively, "Trade Secrets"); owned, used,
or licensed by the Company as licensee or licensor.
(b) Part 5.22(b) of the Disclosure Letter contains a complete and accurate
list and summary description, including any royalties paid or received by the
Company, of all Contracts relating to the Intellectual Property Assets to which
the Company is a party or by which the Company is bound, except for any license
implied by the sale of a product and perpetual, paid-up licenses for commonly
available software programs with a value of less than U.S. $30,000 under which
the Company is the licensee. There are no outstanding and, to the knowledge of
the Interest Holders, no threatened disputes or disagreements with respect to
any such agreement.
(c) (i) The Intellectual Property Assets are all those necessary for the
operation of the Company's business as it is currently conducted. The Company is
the owner or licensee of all right, title, and interest in
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and to each of the Intellectual Property Assets (other than to the extent that
the Company is obligated to assign any application, invention, development, etc.
relating to such Intellectual Property Assets to another Person under an
Applicable Contract with a sponsor), free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse claims, and,
except as set forth in Part 5.17(c) of the Disclosure Letter, has the right to
use without payment to a third party all of the Intellectual Property Assets.
(ii) Except as set forth in Part 5.22(c) of the Disclosure Letter, all
former and current employees of the Company have executed written Contracts with
the Company that assign to it all rights to any inventions, improvements,
discoveries, or information relating to the business of the Company. Except as
set forth in Part 5.22(c) of the Disclosure Letter, no employee of the Company
has entered into any Contract that restricts or limits in any way the scope or
type of work in which the employee may be engaged or requires the employee to
transfer, assign, or disclose information concerning his work to anyone other
than the Company.
(d) (i) Part 5.22(d) of the Disclosure Letter contains a complete and
accurate list and summary description of all Patents owned by or licensed to the
Company. Except as set forth in Part 5.22(d) of the Disclosure Letter, the
Company is the owner or licensee of all right, title, and interest in and to
each of such Patents, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims.
(ii) Except as set forth in Part 5.22(d) of the Disclosure Letter, all of
the issued Patents owned by the Company are currently in compliance in all
material respects with applicable Legal Requirements (including payment of
filing, examination, and maintenance fees and proofs of working or use), are
valid and enforceable, and are not subject to any maintenance fees or Taxes or
actions falling due within ninety days after the Closing Date.
(iii) Except as set forth in Part 5.22(d) of the Disclosure Letter, no
Patent owned by the Company has been or is now involved in any interference,
reissue, reexamination, or opposition proceeding, nor to the knowledge of the
Interest Holders, is there any potentially interfering patent or patent
application of any third party.
(iv) Except as set forth in Part 5.22(d) of the Disclosure Letter, no
Patent owned by the Company is infringed or, to the knowledge of the Company and
the Interest Holders, has been challenged or threatened in any way. Except as
set forth in Part 5.22(d) of the Disclosure Letter, none of the products
manufactured and sold, nor any process or know-how used, by the Company
infringes or is alleged to infringe any patent or other proprietary right of any
other Person.
(v) Except as set forth in Part 5.22(d) of the Disclosure Letter, all
products made, used, or sold under the Patents owned by the Company have been
marked with the proper patent notice.
(e) (i) Part 5.22(e) of Disclosure Letter contains a complete and accurate
list and summary description of all Marks owned by or licensed to the Company.
Except as set forth in Part 5.22(e) of the Disclosure Letter, the Company is the
owner or licensee of all right, title, and interest in and to each of such
Marks, free and clear of all liens, security interests, charges, encumbrances,
equities, and other adverse claims.
(ii) Except as set forth in Part 5.22(e) of the Disclosure Letter, all
Marks owned by the Company that have been registered with the U.S. Patent and
Trademark Office or similar foreign Governmental Body are currently in
compliance in all material respects with applicable Legal Requirements
(including the timely post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and enforceable, and are
not subject to any maintenance fees or Taxes or actions falling due within
ninety days after the Closing Date.
(iii) Except as set forth in Part 5.22(e) of the Disclosure Letter, no Mark
owned by the Company has been or is now involved in any opposition,
invalidation, or cancellation and, to the knowledge of the Company and the
Interest Holders, no such action is threatened with the respect to any of such
Marks.
(iv) Except as set forth in Part 5.22(e) of the Disclosure Letter, to the
knowledge of the Company and the Interest Holders, there is no potentially
interfering trademark or trademark application of any third party.
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(v) Except as set forth in Part 5.22(e) of the Disclosure Letter, no Mark
owned by the Company is infringed or, to the knowledge of the Company and the
Interest Holders, has been challenged or threatened in any way. Except as set
forth in Part 5.22(e) of the Disclosure Letter, none of the Marks used by the
Company infringes or is alleged to infringe any trade name, trademark, or
service mark of any third party.
(vi) Except as set forth in Part 5.22(e) of the Disclosure Letter, all
products and materials containing a Mark owned by the Company bear the proper
federal registration notice where permitted by law.
(f) (i) Part 5.22(f) of the Disclosure Letter contains a complete and
accurate list and summary description of all Copyrights owned by or licensed to
the Company. Except as set forth in Part 5.22(f) of the Disclosure Letter, the
Company is the owner or licensee of all right, title, and interest in and to
each of such Copyrights, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims.
(ii) Except as set forth in Part 5.22(f) of the Disclosure Letter, all the
Copyrights owned by the Company have been registered (to the extent required to
protect such Copyrights) and are currently in compliance in all material
respects with applicable Legal Requirements, are valid and enforceable, and are
not subject to any maintenance fees or Taxes or actions falling due within
ninety days after the date of Closing.
(iii) Except as set forth in Part 5.22(f) of the Disclosure Letter, no
Copyright owned by the Company is infringed or, to the knowledge of the Company
and the Interest Holders, has been challenged or threatened in any way. Except
as set forth in Part 5.22(f) of the Disclosure Letter, none of the subject
matter of any of such Copyrights infringes or is alleged to infringe any
copyright of any third party or is a derivative work based on the work of a
third party.
(iv) Except as set forth in Part 5.22(f) of the Disclosure Letter, all
works encompassed by the Copyrights have been marked with the proper copyright
notice (to the extent required to protect such Copyrights).
(g) (i) With respect to each Trade Secret, the documentation relating to
such Trade Secret is current, accurate, and sufficient in detail and content to
identify and explain it and to allow its full and proper use without reliance on
the knowledge or memory of any individual.
(ii) The Interest Holders and the Company have taken all reasonable
precautions to protect the secrecy, confidentiality, and value of the Trade
Secrets owned by the Company.
(iii) Except as set forth in Part 5.22(g) of the Disclosure Letter, the
Company has good title and an absolute (but not necessarily exclusive) right to
use the Trade Secrets owned by the Company. Except as set forth in Part 5.22(g)
of the Disclosure Letter, the Trade Secrets owned by the Company are not part of
the public knowledge or literature, and, to the knowledge of the Company and the
Interest Holders, have not been used, divulged, or appropriated either for the
benefit of any Person (other than the Company) or to the detriment of the
Company. Except as set forth in Part 5.22(g) of the Disclosure Letter, no Trade
Secret owned by the Company is subject to any adverse claim or has been
challenged or threatened in any way.
(h) Except as set forth in Part 5.22(h) of the Disclosure Letter, no
Contract (whether or not related to the Intellectual Property Assets) obligates
the Company or any director, officer or employee of the Company to disclose
and/or assign to another Person, any Intellectual Property Asset or any
developments, inventions, etc. relating to the Intellectual Property Assets.
5.23. Certain Payments. Except as set forth in Part 5.23 of the Disclosure
Letter, neither the Company nor any director, officer, agent, or employee of the
Company, or any other Person associated with or acting for or on behalf of the
Company, has directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money, property, or services
(i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured, (iii) to obtain special concessions or
for special concessions already obtained, for or in respect of the Company or
any Affiliate of the Company, or (iv) in violation of any Legal Requirement that
is or was applicable to the Company or to the conduct or operation of its
business or the
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ownership or use of any of its properties or assets; (b) established or
maintained any fund or asset that has not been recorded in the books and records
of the Company.
5.24. Disclosure. (a) No representation or warranty of the Company or the
Interest Holders in this Agreement and no statement in the Disclosure Letter
omits to state a material fact necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not misleading.
None of the information to be supplied by the Company or the Interest Holders
for inclusion in, or to be incorporated by reference in, the Proxy Statement
will, at the time of the mailing of the Proxy Statement and the time of the
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(b) No notice given by the Company or any of the Interest Holders pursuant
to Section 7.6 will contain any untrue statement or omit to state a material
fact necessary to make the statements therein or in this Agreement, in light of
the circumstances in which they were made, not misleading.
(c) There is no fact known to any of the Interest Holders that has specific
application to the Interest Holders or the Company (other than general economic
or industry conditions) and that materially adversely affects the assets,
business, prospects, financial condition, or results of operations of the
Company (on a consolidated basis) that has not been set forth in this Agreement
or the Disclosure Letter.
5.25. Relationships with Related Persons. Except as set forth in Part 5.25
of the Disclosure Letter, none of the Interest Holders or any Related Person of
such Interest Holders or of the Company has, or since the first day of the next
to last completed fiscal year of the Company has had, any interest in any
property (whether real, personal, or mixed and whether tangible or intangible),
used in or pertaining to the Company's business. Except as set forth in Part
5.25 of the Disclosure Letter, none of the Interest Holders or any Related
Person of such Interest Holders or of the Company owns, or since the first day
of the next to last completed fiscal year of the Company owned (of record or as
a beneficial owner), an equity interest or any other financial or profit
interest in, a Person that has (i) had business dealings or a material financial
interest in any transaction with the Company, or (ii) engaged in competition
with the Company with respect to any line of the products or services of the
Company (a "Competing Business") in any market presently served by the Company,
except for less than one percent of the outstanding capital stock or stated
capital of any Competing Business that is publicly traded on any recognized
exchange or in the over-the-counter market. Except as set forth in Part 5.25 of
the Disclosure Letter, none of the Interest Holders or any Related Person of
such Interest Holders or of the Company is a party to any Contract with, or has
any claim or right against, the Company, other than Contracts related to their
employment with the Company and claims for ordinary compensation as provided by
any such Contract.
5.26. Brokers and Finders. Neither the Interest Holders nor the Company
nor any of its officers, directors, or employees has employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted, directly
or indirectly, for any of the Interest Holders or the Company, in connection
with this Agreement or the transactions contemplated hereby or thereby.
5.27. Employee Benefit Plans. (a) Part 5.27 of the Disclosure Letter sets
forth a complete and accurate list and summary description of each employee
benefit plan or arrangement, including, without limitation, bonus, savings or
profit sharing plan, deferred compensation plan, pension or retirement plan,
stock option plan, stock appreciation right plan, executive compensation
practice and other executive perquisite, each plan or arrangement providing for
insurance (including, without limitation, health and life insurance) coverage,
severance, termination or similar coverage and each written compensation policy
and practice, which in each case, covers any current or former employee,
officer, director, or agent of the Company, and which is or was maintained or
contributed to by the Company, other than those benefit plans or arrangements
mandated by applicable Legal Requirements.
(b) Except as set forth in Part 5.27 of the Disclosure Letter, (i) all
employee benefit plans or programs maintained for the benefit of the current or
former employees or directors of the Company or any of its
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Affiliates that are sponsored, maintained or contributed to by the Company or
any of its Affiliates, or with respect to which the Company or any of its
Affiliates has any liability, including without limitation any such plan that is
an "employee benefit plan" as defined in Section 3(3) of ERISA, are in
compliance with all applicable requirements of law, including ERISA and the IRC,
and (ii) neither the Company nor any of its Affiliates has any liabilities or
obligations with respect to any such employee benefit plans or programs, whether
accrued, contingent or otherwise, nor to the knowledge of the Company are any
such liabilities or obligations expected to be incurred. The execution of, and
performance of the transactions contemplated by, this Agreement will not (either
alone or upon the occurrence of any additional or subsequent events) constitute
an event under any benefit plan, program, policy, arrangement or agreement or
any trust, loan or funding arrangement that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any employee.
5.28. Investment Intent; Accredited Investor. Parent and the Interest
Holders are acquiring the Acquiror Shares pursuant to Article II of this
Agreement for their own accounts and not with the view to, or for resale in
connection with, any distribution or public offering thereof with the meaning of
the Securities Act, except as contemplated by the Stockholders' Agreement. Each
of Parent and each Interest Holder is either (i) an "accredited investor" as
such term is defined in Section 501(a) of Regulation D promulgated under the
Securities Act or (ii) otherwise has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and the risks
of the Acquiror Shares being delivered pursuant to Section 2.6 of this Agreement
so that such delivery of Acquiror Shares is eligible for exemption from the
registration and prospectus delivery requirements of the Securities Act pursuant
to Section 4(2) of the Securities Act or Regulation S thereunder. Each of Parent
and each Interest Holder has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of the Acquiror
Shares, has had full access to such information concerning Acquiror as such
Person has requested and possesses substantial information about, and
familiarity with, Acquiror as a result of the information provided to such
Person. Parent and the Interest Holders understand that the Acquiror Shares have
not been registered under the Securities Act by reason of their contemplated
issuance by Acquiror in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act pursuant to Section 4(2)
thereof, and that the reliance of Acquiror upon this exemption is predicated in
part upon this representation and warranty by the Interest Holders.
ARTICLE VI
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
6.1. Conduct Prior to Closing. (a) Parent, the Company and the Interest
Holders hereby covenant and agree with Acquiror, that, prior to the Closing,
unless the prior written consent of Acquiror shall have been obtained and except
as otherwise contemplated herein, the Company shall, and the Interest Holders
will cause Parent to cause the Company to, and Parent will cause the Company to,
operate its business only in the usual, regular and ordinary course and in
accordance with past practices and to conduct its business in compliance in all
material respects with the standards of the industry in which it operates and
provides services; and to preserve intact its current business organization,
keep available the services of the current officers, employees and agents of the
Company, and maintain the relations and goodwill with suppliers, customers,
landlords, creditors, employees, agents and others having business relationships
with the Company. From the date hereof until the Closing, except as otherwise
specifically provided in this Agreement (including, without limitation, Section
6.3), the Company agrees that it will not, and the Interest Holders covenant and
agree that they will not permit Parent to permit the Company to, and Parent will
not permit the Company to, do or agree or commit to do, without the prior
written consent of Acquiror, any of the following:
(i) incur any liabilities or obligations in excess of U.S. $50,000, in
the aggregate, whether directly or by way of guaranty, including any
obligation for borrowed money whether or not evidenced by a note, bond,
debenture or similar instrument;
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(ii) acquire any equity, debt or other investment securities except
for acquisitions of such securities in the ordinary course of business;
(iii) grant any increase in compensation (including any salaries or
bonuses) to its employees as a class, or to its officers or directors,
except as required by law or at times and in a manner consistent with past
practice; effect any change in retirement benefits to any class of
employees or officers (unless any such change shall be required by
applicable law); enter into any employment, severance or similar agreements
or arrangements with any directors, officers or employees other than the
agreements or severance and other plans described in Part 5.27 of the
Disclosure Letter, which in the case of employment agreements would extend
beyond the Closing Date (it being understood that nothing contained herein
shall prohibit the Company from paying individual merit increases or
promotional increases, or performance bonuses to its employees based on
formulas consistent with those used in the past for similar levels of
performance); or establish, adopt, enter into or amend any employee benefit
plan for the benefit of any directors, officers or employees;
(iv) declare any profit to be distributed to the shareholders or pay
any profit and purchase, redeem or otherwise acquire any shares of the
Company;
(v) other than with respect to the loan and letter agreement relating
to the acquisition of real property in connection with establishing a
representative office in Lithuania, purchase or otherwise acquire any
substantial portion of the assets, or of any class of stock or equity
interests of any Person except in partial or complete satisfaction of debts
previously contracted; merge into any other Person or permit any other
Person to merge into it or consolidate with any other Person; liquidate,
sell, dispose of, or encumber any assets or acquire any assets, other than
in the ordinary course of business consistent with past practice, or issue
any shares or permit any shares held in its treasury to become outstanding;
or issue or grant or extend the term of any option, warrant, conversion or
stock appreciation right not in existence on the date hereof;
(vi) propose or adopt any amendments to its Certificate of
Incorporation;
(vii) enter into any type of business not conducted by the Company as
of the date of this Agreement or create or organize any new subsidiary or
enter into or participate in any joint venture or partnership;
(viii) propose or adopt any material changes to the accounting
principles used by the Company except as required by U.S. GAAP and then
only in consultation with Acquiror;
(ix) enter into any agreement or transactions with any of the Interest
Holders or any Affiliate of the Interest Holders or make any material
amendment or modification to any such agreement, except as contemplated by
this Agreement; or
(x) agree or commit to do any of the foregoing.
Without limiting the foregoing, from the date hereof until the Closing, the
Company shall not, and the Interest Holders agree that they will not permit
Parent to permit the Company to, and Parent will not permit the Company to,
without first promptly notifying Acquiror and obtaining the prior written
consent of Acquiror, take any action or permit or suffer to be taken any action,
which is represented in Section 5.16 not to have been taken since the date of
the Balance Sheet.
(b) From the date hereof until the Closing, Acquiror shall not, without
first promptly notifying the Interest Holders and providing the Interest Holders
an opportunity to express their views, take any action or permit or suffer to be
taken any action, which is represented in Section 3.8 not to have been taken
since March 31, 1996.
6.2. Consents and Approvals. (a) Subject to the terms and conditions
herein provided, each of the parties hereto agrees to cooperate with the other
and use all reasonable best efforts to satisfy the conditions set forth in
Article VIII to be satisfied and to take, or cause to be taken, all action, and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws, regulations and contractual arrangements to consummate and make
effective the transactions contemplated by this Agreement, including, without
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limitation, using reasonable efforts to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby. Each of the parties hereto
hereby covenants and agrees subject, in the case of Acquiror, to the fiduciary
obligations of Acquiror's Board of Directors, to take no action (a) which would
render any of its representations and warranties contained herein untrue at and
as of the Closing except as otherwise contemplated herein or (b) which would
adversely affect its ability to satisfy any of the conditions set forth in
Article VIII, including, without limitation, the ability to obtain any necessary
Governmental Authorizations required for the transactions contemplated hereby or
materially increase the period of time necessary to obtain such authorizations.
(b) To the extent that the rights of the Company under any agreement,
arrangement or understanding may not be assigned without the consent or approval
of another party thereto, the Company shall, and the Interest Holders shall
cause Parent to cause the Company to, and Parent shall cause the Company to, use
all reasonable efforts to obtain any such consent or to amend the agreement,
arrangement or understanding such that no consent is required.
6.3. Bookkeeping, Accounting and Financial Reporting Capabilities. (a) The
Company and the Interest Holders hereby covenant and agree with Acquiror, that
(i) prior to the Closing, the Company and the Interest Holders will deliver to
Acquiror: (A) an audited combined consolidated balance sheet of the Company and
the BioClin Affiliates as at December 31, 1994, and the related audited combined
consolidated statements of income, changes in stockholders' equity and cash
flows for the fiscal year then ended as well as the fiscal year ended December
31, 1993, together with the report thereon of KPMG Peat Marwick L.L.P.; and (B)
an audited combined consolidated balance sheet of the Company and the BioClin
Affiliates as at December 31, 1995 and the related audited combined consolidated
statements of income, changes in stockholders' equity and cash flows for the
fiscal year then ended, together with the report thereon of KPMG Peat Marwick
L.L.P., including, in each case, the notes thereto, and (ii) such financial
statements will be prepared in accordance with U.S. GAAP (which except where
noted therein, will be consistently applied), and will fairly present the
financial condition and results of operations, changes in stockholders' equity
and cash flow of the Company and the BioClin Affiliates as at the respective
dates and for the periods referred to in such financial statements.
(b) Parent, the Company and the Interest Holders hereby covenant and agree
with Acquiror, that, prior to the Closing, the Company shall, and the Interest
Holders shall cause Parent to cause the Company to, and Parent shall cause the
Company to, hire such number of bookkeepers and/or accountants, or an accounting
firm to provide such bookkeeping and accounting services, reasonably acceptable
to Acquiror, both in terms of number and identity, such that the Company will,
upon the Closing, have adequate financial reporting capabilities to ensure that
the reporting of consolidated financial results by Acquiror on a post-Closing
basis shall be made in a manner that will enable Acquiror meet all reporting
obligations applicable to it pursuant to the Exchange Act.
(c) Notwithstanding any other provision hereof to the contrary (including,
without limitation, Section 10.2), to the extent Acquiror incurs any fees or
expenses in connection with the employment of Persons in connection with the
rendering of services contemplated by Section 6.3(b), Parent and the Company
shall promptly reimburse Acquiror for all such fees and expenses.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1. Current Information. During the period from the date of this
Agreement to the Closing, the Interest Holders, on the one hand, and Acquiror,
on the other hand, will cause one or more of their Representatives to confer on
a regular and frequent basis with Representatives of the other party with
respect to the status of the ongoing operations of the Company. Each party will
promptly notify the other party of any material change in the normal course of
its business or in the operation of its properties and, to the extent permitted
by applicable law, of any governmental complaints, investigations or hearings
(or communications indicating that the same may be contemplated), or the
institution or the threat of material Proceedings involving such party which
would in any manner, challenge, prevent, alter or materially delay any of the
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transactions contemplated by this Agreement, and each party will keep the other
party fully informed with respect to such events. Each party will also notify
the other party of the status of regulatory applications and third party
consents related to the transactions contemplated hereby.
7.2. Access and Investigation. To the full extent permitted by applicable
law, between the date of this Agreement and the Closing Date, the Company shall,
and the Interest Holders shall cause Parent to cause the Company and its
Representatives to, and Parent shall cause the Company and its Representatives
to, (a) afford Acquiror and its Representatives (collectively, "Acquiror's
Advisors") full and free access to the Company's personnel, properties
(including subsurface testing), contracts, books and records, and other
documents and data, (b) furnish Acquiror and Acquiror's Advisors with copies of
all such contracts, books and records, and other existing documents and data as
Acquiror may reasonably request, and (c) furnish Acquiror and Acquiror's
Advisors with such additional financial, operating, and other data and
information as Acquiror may reasonably request.
7.3. Effect of Investigations. Notwithstanding the notification and cure
provisions of Sections 7.6(c) and (d), but subject to the provisions of Sections
8.2 and 8.3, no investigation by the parties hereto made heretofore or
hereafter, whether pursuant to this Agreement or otherwise (including without
limitation, any action taken by or information provided to Acquiror pursuant to
the provisions of Sections 7.1 and 7.2) shall affect the representations and
warranties of the parties which are contained herein and each such
representation and warranty shall survive such investigation.
7.4. Press Releases, Etc. Acquiror and the Interest Holders will consult
with each other as to the form, substance and timing of any press release or
other public disclosure of matters related to this Agreement or any of the
transactions contemplated hereby and no such press release or other public
disclosure shall be made without the consent of the other party, which shall not
be unreasonably withheld or delayed; provided, however, that either party may
make such disclosures as are required by law after making reasonable efforts in
the circumstances to consult in advance with the other party.
7.5. Acquisition Proposals. Until such time, if any, as this Agreement is
terminated pursuant to Article IX, Parent, the Company and the Interest Holders
will not, and the Interest Holders will cause Parent to cause the Company and
its Representatives not to, and Parent will cause the Company and its
Representatives not to, directly or indirectly solicit, initiate, or encourage
or take any other action to facilitate (including by way of providing
information) any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Acquiror) relating to any
transaction involving the sale of the business or assets (other than in the
ordinary course of business) of the Company, or any of the equity interests of
the Company, or any merger, consolidation, business combination, or similar
transaction involving the Company. Parent, the Company and the Interest Holders
shall promptly advise Acquiror orally and in writing of any inquiry or proposal
which relates to such a transaction.
7.6. Notification of Certain Matters. (a) Between the date of this
Agreement and the Closing Date, each Interest Holder will promptly notify
Acquiror in writing if such Interest Holder, Parent or the Company has knowledge
of any fact or condition that causes or constitutes a breach of Parent's, the
Company's or any of the Interest Holders' representations and warranties as of
the date of this Agreement, or if such Interest Holder, Parent or the Company
has knowledge of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. Should any such fact or condition, or any fact or
condition disclosed to the Interest Holders by Acquiror pursuant to Section
7.6(d), require any change in the Disclosure Letter, if the Disclosure Letter
were dated the date of the occurrence or discovery of any such fact or
condition, the Interest Holders will promptly deliver to Acquiror a supplement
to the Disclosure Letter specifying such change. During the same period, each
Interest Holder will promptly notify Acquiror if such Interest Holder, Parent or
the Company has knowledge of the occurrence of any breach of any covenant of the
Interest Holders, Parent or the Company in Article VI, this Article VII or of
the occurrence of any event that may make the satisfaction of the conditions in
Article VIII impossible or unlikely.
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(b) Between the date of this Agreement and the Closing Date, Acquiror will
promptly notify the Interest Holders in writing if Acquiror has knowledge of any
fact or condition that causes or constitutes a breach of the Acquiror's
representations and warranties as of the date of this Agreement, or if Acquiror
has knowledge of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. Should any such fact or condition, or any fact or
condition disclosed to Acquiror by any Interest Holder pursuant to Section
7.6(c), require any change in the Acquiror Letter, if the Acquiror Letter were
dated the date of the occurrence or discovery of any such act or condition,
Acquiror will promptly deliver to the Interest Holders a supplement to the
Acquiror Letter specifying such change. During the same period, Acquiror will
promptly notify the Interest Holders if Acquiror has knowledge of the occurrence
of any breach of any covenant of Acquiror in Article VI, this Article VII or of
the occurrence of any event that may make the satisfaction of the conditions in
Article VIII impossible or unlikely.
(c) Between the date of this Agreement and the Closing Date, each Interest
Holder will promptly notify Acquiror in writing if such Interest Holder, Parent
or the Company has knowledge of any fact or condition that causes or constitutes
a breach of Acquiror's representations and warranties as of the date of this
Agreement, or if such Interest Holder, Parent or the Company has knowledge of
the occurrence after the date of this Agreement of any fact or condition that
would (except as expressly contemplated by this Agreement) cause or constitute a
breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. During the same period, each Interest Holder will promptly notify
Acquiror if such Interest Holder, Parent or the Company has knowledge of the
occurrence of any breach of any covenant of Acquiror in Article VI, this Article
VII or of the occurrence of any event that may make the satisfaction of the
conditions in Article VIII impossible or unlikely.
(d) Between the date of this Agreement and the Closing Date, Acquiror will
promptly notify the Interest Holders in writing if Acquiror has knowledge of any
fact or condition that causes or constitutes a breach of Parent's, the Company's
or any of the Interest Holders' representations and warranties as of the date of
this Agreement, or if Acquiror has knowledge of the occurrence after the date of
this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. During the same
period, Acquiror will promptly notify the Interest Holders if Acquiror has
knowledge of the occurrence of any breach of any covenant of the Company, Parent
or the Interest Holders in Article VI, this Article VII or of the occurrence of
any event that may make the satisfaction of the conditions in Article VIII
impossible or unlikely.
(e) For purposes of this Agreement, "knowledge" on the part of Acquiror
means the actual knowledge of Mr. Paul J. Schmitt, Mr. John G. Cooper or Mr.
Lief Modeweg, and knowledge on the part of Parent and the Company means the
actual knowledge of Dr. Jack Barbut or Dr. J. Chris Jensen; provided, however,
that all such Persons shall be deemed to have actual knowledge of all matters
disclosed in the Acquiror Letter and the Disclosure Letter.
(f) Not later than ten Business Days prior to the scheduled Closing Date,
(i) Acquiror shall deliver to the Interest Holders a supplement to the Acquiror
Letter and (ii) the Interest Holders shall deliver to Acquiror a supplement to
the Disclosure Letter, in each case, that updates such disclosure from the date
of this Agreement to such date of delivery. Thereafter, until the Closing,
Acquiror and the Interest Holders shall notify each other in writing of any
changes or supplements to the updated information necessary, to the knowledge of
Acquiror or the Interest Holders, as the case may be, to make such information
correct and complete at all times up to and including the Closing.
(g) Notwithstanding the foregoing provisions of this Section 7.6, nothing
herein contained shall be construed to, in any manner, (i) modify the
representations and warranties of the parties contained herein as made as of the
date hereof or (ii) affect any right or remedy of any party granted hereunder or
under the Stockholders' Agreement (including, without limitation, the conditions
to Closing set forth in Article VIII herein and the indemnification provisions
set forth in Article IV of the Stockholders' Agreement).
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7.7. Customers. After execution of this Agreement and prior to Closing,
the Interest Holders, the Company and Acquiror shall, either individually or
jointly, notify the customers of the Company of the transactions contemplated
hereby. As promptly as practicable following the Closing, the Interest Holders
and Acquiror shall notify such customers thereof and shall provide, or join in
providing where appropriate, all notices to such customers and other persons
that the Interest Holders, the Company or Acquiror, as the case may be, are or
is required to give by any Governmental Body having jurisdiction over any such
Person or under applicable law or other terms of any other agreement between the
Company or its employees and any customer in connection with the transactions
contemplated hereby.
7.8. Preservation of Relationships. The Interest Holders (excluding, for
this purpose, Hackel) shall use their best efforts, and shall use their best
efforts to cause all their Affiliates including, without limitation, Parent, the
Company and their respective employees (in their capacity as employees) to use
their best efforts, to maintain in effect all material contractual and business
relationships with the Company or the employees (in their capacity as employees)
and to waive any and all rights to terminate any such relationship arising as a
result of the transactions contemplated by this Agreement, except as otherwise
contemplated by this Agreement.
7.9. Resale; Legends. (a) The holders of the Company Shares and the
Employee Rightholders who shall receive Acquiror Shares in connection with the
Merger pursuant to Section 2.6 shall not sell or otherwise transfer any of such
Acquiror Shares until (a) such Acquiror Shares shall have been registered under
the Securities Act, or (b) Acquiror shall have received an opinion of legal
counsel, satisfactory to Acquiror, that such Acquiror Shares may be legally sold
or otherwise transferred without such registration.
(b) The Acquiror Shares shall be imprinted with a legend in substantially
the following form:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933 (the "Act"), and may not be sold or
transferred in the absence of an effective registration statement under
the Act or an exemption from registration thereunder. Prior to any sale
or transfer of the securities represented by this certificate, except
pursuant to an effective registration statement under the Act covering
such sale or transfer, the holder hereof shall have delivered to the
issuer hereof (the "Company") an opinion of counsel reasonably
satisfactory to the Company to the effect that such sale or transfer is
exempt from registration under the Act."
7.10. Pooling Treatment. Neither Acquiror nor any of Parent, the Company
nor the Interest Holders shall intentionally take, fail to take or cause to be
taken or not taken any action within its control, whether before or after the
Closing, which would disqualify the transactions consummated under this
Agreement as a "pooling of interests" for accounting purposes.
7.11. Shareholder Approval; Proxy Statement. (a) As soon as practicable
after the date hereof, Acquiror shall prepare a proxy statement (the "Proxy
Statement"), file it with the SEC, respond to comments of the Staff of the SEC,
clear the Proxy Statement with the Staff of the SEC and promptly thereafter mail
the Proxy Statement to all holders of Acquiror Common Stock. The Company shall,
and the Interest Holders shall cause Parent to cause the Company to, and Parent
shall cause the Company to, cooperate with Acquiror in the preparation of the
Proxy Statement.
(b) Acquiror shall take all action necessary, in accordance with applicable
law and its certificate of incorporation and by-laws, to convene a meeting of
the holders of Acquiror Common Stock (the "Stockholders Meeting") for the
purpose of considering and taking action with respect to the approval of the
issuance of the Acquiror Shares in the Merger as required by the rules of the
National Association of Securities Dealers, Inc. in connection with the
transactions contemplated by this Agreement and any of the other transactions
pursuant to which Acquiror shall acquire all of the outstanding capital stock or
equity interests in each of the BioClin Affiliates.
(c) As soon as practicable after the date hereof, subject to availability
of the Proxy Statement contemplated by Section 7.11(a), (i) the Interest Holders
shall take all action necessary, in accordance with applicable law and Parent's
organizational and organic documents, to cause (A) Parent to cause the Company
to, in accordance with applicable laws and the Certificate of Incorporation of
the Company, prepare a written
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consent of stockholders in lieu of meeting for the purpose of considering and
taking action with respect to the approval of the Merger and the adoption of
this Agreement and (B) Parent to vote the Company Shares owned by it in favor of
the Merger and the adoption of this Agreement by virtue of its execution of such
written consent of stockholders in lieu of meeting, and (ii) the Company shall
prepare such written consent of stockholders in lieu of meeting and Parent shall
execute such written consent evidencing its approval of the Merger and the
adoption of this Agreement.
(d) The Interest Holders shall take all action necessary, in accordance
with applicable law, to cause Parent to cause the Company to, and Parent shall
cause the Company to, and the Company shall, prepare and deliver to Barr and the
Employee Rightholders, promptly following the execution of the written consent
contemplated by Section 7.11(c), in form and substance reasonably acceptable to
Acquiror, (i) the statutory notice required by Section 228(d) of the DGCL, (ii)
the statutory notice required by Section 262(d)(ii) of the DGCL and (iii) any
disclosure or information statements required to be delivered under the
Securities Act.
ARTICLE VIII
CONDITIONS
8.1. Conditions to Each Party's Obligation to Consummate the Closing. The
respective obligations of each party to consummate the Closing shall be subject
to the fulfillment or waiver at or prior to the Closing of the following
conditions:
(a) The Merger and this Agreement shall have been approved by the requisite
vote of the holders of Acquiror Common Stock.
(b) The Merger and this Agreement shall have been approved by the requisite
vote of the holders of the Company Shares by virtue of the execution by Parent
of the written consent in lieu of meeting as contemplated by Section 7.11(c).
(c) The Merger and the Consideration therefor as contemplated by this
Agreement and the transactions contemplated hereby shall have been approved by
the Governmental Bodies whose approval is required to consummate the
transactions contemplated hereby without any condition which is reasonably
likely to have a material adverse effect on the financial condition, business or
results of operations of the Company or Acquiror taken as a whole; all
conditions required to be satisfied prior to the Closing imposed by the terms of
such approvals shall have been satisfied; and all notifications to any
Governmental Bodies that are required shall have been made.
(d) None of Acquiror, Sub, Parent, the Interest Holders nor the Company
shall be subject to any order, decree or injunction of any Governmental Body
which enjoins or prohibits the consummation of the transactions contemplated by
this Agreement.
(e) Acquiror, Sub, Parent, the Company and the Interest Holders shall have
received a letter, dated the Closing Date, from KPMG Peat Marwick L.L.P. to the
effect that, for financial reporting purposes, the transactions contemplated
hereby qualify for pooling-of-interests accounting treatment under U.S. GAAP if
consummated in accordance with this Agreement.
(f) The Stockholders' Agreement and the Employment Agreements shall have
been entered into by the parties thereto.
8.2. Conditions to Obligation of Acquiror and Sub to Consummate the
Closing. The obligations of Acquiror and Sub to consummate the Closing shall be
subject to the fulfillment or waiver at or prior to the Closing of the following
additional conditions:
(a) (i) The representations and warranties of Parent, the Company and the
Interest Holders set forth in Articles IV and V hereof (A) that contain a
materiality qualification shall be true and correct and (B) that do not contain
a materiality qualification shall be true and correct in all material respects,
as of the Closing as though made at and as of the Closing (it being understood
that representations and warranties that speak as of
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a specified date shall continue to speak only as of the date so specified)
without giving effect to any supplement to the Disclosure Letter, except for
such changes occurring after the date hereof in the ordinary course of business
of the Company and in accordance with the terms and provisions of this Agreement
(including, without limitation, Section 6.1(a)), which, in the aggregate, would
not have a material adverse effect on the financial condition, operations or
prospects of the Company and the BioClin Affiliates taken as a whole, and (ii)
Acquiror shall have received a signed certificate of each of Parent (which is to
the knowledge of a principal executive officer), the Company (which is to the
knowledge of a principal executive officer) and the Interest Holders to that
effect. Acquiror's closing of the transactions contemplated by this Agreement
and the agreements with the BioClin Affiliates with respect to Acquiror's
acquisition of all of the outstanding capital stock or equity interests of the
BioClin Affiliates shall constitute acceptance of the disclosures made by the
Company and/or the Interest Holders prior to Closing in the Disclosure Letter
and waiver of any purported misrepresentation or breach of any representation or
warranty made by such Persons in Article V or any covenant of such Persons
contained in Article VI or VII to the extent the Disclosure Letter, as
supplemented pursuant to Section 7.6(a) and (f), discloses information
pertaining thereto.
(b) Parent, the Company and the Interest Holders shall have in all material
respects performed all obligations required to be performed by them under this
Agreement prior to the Closing, and Acquiror shall have received a signed
certificate of each of Parent, the Company and the Interest Holders to that
effect.
(c) Acquiror shall have received a legal opinion dated the Closing, from
Piper & Marbury, L.L.P., counsel of the Interest Holders, with respect to the
transactions contemplated herein in form mutually agreed upon by Acquiror and
the Interest Holders.
(d) The Board of Directors of Acquiror shall have received an opinion from
Vector Securities International, Inc., dated not later than the date of
Acquiror's Proxy Statement (and such opinion shall not have been withdrawn on or
before the Closing Date) to the effect that as of the date thereof, the number
of Acquiror Shares to be delivered in consideration for the transfer of the
Company Shares, the capital stock or equity interests in each of the BioClin
Affiliates and the termination of the Rights is fair to Acquiror and to
Acquiror's stockholders from a financial point of view.
(e) Acquiror shall have acquired all of the outstanding capital stock or
equity interests in each of the BioClin Affiliates.
(f) The Company shall have obtained the written consent(s) of the Person(s)
specified in Part 8.2 of the Acquiror Letter.
8.3. Conditions to Obligation of Parent, the Company and the Interest
Holders to Consummate the Closing. The obligations of Parent, the Company and
the Interest Holders to consummate the Closing shall be subject to the
fulfillment or waiver at or prior to the Closing of the following additional
conditions:
(a) (i) The representations and warranties of Acquiror set forth in Article
III hereof (A) that contain a materiality qualification shall be true and
correct, and (B) that do not contain a materiality qualification shall be true
and correct in all material respects, as of the Closing as though made at and as
of the Closing (it being understood that representations and warranties that
speak as of a specified date shall continue to speak only as of the date so
specified) without giving effect to any supplement to the Acquiror Letter,
except for such changes occurring after the date hereof in the ordinary course
of business of Acquiror and in accordance with the terms and provisions of this
Agreement (including, without limitation, Section 6.1(b)), which, in the
aggregate, would not have a material adverse effect on the financial condition,
operations or prospects of Acquiror and its Subsidiaries taken as a whole, and
(ii) Parent, the Company and the Interest Holders shall have received a signed
certificate which is to the knowledge of a principal executive officer of
Acquiror to that effect. The closing of the transactions contemplated by this
Agreement and the agreements with the BioClin Affiliates with respect to
Acquiror's acquisition of all of the outstanding capital stock or equity
interests of the BioClin Affiliates shall constitute acceptance by the Company
and the Interest Holders of the disclosures made by Acquiror prior to the
Closing in the Acquiror Letter and waiver or any purported misrepresentation or
breach of any representation or warranty made by Acquiror in Article III or any
covenant of Acquiror
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contained in Article VI or VII to the extent the Acquiror Letter, as
supplemented pursuant to Section 7.6(b) and (f), discloses information
pertaining thereto.
(b) Acquiror shall have in all material respects performed all obligations
required to be performed by it under this Agreement prior to the Closing, and
Parent, the Company and the Interest Holders shall have received a signed
certificate which is to the knowledge of a principal executive officer of
Acquiror to that effect.
(c) The Interest Holders shall have received a legal opinion dated the
Closing from Jones, Day, Reavis & Pogue, counsel of Acquiror, with respect to
the transactions contemplated herein in form mutually agreed upon by Acquiror
and the Interest Holders.
(d) All labilities and obligations of Hackel (direct or indirect) and
Barbut pursuant to any guarantees of the indebtedness of the Company and the
BioClin Affiliates shall have been terminated.
ARTICLE IX
TERMINATION
9.1. Termination. This Agreement may, by action taken by the respective
Board of Directors of Acquiror or the Company, as the case may be, and by notice
given prior to or at the Closing, be terminated, at any time before or after the
approval of the Merger and this Agreement by the holders of Acquiror Common
Stock as contemplated by Section 8.1(a) and the holders of the Company Shares as
contemplated by Section 8.1(b):
(a) by either Acquiror or the Interest Holders if a material breach of any
provision of this Agreement has been committed by the other party and such
breach has not been waived;
(b) (i) by Acquiror, if any of the conditions in Section 8.1 or 8.2 has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Acquiror to comply with
its obligations under this Agreement) and Acquiror has not waived such condition
on or before the Closing Date; or (ii) by the Interest Holders, if any of the
conditions in Section 8.1 or 8.3 has not been satisfied as of the Closing Date
or if satisfaction of such a condition is or becomes impossible (other than
through the failure of the Interest Holders to comply with their obligations
under this Agreement) and the Interest Holders have not waived such condition on
or before the Closing Date;
(c) by mutual consent of Acquiror and the Interest Holders;
(d) by either Acquiror or the Interest Holders if any of the agreements
relating to the transfer and delivery of the Acquiror Common Stock in
consideration and exchange for the transfer of the outstanding capital stock or
equity interests in each of the BioClin Affiliates is terminated; or
(e) by either Acquiror or the Interest Holders if the Closing has not
occurred (other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before December 31, 1996, or such later date as the parties may agree upon.
9.2. Effect of Termination. If this Agreement is terminated pursuant to
Section 9.1, all further obligations of the parties under this Agreement will
terminate, except that the obligations set forth in Sections 6.3(c), 10.2 and
10.3 will survive; provided, however, that if this Agreement is terminated by
Acquiror or the Interest Holders because of the intentional breach of this
Agreement (including, without limitation, the making by any party hereto of any
representation or warranty hereunder that is known by such party not to be true
and correct in all material respects at the time such representation or warranty
is made) by the Interest Holders or Acquiror, as the case may be, or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's intentional failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
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ARTICLE X
GENERAL PROVISIONS
10.1. Survival of Representations, Warranties and Agreements. Except as
specifically provided in this Agreement and the Stockholders' Agreement, all
representations, warranties and agreements of the parties hereto in this
Agreement or in any instrument delivered by the parties hereto pursuant to this
Agreement shall expire on the Report Date or upon termination of this Agreement
in accordance with its terms.
10.2. Expenses. Except as otherwise expressly provided in this Agreement
(including, without limitation, in Section 6.3(b)) and the Letter Agreement,
dated May 16, 1996, by and among Acquiror, the Company and the BioClin
Affiliates, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the transactions contemplated hereby, including all fees and
expenses of agents, representatives, counsel, and accountants. Acquiror will pay
all amounts payable to Vector Securities International, Inc. in connection with
this Agreement and the transactions contemplated hereby. In the event of
termination of this Agreement pursuant to Article IX, the obligation of each
party to pay its own expenses shall be subject to the right of such party to
pursue any legal remedies arising from the intentional breach of this Agreement
by the other party or the other party's intentional failure to comply with its
obligations under this Agreement as provided in Section 9.2.
10.3. Confidentiality. Between the date of this Agreement and the Closing
Date, Acquiror and the Interest Holders will maintain in confidence, and will
cause the directors, officers, employees, agents, and advisors of Acquiror, Sub,
Parent and the Company to maintain in confidence, and not use to the detriment
of another party hereto any written, oral, or other information obtained in
confidence from another party in connection with this Agreement or the
transactions contemplated hereby, unless (a) such information is already known
to such party or to others not bound by a duty of confidentiality or such
information becomes publicly available through no fault of such party, (b) the
use of such information is necessary or appropriate in making any filing or
obtaining any consent or approval required for the consummation of the
transactions contemplated hereby, or (c) the furnishing or use of such
information is required by or necessary or appropriate in connection with legal
proceedings. If any party hereto or its Representatives are requested or become
legally compelled (by oral questions, interrogatories, requests for information
or documents, subpoena, civil or criminal investigative demand, or similar
process) or is required by a regulatory body to make any disclosure that is
prohibited or otherwise constrained by this Agreement, such party or its
Representative, as the case may be, will provide the party providing the
confidential information with prompt notice of such request so that an
appropriate protective order or other appropriate remedy may be sought. Subject
to the foregoing, such party or its Representative may furnish that portion (and
only that portion) of the confidential information that, in the written opinion
of its counsel reasonably acceptable to the party providing such information,
such party is legally compelled or is otherwise required to disclose the
information at issue or else stand liable for contempt or suffer other material
censure or material penalty. If the transactions contemplated hereby are not
consummated, each party hereto will return or destroy as much of such written
information as the other party may reasonably request. Whether or not the
Closing takes place, the Interest Holders waive, and will upon Acquiror's
request cause Parent to cause the Company to, and Parent will cause the Company
to, waive, any cause of action, right, or claim arising out of the access of
Acquiror or its Representatives to any trade secrets or other confidential
information of the Company except for the intentional competitive misuse by
Acquiror of such trade secrets or confidential information. Each of Parent, the
Company and the Interest Holders acknowledges that, and agrees that it will
advise its respective Representatives and Affiliates, that any non-public
information provided by or relating to Acquiror may constitute material
non-public information for purposes of the Exchange Act, and agrees that it will
not engage in any transaction in violation of the restrictions on trading while
in possession of material non-public information under applicable securities
laws or regulations while in possession of such information.
10.4. Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), or (c) when received
by the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the
35
<PAGE> 201
appropriate addresses and telecopier numbers set forth below (or to such other
addresses and telecopier numbers as a party may designate by notice to the other
parties):
(a) if to Acquiror or Sub:
DNX Corporation
303B College Road East
Princeton, New Jersey 08540
Attention: President
Telecopier No.: (908) 722-6677
with copies to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Thomas C. Daniels, Esq.
Telecopier No.: (216) 579-0212
(b) if to the Interest Holders:
Jack Barbut
c/o Piper & Marbury L.L.P.
1251 Avenue of the Americas
New York, New York 10020-1104
Telecopier No.: (212) 835-6001
Alec Hackel
Flueliweg 3
6045 Meggen
Switzerland
Telecopier No.: 011 41-41-377-3053
Dr. John Christian Jensen
Bohlstrasse 9a
6300 Zug
Switzerland
Telecopier No.: 011 41-41-710-2309
with copies to:
Piper & Marbury L.L.P.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ray A. Mantle, Esq.
Telecopier No.: (212) 835-6001
(c) if to Parent or the Company:
BioClin, Inc.
1001 East Main Street
Suite 808
Richmond, VA 23219
Attention: Chief Executive Officer
Telecopier No.: (804) 788-0040
with copies to:
Piper & Marbury L.L.P.
36
<PAGE> 202
1251 Avenue of the Americas
New York, New York 10020
Attention: Ray A. Mantle, Esq.
Telecopier No.: (212) 835-6001
10.5. Jurisdiction; Service of Process. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of New York, County of New York, or, if it has or can acquire jurisdiction, in
the United States District Court for the Southern District of New York, and each
of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any party anywhere in the world.
10.6. Further Assurances. The parties agree (a) to furnish upon request to
each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
10.7. Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Except as otherwise specifically provided by
Sections 8.2 and 8.3 of this Agreement, neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law and except as otherwise specifically
provided by Sections 8.2 and 8.3 of this Agreement, (a) no claim or right
arising out of this Agreement or the documents referred to in this Agreement can
be discharged by one party, in whole or in part, by a waiver or renunciation of
the claim or right unless in writing signed by the other party; (b) no waiver
that may be given by a party will be applicable except in the specific instance
for which it is given; and (c) no notice to or demand on one party will be
deemed to be a waiver of any obligation of such party or of the right of the
party giving such notice or demand to take further action without notice or
demand as provided in this Agreement or the documents referred to in this
Agreement.
10.8. Entire Agreement and Modification. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes (along with the Stockholders' Agreement and the documents referred
to in this Agreement and the documents executed in connection with Acquiror's
acquisition of the equity interests of the BioClin Affiliates) a complete and
exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may be amended by the parties
hereto, by action taken by their respective Board of Directors, at any time
before or after approval of the Merger and this Agreement by the holders of
Acquiror Common Stock as contemplated by Section 8.1(a) and the holders of the
Company Shares as contemplated by Section 8.1(b), provided, however, that after
such approval, no amendment will be made which by law requires the further
approval of such holders without first obtaining such further approval. This
Agreement may not be amended except by a written agreement executed by each of
the parties hereto.
10.9. Assignments, Successors, and No Third-Party Rights. No party hereto
may assign any of its rights under this Agreement without the prior consent of
the other parties, except that Acquiror may assign any of its rights under this
Agreement to any Subsidiary of Acquiror. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the parties to this Agreement and their successors and assigns any
legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.
37
<PAGE> 203
10.10. Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable. The
invalid or unenforceable provision shall be replaced by a provision which
ensures the economic purpose of the invalid or unenforceable provision as far as
possible.
10.11. Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
10.12. Governing Law. This Agreement will be governed by the laws of the
State of New York (except, to the extent the DGCL applies to the matters set
forth in Article II, the DGCL shall govern) without regard to conflicts of laws
principles.
10.13. Specific Performance. Each of Parent, the Company, the Interest
Holders and Acquiror acknowledges and agrees that the other parties would be
damaged irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or are otherwise breached.
Accordingly, each of Parent, the Company, the Interest Holders and Acquiror
agrees that the other parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court in the United States or in any state having jurisdiction
over the parties and the matter in addition to any other remedy to which they
may be entitled pursuant hereto.
10.14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
38
<PAGE> 204
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
DNX CORPORATION
By: /s/ PAUL J. SCHMITT
Name: Paul J. Schmitt
Title: President and Chief
Executive Officer
DNX ACQUISITION CORPORATION
By: /s/ PAUL J. SCHMITT
Name: Paul J. Schmitt
Title: President and Chief
Executive Officer
/s/ DR. JACK BARBUT
Dr. Jack Barbut
/s/ ALEC HACKEL
Alec Hackel
/s/ DR. JOHN CHRISTIAN JENSEN
Dr. John Christian Jensen
SHERBY N.V.
By: /s/ CURACAO CORPORATION COMPANY
Name: Curacao Corporation Company
N.V.
Title: Managing Director
BIOCLIN, INC.
By: /s/ DR. JACK BARBUT
Name: Dr. Jack Barbut
Title: President and Chief
Executive Officer
39
<PAGE> 205
EXHIBIT A-1
[DNX LETTERHEAD]
____________________ ____, 1996
Dr. Jack Barbut
- ------------------------------------
- ------------------------------------
Dear Jack:
This letter sets forth our agreement with respect to your employment with
DNX Corporation and any subsidiary or affiliate thereof (collectively referred
to herein as the "Company" and individually referred to herein as a "Protected
Party") and special separation benefits relating to the termination thereof, as
follows:
1. Positions, Duties and Place of Performance: Your employment will
commence effective as of the closing of the acquisition of BioClin (Europe) AG
by the Company (the "Effective Date"). During the term of this agreement (unless
earlier terminated as provided below), you will devote substantially your full
time and attention to the operations and affairs of the Company with such duties
and responsibilities as the Chief Executive Officer of DNX Corporation may
reasonably determine; provided, however, that such duties and responsibilities
shall be consistent with being the Vice Chairman and President -- Clinical
Services of the Company as well as President of BioClin Institute of Clinical
Pharmacology GmbH; and provided, further, that if the duties and
responsibilities are changed so they are not consistent with being the
President -- Clinical Services, such duties and responsibilities as you and the
Chief Executive Officer may mutually agree within 30 days, and if no mutual
agreement is reached, you may treat such change of duties and responsibilities
as a termination of your employment by the Company pursuant to paragraph 4
below. You will perform your duties and responsibilities at the Company's
facilities in Raritan, New Jersey, except for travel required for Company
business. During the term of this agreement, the Company will not change the
primary place of performance of your duties and responsibilities without your
consent.
2. Compensation: During the term of this agreement (unless earlier
terminated as provided below), you will be paid in the United States at the
annualized rate of U.S. $140,000, or such greater amount as may be authorized by
the Compensation Committee (the "Compensation Committee") of the Board of
Directors of DNX Corporation (the "Board"). Such compensation shall be paid in
accordance with the normal procedures of the Company and the Compensation
Committee for compensating the Company's domestic employees and shall be subject
to withholding for applicable taxes and governmental charges. As soon as
practicable after the Effective Date, you will provide to the Company a
withholding certificate and such other written representations regarding your
status under United States and Swiss tax law as the Company may require, and the
Company will be entitled to rely in good faith on such certificate and
representations.
3. Benefits:
(a) In General: During the term of this agreement (unless earlier
terminated as provided below): you will be eligible to participate in
such medical, dental, life and disability benefit programs as may be
established by the Company; you will be eligible beginning in 1997 to
participate in the DNX Corporation Executive Bonus Plan at the same
levels as other senior executives of the Company, as authorized by the
Compensation Committee; and you will receive a grant under the DNX
Corporation 1996 Stock Option Plan of options to purchase 50,000 shares
of DNX Corporation
A-1-1
<PAGE> 206
common stock, on the same terms and subject to the same vesting
requirements as the Compensation Committee shall determine for other
senior executives of the Company.
(b) Relocation to New Jersey: During the term of this agreement (unless
earlier terminated as provided below), the Company will pay or
reimburse you for reasonable and necessary expenses incurred by you in
connection with your relocation to New Jersey, including, without
limitation, brokers' commissions, up to twelve months of temporary
housing costs, closing costs, and costs of moving household belongings
and automobiles.
(c) Special Retirement Benefits: During the term of this agreement (unless
earlier terminated as provided below), the Company will pay on your
behalf to the Swiss social security system the lesser of (i) the annual
amount necessary to maintain your retirement coverage as currently in
effect under such system and (ii) the maximum annual amount of tax that
the Company would be required to pay under section 3111(a) of the
Internal Revenue Code (or any successor provision thereto) with respect
to your covered wages under section 3121(a) of the Internal Revenue
Code and section 230 of the Social Security Act (or any successor
provisions thereto) if your compensation hereunder were subject to such
tax.
(d) Automobile Expenses. During the term of this agreement (unless earlier
terminated as provided below), the Company will pay or reimburse you
$600 per month for the lease, insurance, maintenance and repair of an
automobile.
(e) Vacation. During the term of this agreement (unless earlier terminated
as provided below), you will be entitled to take 25 days of vacation
per year in accordance with the Company's vacation policies in effect
from time to time for senior executives.
4. Severance Obligations: If your employment is terminated by the Company
(or is treated as terminated by the Company under section 1) during the term of
this agreement for any reason other than Cause, then, subject to sections 5, 6
and 7 below, the Company will provide to you:
(a) regular severance payments at the rate of your annualized compensation
for employment at the time of termination until 12, 24 or 36 months
after your termination date, as elected in writing by the Company at
the time of such termination. The period of severance elected by the
Company for purposes of this agreement will be coextensive with any
period of severance elected for purposes of your agreement to provide
services as an independent contractor to BioClin AG. Any payments made
will be reduced by applicable taxes and other required withholdings;
and
(b) continuation of medical and dental insurance coverage until the earlier
of (1) the date you obtain other full-time employment or (2) the date
your salary continuation ceases.
For the purposes of this agreement, the term "Cause" means your (a)
commission of an act that is determined by the Board to be fraudulent or
dishonest conduct or a material breach of any of the Company's policies, (b)
conviction of a felony or knowing violation of any federal, state, or local law
applicable to the Company or (c) intentional refusal, without proper cause, to
substantially perform your duties after a demand for substantial performance has
been delivered to you in writing by your supervisor(s). Upon termination for
Cause, the Company shall have no further liability or obligation to you, except
for salary earned but not paid and other obligations mandated by law.
5. Release: In consideration for the special separation benefits set forth
in section 4 above, you shall agree to the conditions outlined on the attached
Release. The Company's severance obligations under section 4 above are expressly
conditioned upon your (a) execution and delivery of the Release at the time of
your termination of employment and (b) not revoking the Release within the
revocation period described therein.
6. Competitive Activity: In consideration for the special separation
benefits set forth in section 4 above, you agree that (a) if your employment is
terminated by the Company (or is treated as terminated by the Company under
section 1) during the term of this agreement for any reason other than Cause,
then you will not, without the prior written consent of the Board in its sole
discretion, engage in any Competitive Activity during the period of your salary
continuation under section 4 above and (b) if your employment is terminated
A-1-2
<PAGE> 207
by you for any reason other than as provided in section 1 or by the Company for
Cause, then you will not, without the prior written consent of the Board in its
sole discretion, engage in any Competitive Activity until the later of (1) five
years after the date of this agreement or (2) two years after your termination
date. The Company's severance obligations under section 4 above are expressly
conditioned upon your satisfaction of your obligations under this section 6.
For the purposes of this agreement, the term "Competitive Activity" means
your participation in the management, clinical or preclinical operations of any
business enterprise if (a) such enterprise engages in substantial and direct
competition with any Protected Party in North America or Europe, (b) such
enterprise's sales of any product or service competitive with any product or
service of a Protected Party amounted to at least 10% of such enterprise's net
sales for its most recently completely fiscal year, and (c) such Protected
Party's sales of said product or service amounted to at least 10% of its net
sales for its most recently completely fiscal year. Competitive Activity will
not include the mere ownership of less than 5.0% of any class of the outstanding
securities of any such enterprise and the exercise of rights appurtenant
thereto.
7. No Solicitation or Hiring: In consideration for the special separation
benefits set forth in section 4 above, you agree that (a) for a period of three
years after your termination date, you will not, without the prior written
consent of the Board in its sole discretion, directly or indirectly induce or
attempt to induce any employee of any Protected Party to leave the employment of
such Protected Party or to accept any other employment or position and (b) for a
period of two years after your termination date, you will not, without the prior
written consent of the Board in its sole discretion, directly or indirectly hire
or cause to be hired any employee of any Protected Party. The Company's
severance obligations under section 4 above are expressly conditioned upon your
satisfaction of your obligations under this section 7.
8. Term of Agreement: This agreement shall have a two-year term commencing
on the Effective Date, provided that thereafter the term will automatically be
extended for successive one-year periods unless either party gives written
notice, not less than 90 days prior to the otherwise scheduled expiration of the
term, that it or he does not want the term to so extend.
9. Governing Law: This agreement shall be governed by and construed in
accordance with the internal laws of the State of New Jersey without regard to
conflicts of law principles.
10. Entire Agreement; Modification: This agreement and the attached
Release constitute the entire agreement between you and the Company relating to
your employment with the Company and the termination thereof and supersede all
other prior understandings or agreements relating to your employment with the
Company and the termination thereof. This agreement may not be modified or
amended except by a writing signed by you and the Company.
Sincerely,
Paul J. Schmitt
Chairman
- ------------------------------------------------------
Jack Barbut Date
Enclosure
A-1-3
<PAGE> 208
EXHIBIT A-2
[DNX LETTERHEAD]
____________________ ____, 1996
Dr. Jack Barbut
- ------------------------------------
- ------------------------------------
Dear Jack:
This letter sets forth our agreement with respect to your provision of
services as an independent contractor to BioClin AG and any subsidiary or
affiliate thereof (collectively referred to herein as the "Company" and
individually referred to herein as a "Protected Party") and special separation
benefits relating to the termination thereof, as follows:
1. Position, Duties and Places of Performance: Your provision of services
will commence effective as of the closing of the acquisition of BioClin (Europe)
AG by DNX Corporation (the "Effective Date"). During the term of this agreement
(unless earlier terminated as provided below), you will devote such time and
attention to the operations and affairs of the Company and have such duties and
responsibilities as the Chief Executive Officer of DNX Corporation may
reasonably determine; provided, however, that such duties and responsibilities
shall be consistent with being a Senior Consultant; and provided, further, that
if the duties and responsibilities are changed so they are not consistent with
being a Senior Consultant, such duties and responsibilities as you and the Chief
Executive Officer of DNX Corporation may mutually agree within 30 days, and if
no mutual agreement is reached, you may treat such change of duties and
responsibilities as a termination of your services by the Company pursuant to
paragraph 4 below. You will perform your duties and responsibilities at the
Company's facilities in Cham and Zug, Switzerland, except for travel required
for Company business. During the term of this agreement, the Company will not
change the primary place of performance of your duties and responsibilities
without your consent.
2. Compensation: During the term of this agreement (unless earlier
terminated as provided below), you will be paid in Switzerland at the annualized
rate of U.S. $120,000, or such greater amount as may be authorized by the
Compensation Committee (the "Compensation Committee") of the Board of Directors
of DNX Corporation (the "Board"). Such compensation shall be paid in accordance
with the normal procedures of the Company and the Compensation Committee for
compensating consultants who are independent contractors to the Company and
shall be subject to withholding for applicable taxes and governmental charges.
As soon as practicable after the Effective Date, you will provide to the Company
a withholding certificate and such other written representations regarding your
status under United States and Swiss tax law as the Company may require, and the
Company will be entitled to rely in good faith on such certificate and
representations.
3. Benefits:
(a) In General: During the term of this agreement (unless earlier
terminated as provided below), you will be eligible beginning in 1997
to participate in the DNX Corporation Executive Compensation Plan at
the same levels as other senior consultants to the Company, as
authorized by the Compensation Committee.
A-2-1
<PAGE> 209
(b) Special Retirement Benefits: During the term of this agreement (unless
earlier terminated as provided below), the Company will pay on your
behalf to the Swiss social security system the lesser of (i) the annual
amount, if any, necessary to maintain your retirement coverage as
currently in effect under such system and (ii) the maximum annual
amount of tax that the Company would be required to pay under section
3111(a) of the Internal Revenue Code (or any successor provision
thereto) with respect to your covered wages under section 3121(a) of
the Internal Revenue Code and section 230 of the Social Security Act
(or any successor provisions thereto) if your compensation hereunder
were subject to such tax.
4. Severance Obligations: If your services are terminated by the Company
(or are treated as terminated by the Company under section 1) during the term of
this agreement for any reason other than Cause, then, subject to sections 5, 6
and 7 below, the Company will provide to you regular severance payments at the
rate of your annualized compensation for consulting services at the time of
termination until 12, 24 or 36 months after your termination date, as elected in
writing by the Company at the time of such termination. The period of severance
elected by the Company for purposes of this agreement will be coextensive with
any period of severance elected for purposes of your agreement to provide
services as an employee to DNX Corporation. Any payments made will be reduced by
applicable taxes and other required withholdings.
For the purposes of this agreement, the term "Cause" means your (a)
commission of an act that is determined by the Board to be fraudulent or
dishonest conduct or a material breach of any of the Company's policies, (b)
conviction of a felony or knowing violation of any federal, state, or local law
applicable to the Company or (c) intentional refusal, without proper cause, to
substantially perform your duties after a demand for substantial performance has
been delivered to you in writing by your supervisor(s). Upon termination for
Cause, the Company shall have no further liability or obligation to you, except
for compensation earned but not paid and other obligations mandated by law.
5. Release: In consideration for the special separation benefits set forth
in section 4 above, you shall agree to the conditions outlined on the attached
Release. The Company's severance obligations under section 4 above are expressly
conditioned upon your (a) execution and delivery of the Release at the time of
your termination of services and (b) not revoking the Release within any
revocation period described therein.
6. Competitive Activity: In consideration for the special separation
benefits set forth in section 4 above, you agree that (a) if your services are
terminated by the Company (or are treated as terminated by the Company under
section 1) during the term of this agreement for any reason other than Cause,
then you will not, without the prior written consent of the Board in its sole
discretion, engage in any Competitive Activity during the period of your
severance payments under section 4 above and (b) if your services are terminated
by you for any reason other than as provided in section 1 or by the Company for
Cause, then you will not, without the prior written consent of the Board in its
sole discretion, engage in any Competitive Activity until the later of (1) five
years after the date of this agreement or (2) two years after your termination
date. The Company's severance obligations under section 4 above are expressly
conditioned upon your satisfaction of your obligations under this section 6.
For the purposes of this agreement, the term "Competitive Activity" means
your participation in the management, clinical or preclinical operations of any
business enterprise if (a) such enterprise engages in substantial and direct
competition with any Protected Party in North America or Europe, (b) such
enterprise's sales of any product or service competitive with any product or
service of a Protected Party amounted to at least 10% of such enterprise's net
sales for its most recently completely fiscal year, and (c) such Protected
Party's sales of said product or service amounted to at least 10% of its net
sales for its most recently completely fiscal year. Competitive Activity will
not include the mere ownership of less than 5.0% of any class of the outstanding
securities of any such enterprise and the exercise of rights appurtenant
thereto.
7. No Solicitation or Hiring: In consideration for the special separation
benefits set forth in section 4 above, you agree that (a) for a period of three
years after your termination date, you will not, without the prior written
consent of the Board in its sole discretion, directly or indirectly induce or
attempt to induce any employee of any Protected Party to leave the employment of
such Protected Party or to accept any other employment or position and (b) for a
period of two years after your termination date, you will not, without the
A-2-2
<PAGE> 210
prior written consent of the Board in its sole discretion, directly or
indirectly hire or cause to be hired any employee of any Protected Party. The
Company's severance obligations under section 4 above are expressly conditioned
upon your satisfaction of your obligations under this section 7.
8. Term of Agreement: This agreement shall have a two-year term commencing
on the Effective Date, provided that thereafter the term will automatically be
extended for successive one-year periods unless either party gives written
notice, not less than 90 days prior to the otherwise scheduled expiration of the
term, that it or he does not want the term to so extend.
9. Governing Law: This agreement shall be governed by and construed in
accordance with the internal laws of Switzerland without regard to conflicts of
law principles.
10. Entire Agreement; Modification: This agreement and the attached
Release constitute the entire agreement between you and the Company relating to
your consulting services with the Company and the termination thereof and
supersede all other prior understandings or agreements relating to your services
with the Company and the termination thereof. This agreement may not be modified
or amended except by a writing signed by you and the Company.
Sincerely,
Paul J. Schmitt
Chairman
- ------------------------------------------------------
Jack Barbut Date
Enclosure
A-2-3
<PAGE> 211
EXHIBIT A-3
[DNX LETTERHEAD]
____________________ ____, 1996
Dr. J. Chris Jensen
BioClin (Europe) AG
Gewerbestrasse 5
CH-6330 Cham/Switzerland
Dear Chris:
This letter sets forth our agreement with respect to your employment with
BioClin AG and any subsidiary or affiliate thereof (collectively referred to
herein as the "Company" and individually referred to herein as a "Protected
Party") and special separation benefits relating to the termination thereof, as
follows:
1. Positions, Duties and Places of Performance: Your employment will
commence effective as of the closing of the acquisition of BioClin (Europe) AG
by DNX Corporation (the "Effective Date"). During the term of this agreement
(unless earlier terminated as provided below), you will devote your full time
and attention to the operations and affairs of the Company with such duties and
responsibilities as the Chief Executive Officer of DNX Corporation may
reasonably determine; provided, however, that such duties and responsibilities
shall be consistent with being President -- International Services of the
Company and an employee and signatory under German law of the BioClin Institute
of Clinical Pharmacology GmBh (the "Institute"); and provided, further, that if
the duties and responsibilities are changed so they are not consistent with
being the President of International Services of the Company and an employee and
signatory of the Institute, such duties and responsibilities as you and the
Chief Executive Officer may mutually agree within 30 days, and if no mutual
agreement is reached, you may treat such change of duties and responsibilities
as a termination of your employment by the Company pursuant to paragraph 4
below. You will perform your duties and responsibilities at the Company's
facilities in Cham and Zug, Switzerland, except for travel to the Institute in
Dusseldorf, Germany, and other travel required for Company business. During the
term of this agreement, the Company will not change these primary places of
performance of your duties and responsibilities without your consent.
2. Compensation: During the term of this agreement (unless earlier
terminated as provided below), you will be paid at the annualized rate of CHF
233,000, or such greater amount as may be authorized by the Compensation
Committee (the "Compensation Committee") of the Board of Directors of DNX
Corporation (the "Board"). Such compensation shall be paid in accordance with
the normal procedures of the Company and the Compensation Committee for
compensating the Company's employees and shall be subject to withholding for
applicable taxes and governmental charges. As soon as practicable after the
Effective Date, you will provide to the Company a withholding certificate and
such other written representations regarding your status under United States,
Swiss and German tax law as the Company may require, and the Company will be
entitled to rely in good faith on such certificate and representations.
3. Benefits:
(a) In General: During the term of this agreement (unless earlier
terminated as provided below): you will be eligible to participate in
such medical, dental, life and disability benefit programs as may be
established by the Company; you will be eligible beginning in 1997 to
participate in the DNX Corporation Executive Bonus Plan at the same
levels as other senior executives of the Company, as authorized by the
Compensation Committee; and you will receive a grant under the DNX
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<PAGE> 212
Corporation 1996 Stock Option Plan of options to purchase 50,000 shares
of DNX Corporation common stock, on the same terms and subject to the
same vesting requirements as the Compensation Committee shall determine
for other senior executives of the Company.
(b) Contribution to International School: Each academic year during the
term of this agreement (unless earlier terminated as provided below),
the Company will contribute on your behalf to such school as you may
designate CHF 27,000 to provide for the enrollment and attendance at
such school by your two children.
(c) Special Retirement Benefits: During the term of this agreement (unless
earlier terminated as provided below), the Company will transfer to the
Institute the lesser of DEM 32,000 or the amount provided under your
current employment agreement as a contribution to your individual
pension plan as currently in effect. DNX Corporation, as the parent
corporation of the Institute, will cause the Institute to contribute
such amount to such pension plan on your behalf.
(d) Automobile Expenses: During the term of this agreement (unless earlier
terminated as provided below), the Company will pay or reimburse you
the lesser of CHF 1,500 per month or the amount provided to you under
your current employment agreement for the lease, insurance, maintenance
and repair of an automobile.
(e) Vacation: During the term of this agreement (unless earlier terminated
as provided below), you will be entitled to take 25 days of vacation
per year in accordance with the Company's vacation policies in effect
from time to time for senior executives.
(f) Relocation: Subject to the last sentence of section 1, if the primary
place of performance of your duties and responsibilities is changed
during the term of this agreement to a location outside of Switzerland,
the Company will pay or reimburse you for reasonable and necessary
expenses incurred by you in connection with your relocation outside of
Switzerland and in connection with your return to Switzerland, provided
that such return occurs prior to or upon the expiration or termination
of this agreement.
4. Severance Obligations: If your employment is terminated by the Company
(or is treated as terminated by the Company under section 1) during the term of
this agreement for any reason other than Cause, then, subject to sections 5, 6
and 7 below, the Company will provide to you:
(a) regular severance payments at the rate of your annualized base salary
at the time of termination until 12, 24 or 36 months after your
termination date, as elected in writing by the Company at the time of
such termination. Any payments made will be reduced by applicable taxes
and other required withholdings;
(b) continuation of medical and dental insurance coverage until the earlier
of (1) the date you obtain other full-time employment or (2) the date
your salary continuation ceases; and
(c) continuation of the contribution under section 3(b) until the date your
salary continuation ceases.
For the purposes of this agreement, the term "Cause" means your (a) commission
of an act that is determined by the Board to be fraudulent or dishonest conduct
or a material breach of any of the Company's policies, (b) conviction of a
felony or knowing violation of any federal, state, or local law applicable to
the Company or (c) intentional refusal, without proper cause, to substantially
perform your duties after a demand for substantial performance has been
delivered to you in writing by your supervisor(s). Upon termination for Cause,
the Company shall have no further liability or obligation to you, except for
salary earned but not paid and other obligations mandated by law.
5. Release: In consideration for the special separation benefits set forth
in section 4 above, you shall agree to the conditions outlined on the attached
Release. The Company's severance obligations under section 4 above are expressly
conditioned upon your (a) execution and delivery of the Release at the time of
your termination of employment and (b) not revoking the Release within the
revocation period described therein.
A-3-2
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6. Competitive Activity: In consideration for the special separation
benefits set forth in section 4 above, you agree that (a) if your employment is
terminated by the Company (or is treated as terminated by the Company under
section 1 during the term of this agreement for any reason other than Cause,
then you will not, without the prior written consent of the Board in its sole
discretion, engage in any Competitive Activity during the period of your salary
continuation under section 4 above and (b) if your employment is terminated by
you for any reason other than as provided in section 1 or by the Company for
Cause, then you will not, without the prior written consent of the Board in its
sole discretion, engage in any Competitive Activity until the later of (1) five
years after the date of this agreement or (2) two years after your termination
date. The Company's severance obligations under section 4 above are expressly
conditioned upon your satisfaction of your obligations under this section 6.
For the purposes of this agreement, the term "Competitive Activity" means
your participation in the management, clinical or preclinical operations of any
business enterprise if (a) such enterprise engages in substantial and direct
competition with any Protected Party in North America or Europe, (b) such
enterprise's sales of any product or service competitive with any product or
service of a Protected Party amounted to at least 10% of such enterprise's net
sales for its most recently completely fiscal year, and (c) such Protected
Party's sales of said product or service amounted to at least 10% of its net
sales for its most recently completely fiscal year. Competitive Activity will
not include the mere ownership of less than 5.0% of any class of the outstanding
securities of any such enterprise and the exercise of rights appurtenant
thereto.
7. No Solicitation or Hiring: In consideration for the special separation
benefits set forth in section 4 above, you agree that (a) for a period of three
years after your termination date, you will not, without the prior written
consent of the Board in its sole discretion, directly or indirectly induce or
attempt to induce any employee of any Protected Party to leave the employment of
such Protected Party or to accept any other employment or position and (b) for a
period of two years after your termination date, you will not, without the prior
written consent of the Board in its sole discretion, directly or indirectly hire
or cause to be hired any employee of any Protected Party. The Company's
severance obligations under section 4 above are expressly conditioned upon your
satisfaction of your obligations under this section 7.
8. Term of Agreement: This agreement shall have a two-year term commencing
on the Effective Date, provided that thereafter the term will automatically be
extended for successive one-year periods unless either party gives written
notice, not less than 90 days prior to the otherwise scheduled expiration of the
term, that it or he does not want the term to so extend.
9. Governing Law: This agreement shall be governed by and construed in
accordance with the internal laws of Switzerland without regard to conflicts of
law principles.
10. Entire Agreement; Modification: This agreement and the attached
Release constitute the entire agreement between you and the Company relating to
your employment with the Company and the termination thereof and supersede all
other prior understandings or agreements relating to your employment with the
Company and the termination thereof. This agreement may not be modified or
amended except by a writing signed by you and the Company.
Sincerely,
Paul J. Schmitt
Chairman
- ------------------------------------------------------
Dr. J. Chris Jensen Date
Enclosure
A-3-3
<PAGE> 214
EXHIBIT B
SEE APPENDIX E
<PAGE> 215
APPENDIX C
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARE EXCHANGE AGREEMENT
AMONG
DNX CORPORATION
(A DELAWARE CORPORATION),
MR. MANFRED WISSMANN, AS TRUSTEE,
DR. GERALD RITTERSHAUS, AS EMPLOYEE TRUSTEE,
DR. JACK BARBUT,
ALEC HACKEL,
DR. JOHN CHRISTIAN JENSEN,
BETTINA DONHARDT,
CHRISTINE DUNE-KRAATZ,
BIOCLIN GMBH
(A GERMAN CORPORATION),
KILMER N.V.
(A NETHERLANDS ANTILLES CORPORATION)
AND
BIOCLIN EUROPE AG
(A SWISS CORPORATION)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 216
TABLE OF CONTENTS
<TABLE>
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Recitals................................................................................ 1
ARTICLE I DEFINITIONS.................................................................. 2
ARTICLE II PURCHASE, SALE AND EXCHANGE OF SHARES....................................... 7
2.1 Exchange of the Company Shares.............................................. 7
2.2 Sale, Purchase and Assignment of the Sub Shares............................. 7
2.3 Exchange of the Kilmer Shares............................................... 7
2.4 Closing..................................................................... 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR................................. 8
3.1 Authorization, Validity and Effect.......................................... 8
3.2 Acquiror Shares............................................................. 8
3.3 Conflicts; Defaults......................................................... 8
3.4 Exchange Act Filings........................................................ 8
3.5 Absence of Material Adverse Changes......................................... 8
3.6 Taxes....................................................................... 9
3.7 Legal Proceedings; Orders................................................... 9
3.8 Absence Of Certain Changes and Events....................................... 9
3.9 Contracts; No Defaults...................................................... 10
3.10 Insurance................................................................... 10
3.11 Environmental Matters....................................................... 10
3.12 Labor Relations; Compliance................................................. 10
3.13 Intellectual Property....................................................... 11
3.14 Disclosure.................................................................. 11
3.15 Brokers and Finders......................................................... 11
ARTICLE IV REPRESENTATIONS OF THE TRUSTEE AND THE EMPLOYEE
TRUSTEE REGARDING THE TRUSTEE AND THE COMPANY SHARES
AND THE EMPLOYEE TRUSTEE AND THE SUB SHARES............................ 11
4.1 Authorization, Validity and Effect.......................................... 11
4.2 Consents and Approvals; No Violation........................................ 11
4.3 Title and Power to Sell..................................................... 12
4.4 Litigation.................................................................. 12
4.5 Authorization, Validity and Effect.......................................... 12
4.6 Consents and Approvals; No Violation........................................ 12
4.7 Title and Power to Sell..................................................... 12
4.8 Litigation.................................................................. 12
</TABLE>
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<TABLE>
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE
ACQUIRED ENTITIES AND THE INTEREST HOLDERS
WITH RESPECT TO THE ACQUIRED ENTITIES................................................... 13
5.1 Organization, Authority and Authorization................................... 13
5.2 Consents and Approvals; No Violation........................................ 13
5.3 Title and Power to Sell..................................................... 14
5.4 Capitalization.............................................................. 14
5.5 Company Financial Statements................................................ 15
5.6 Books and Records........................................................... 15
5.7 Reports..................................................................... 16
5.8 Absence of Material Adverse Changes......................................... 16
5.9 Title to Properties; Encumbrances........................................... 16
5.10 Condition and Sufficiency of Assets......................................... 16
5.11 Accounts Receivable......................................................... 17
5.12 No Undisclosed Liabilities.................................................. 17
5.13 Taxes....................................................................... 17
5.14 Compliance with Legal Requirements; Governmental Authorizations............. 17
5.15 Legal Proceedings; Orders................................................... 18
5.16 Absence Of Certain Changes and Events....................................... 19
5.17 Contracts; No Defaults...................................................... 20
5.18 Insurance................................................................... 21
5.19 Environmental Matters....................................................... 22
5.20 Employees................................................................... 23
5.21 Labor Relations; Compliance................................................. 24
5.22 Intellectual Property....................................................... 24
5.23 Certain Payments............................................................ 27
5.24 Disclosure.................................................................. 27
5.25 Relationships with Related Persons.......................................... 27
5.26 Brokers and Finders......................................................... 28
5.27 Employee Benefit Plans...................................................... 28
5.28 Investment Intent; Accredited Investor...................................... 28
ARTICLE VI CONDUCT OF BUSINESS PRIOR TO THE CLOSING.................................... 29
6.1 Conduct Prior to Closing.................................................... 29
6.2 Consents and Approvals...................................................... 30
6.3 Bookkeeping, Accounting and Financial Reporting Capabilities................ 30
ARTICLE VII ADDITIONAL AGREEMENTS...................................................... 31
7.1 Current Information......................................................... 31
7.2 Access and Investigation.................................................... 31
7.3 Effect of Investigations.................................................... 31
7.4 Press Releases, Etc......................................................... 31
7.5 Acquisition Proposals....................................................... 32
7.6 Notification of Certain Matters............................................. 32
7.7 Customers................................................................... 33
7.8 Preservation of Relationships............................................... 33
7.9 Resale; Legends............................................................. 33
7.10 Pooling Treatment........................................................... 34
7.11 Shareholder Approval; Proxy Statement....................................... 34
</TABLE>
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<TABLE>
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ARTICLE VIII CONDITIONS................................................................ 34
8.1 Conditions to Each Party's Obligation to Consummate the Closing............. 34
8.2 Conditions to Obligation of Acquiror to Consummate the Closing.............. 35
8.3 Conditions to Obligation of the Acquired Entities, the Trustee, the Employee
Trustee,
the Employee Group and the Interest Holders to Consummate the Closing....... 36
ARTICLE IX TERMINATION................................................................. 36
9.1 Termination................................................................. 36
9.2 Effect of Termination....................................................... 37
ARTICLE X GENERAL PROVISIONS........................................................... 37
10.1 Survival of Representations, Warranties and Agreements...................... 37
10.2 Expenses.................................................................... 37
10.3 Confidentiality............................................................. 37
10.4 Notices..................................................................... 38
10.5 Jurisdiction; Service of Process............................................ 39
10.6 Further Assurances.......................................................... 40
10.7 Waiver...................................................................... 40
10.8 Entire Agreement and Modification........................................... 40
10.9 Assignments, Successors, and No Third-Party Rights.......................... 40
10.10 Severability................................................................ 40
10.11 Foreign Currencies.......................................................... 40
10.12 Section Headings, Construction.............................................. 40
10.13 Governing Law............................................................... 41
10.14 Specific Performance........................................................ 41
10.15 Counterparts................................................................ 41
Exhibits
A-1 Employment Agreement between Acquiror and Dr. Jack Barbut
A-2 Consulting Agreement between Acquiror and Dr. Jack Barbut
A-3 Employment Agreement between Acquiror and Dr. J. Chris Jensen
B Stockholders' Agreement
C Commercial Registry Extract
</TABLE>
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SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") made as of the 19th day of
August, 1996 by and among DNX Corporation, a Delaware corporation ("Acquiror"),
with its principal offices at 575 Route 28, Raritan, New Jersey, Mr. Manfred
Wissmann, acting solely in his capacity as trustee (the "Trustee") pursuant to
an Agreement among the Trustee, Dr. Jack Barbut and Alec Hackel, dated March 22,
1990 (the "Trust Agreement"), Dr. Gerald Rittershaus, acting solely in his
capacity as trustee (the "Employee Trustee") pursuant to an Agreement between
the Employee Trustee and Ms. Christine Dune-Kraatz ("Kraatz") dated December 12,
1989 (the "Employee Trust Agreement"), Dr. Jack Barbut whose address is c/o
Piper & Marbury, L.L.P., 1251 Avenue of the Americas, New York, New York,
10020-1104 ("Barbut"), Alec Hackel whose address is Fluelieweg 3, 6045 Meggen,
Switzerland ("Hackel"), Dr. John Christian Jensen whose address is Bohlstrasse
9a, 6300 Zug, Switzerland ("Jensen," collectively with Barbut and Hackel, the
"Interest Holders"), as the holders of all of the equity interests in the
Company, Ms. Bettina Donhardt ("Donhardt"), Kraatz (together with Donhardt,
collectively, the "Employee Group"), BioClin GmbH, a German corporation and an
indirect Subsidiary of the Company ("Sub"), Kilmer N.V., a Netherlands Antilles
corporation ("Kilmer"), and BioClin Europe AG, a Swiss corporation (the
"Company").
RECITALS
A. The Trustee, for the benefit of Hackel and Barbut (the "Joint Beneficial
Shareholders"), and Jensen hold equity interests in the Company (the "Company
Shares"), which constitute all of the equity interests in the Company.
B. The Trustee, at the direction of the Joint Beneficial Shareholders, and
Jensen desire to transfer, and Acquiror desires to acquire, the Company Shares,
on the terms and subject to the conditions set forth in this Agreement.
C. The Company (through BioClin AG, a wholly-owned Subsidiary), the
Employee Trustee, for the benefit of Kraatz, and Donhardt hold equity interests
(Geschaeftsanteile) in Sub (the "Sub Shares"), which constitute all of the
equity interests in Sub.
D. The Employee Trustee, for the benefit of Kraatz, and Donhardt desire to
sell, transfer and assign, and Acquiror desires to purchase and acquire, the Sub
Shares owned beneficially by the Employee Group, on the terms and subject to the
conditions set forth in this Agreement.
E. Barbut and Hackel hold equity interests in Kilmer (the "Kilmer Shares"),
which constitute all of the equity interests in Kilmer.
F. Barbut and Hackel desire to transfer and Acquiror desires to acquire the
Kilmer Shares, on the terms and subject to the conditions set forth in this
Agreement.
G. As a condition hereto and simultaneously herewith, Acquiror shall
acquire all of the issued and outstanding stock or equity interests of BioClin
Institute of Clinical Pharmacology GmbH, a German corporation ("BioClin
Institute"), and BioClin Inc., a Delaware corporation ("BioClin/U.S.," and
collectively with BioClin Institute, the "BioClin Affiliates").
H. Acquiror, the Interest Holders, the Employee Group, the Trustee, the
Employee Trustee, Sub, Kilmer and the Company wish to enter into this Agreement
for the purpose of making certain representations and warranties to each other
and entering into certain other obligations in favor of each other.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereby agree as follows:
<PAGE> 220
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article I:
"Acquired Entities" means, collectively, the Company (and its
Subsidiaries), Sub and Kilmer.
"Acquiror" has the meaning given in the first paragraph of this Agreement.
"Accounts Receivable" has the meaning given in Section 5.11.
"Acquiror's Advisors" has the meaning given in Section 7.2.
"Acquiror Common Stock" has the meaning given in Section 2.1.
"Acquiror Letter" means the disclosure letter delivered by Acquiror to the
Interest Holders concurrently with the execution and delivery of this Agreement.
"Acquiror Shares" shall mean, collectively, the Europe Acquiror Shares, the
Sub Acquiror Shares and the Kilmer Acquiror Shares.
"Affiliate" of a specified Person is a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the Person specified.
"Agreement" has the meaning given in the first paragraph of this Agreement.
"Applicable Contract" means any Contract (a) under which any Acquired
Entity has or may acquire any rights, (b) under which any Acquired Entity has or
may become subject to any obligation or liability, or (c) by which any Acquired
Entity or any of the assets owned or used by it is or may become bound.
"Balance Sheet" has the meaning given in Section 5.5.
"Barbut" has the meaning given in the first paragraph of this Agreement.
"BioClin Affiliates" has the meaning given in the Recitals of this
Agreement.
"BioClin Institute" has the meaning given in the Recitals of this
Agreement.
"BioClin/U.S." has the meaning given in the Recitals of this Agreement.
"Business Day" means any day on which banks are generally open to conduct
business in New York, New York.
"Closing" has the meaning given in Section 2.1.
"Closing Date" has the meaning given in Section 2.4.
"Company" has the meaning given in the first paragraph of this Agreement.
"Company Reports" has the meaning given in Section 5.7.
"Company Shares" has the meaning given in the Recitals of this Agreement.
"Company Subsidiaries" has the meaning given in Section 5.4(a)(iii).
"Competing Business" has the meaning given in Section 5.25.
"Consent" means any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contract" means any agreement, contract, obligation, promise or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Copyrights" has the meaning given in Section 5.22(a).
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<PAGE> 221
"CRAs" has the meaning given in Section 5.17(a)(ix)
"Disclosure Letter" means the disclosure letter delivered by the Interest
Holders to Acquiror concurrently with the execution and delivery of this
Agreement.
"DM" has the meaning given in Section 5.4(b)(i).
"Donhardt" has the meaning given in the first paragraph of this Agreement.
"Employee Group" means collectively Ms. Christine Dune-Kraatz and Ms.
Bettina Donhardt.
"Employee Trust Agreement" has the meaning given in the first paragraph of
this Agreement.
"Employee Trustee" has the meaning given in the first paragraph of this
Agreement.
"Employment Agreements" means collectively the Employment Agreements to be
entered at the Closing by and between Acquiror and each of Barbut and Jensen in
substantially the form attached hereto as Exhibits A-1 and A-2.
"Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"Environment" means soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental, Health, and Safety Liabilities" means any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to: (a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products); (b) fines, penalties,
judgments, awards, settlements, legal or administrative proceedings, damages,
losses, claims, demands and response, investigative, remedial, or inspection
costs and expenses arising under Environmental Law or Occupational Safety and
Health Law; (c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or response
actions ("Cleanup") required by applicable Environmental Law or Occupational
Safety and Health Law (whether or not such Cleanup has been required or
requested by any Governmental Body or any other Person) and for any natural
resource damages; or (d) any other compliance, corrective, investigative, or
remedial measures required under Environmental Law or Occupational Safety and
Health Law.
"Environmental Law" means any Legal Requirement that requires or relates
to: (a) advising appropriate authorities, employees, and the public of intended
or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the commencements
of activities, such as resource extraction or construction, that could have
significant impact on the Environment; (b) preventing or reducing to acceptable
levels the release of pollutants or hazardous substances or materials into the
Environment; (c) reducing the quantities, preventing the release, or minimizing
the hazardous characteristics of wastes that are generated; (d) assuring that
products are designed, formulated, packaged, and used so that they do not
present unreasonable risks to human health or the Environment when used or
disposed of; (e) protecting resources, species, or ecological amenities; (f)
reducing to acceptable levels the risks inherent in the transportation of
hazardous substances, pollutants, oil, or other potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing the threat of
release, or paying the costs of such clean up or prevention; or (h) making
responsible parties pay private parties, or groups of them, for damages done to
their health or the Environment, or permitting self-appointed representatives of
the public interest to recover for injuries done to public assets.
"Europe Acquiror Shares" has the meaning given in Section 2.1.
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"Exchange Act" has the meaning given in Section 3.4.
"Facilities" means any real property, leaseholds or other interests
currently or formerly owned or operated by any Acquired Entity and any
buildings, plants, structures or equipment currently or formerly owned or
operated by any Acquired Entity.
"Governmental Authorization" means any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" means any: (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal (Bund),
canton, county (Land), commune, state, local, municipal, foreign, or other
government; (c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal); (d) multi-national organization or body; or (e)
body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or power of any
nature.
"Hackel" has the meaning given in the first paragraph of this Agreement.
"Hazardous Activity" means the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment, and any
other act, business, operation, or thing that increases the danger, or risk of
danger, or poses an unreasonable risk of harm to persons or property on or off
the Facilities, or that may affect the value of the Facilities or the Acquired
Companies.
"Hazardous Materials" means any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"Intellectual Property Assets" has the meaning given in Section 5.22(a).
"Interest Holders" has the meaning given in the first paragraph of this
Agreement.
"IRC" has the meaning given in the definition of "Tax Laws" in Article I.
"IRS" has the meaning given in the definition of "Tax Laws" in Article I.
"Jensen" has the meaning given in the first paragraph of this Agreement.
"Joint Beneficial Shareholders" has the meaning given in the Recitals of
this Agreement.
"Kilmer" has the meaning given in the first paragraph of this Agreement.
"Kilmer Acquiror Shares" has the meaning given in Section 2.3.
"Kilmer Shares" has the meaning given in the Recitals of this Agreement.
"Kraatz" has the meaning given in the first paragraph of this Agreement.
"knowledge" has the meaning given in Section 7.6(e).
"Legal Requirement" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Marks" has the meaning given in Section 5.22(a).
"Occupational Safety and Health Law" means any Legal Requirement designed
to provide safe and healthful working conditions and to reduce occupational
safety and health hazards, and any program, whether governmental or private
(including those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
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"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Patents" has the meaning given in Section 5.22(a).
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership (Personengesellschaft), limited
liability company (Kapitalgesellschaft), Aktiengesellschaft, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
"Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Proprietary Rights Agreement" has the meaning given in Section 5.20(b).
"Proxy Statement" has the meaning given in Section 7.11(a).
"Related Person" means (i) with respect to a particular individual: (a)
each other member of such individual's Family; (b) any Person that is directly
or indirectly controlled by such individual or one or more members of such
individual's Family; (c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material Interest;
and (d) any Person with respect to which such individual or one or more members
of such individual's Family serves as a director, managing director, Prokurist,
holder of procuration, commercial mandate holder, officer, partner, executor, or
trustee (or in a similar capacity); and (ii) with respect to a specified Person
other than an individual: (a) any Person that directly or indirectly controls,
is directly or indirectly controlled by, or is directly or indirectly under
common control with such specified Person; (b) any Person that holds a Material
Interest in such specified Person; (c) each Person that serves as a director,
managing director, Prokurist, holder of procuration, commercial mandate holder,
officer, partner, executor, or trustee of such specified Person (or in a similar
capacity); (d) any Person in which such specified Person holds a Material
Interest; (e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and (f) any Related
Person of any individual described in clause (b) or (c). For purposes of this
definition, (a) the "Family" of an individual includes (i) the individual, (ii)
the individual's spouse and former spouses, (iii) any other natural person who
is related to the individual or the individual's spouse within the second
degree, and (iv) any other natural person who resides with such individual, and
(b) "Material Interest" means direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of voting
securities or other voting interests representing at least 5% of the outstanding
voting power of a Person or equity securities or other equity interests
representing at least 5% of the outstanding equity securities or equity
interests in a Person.
"Release" means any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"Report Date" has the meaning given in the Stockholders' Agreement.
"Representative" means, with respect to a particular Person, any director,
managing director, Prokurist, holder of procuration, commercial mandate holder,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SEC" has the meaning given in Section 3.4.
"SEC Documents" has the meaning given in Section 3.4.
"Securities Act" means the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SFR" has the meaning given in Section 5.4(a)(i).
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"Stockholders' Agreement" means the Stockholders' Agreement to be entered
into at the Closing by, among others, Acquiror, the Trustee, the Interest
Holders, Sherby N.V., the Employee Trustee, Martha Lee Reynolds, Barry Dvorchik,
Kraatz and Donhardt, in substantially the form attached hereto as Exhibit B.
"Stockholders Meeting" has the meaning given in Section 7.11(b).
"Sub" has the meaning given in the first paragraph of this Agreement.
"Sub Acquiror Shares" has the meaning given in Section 2.2.
"Sub Shares" has the meaning given in the Recitals of this Agreement.
"Subsidiary" means, with respect to any Person, any corporation or other
Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"Swiss GAAP" means generally accepted accounting principals prevailing in
Switzerland.
"Taxes" means, to the extent applicable to any party hereto, all Swiss
federal, cantonal and communal, German, Netherlands Antilles and U.S. or other
foreign and all state, municipal and local taxes, charges, fees, levies or other
assessments of whatever kind or nature, including without limitation, all net
income, gross income, gross receipts, sales, value added, use, services, ad
valorem, occupation, transfer, franchise, capital stock, profits, license,
withholding, payroll, employment, unemployment, excise, estimated, severance,
stamp, occupancy or property taxes, custom duties, assessments or governmental
fiscal charges of any kind whatever (together with any interest, penalty, or
addition to tax).
"Taxing Authority" means, to the extent applicable to any party hereto, the
Swiss Federal, Cantonal and Communal Tax Administration (Kantonale
Steuerverwaltung), the German tax authorities (Finanzamt Dusseldorf Sued) the
Netherlands Antilles Tax Inspectorate (Inspectie der Belastingen), the United
States Internal Revenue Service (the "IRS") or, in each case, any successor
agency, and, to the extent applicable to any party hereto, any similar foreign,
state, municipal or local Governmental Body.
"Tax Laws" means, to the extent applicable to any party hereto, all Swiss
federal, cantonal and communal tax laws, the German tax laws
(Umsatzsteuergesetz, Mehrwertsteuergesetz und Gewerbesteuergesetz) and
regulations issued by the German tax authorities (Finanzamt Dusseldorf
Sued)pursuant thereto, the Netherlands Antilles Profit Tax Ordinance
(Winstbelasting)and regulations issued by the Netherlands Antilles Tax
Inspectorate (Inspectie der Belastingen) pursuant thereto, the Internal Revenue
Code of 1986, as amended (the "IRC"), and regulations issued by the IRS
thereunder, or, in each case, any successor law or regulations, and, to the
extent applicable to any party hereto, any similar foreign, state, municipal or
local laws and regulations.
"Tax Return" means any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"Threat of Release" means a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"Trade Secrets" has the meaning given in Section 5.22(a).
"Trust Agreement" has the meaning given in the first paragraph of this
Agreement.
"Trustee" has the meaning given in the first paragraph of this Agreement.
"U.S. GAAP" has the meaning given in Section 3.4.
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ARTICLE II
PURCHASE, SALE AND EXCHANGE OF SHARES
2.1. Exchange of the Company Shares. Subject to and upon the terms and
conditions of this Agreement, at the closing of the transactions contemplated by
this Agreement (the "Closing"), (i) the Trustee (at the express direction of the
Joint Beneficial Shareholders) and Jensen shall transfer to Acquiror, and
Acquiror shall acquire from the Trustee and Jensen, all of the Company Shares,
free and clear of any claims, liens, restrictions on transfer or voting or
encumbrances with respect thereto, and (ii) subject to the provisions of Section
4.7 of the Stockholders' Agreement and the restrictions on transfer contemplated
by Section 7.9 of this Agreement, Acquiror shall transfer and deliver to the
Trustee and Jensen in proportion to their respective ownership of Company Shares
and in consideration and exchange for the transfer of the Company Shares to
Acquiror 1,105,690 shares of Common Stock, par value U.S. $.01 per share, of
Acquiror ("Acquiror Common Stock") (such aggregate number of shares of Acquiror
Common Stock to be delivered to the Trustee and Jensen in respect of the Company
Shares being herein referred to as the "Europe Acquiror Shares"), free and clear
of any claims, liens, restrictions on transfer or voting or encumbrances with
respect thereto, other than those required by law and those contained in the
Stockholders' Agreement. At the Closing, Acquiror shall deliver to the Trustee
and Jensen certificates evidencing the Europe Acquiror Shares as specified
herein.
2.2. Sale, Purchase and Assignment of the Sub Shares. Subject to and upon
the terms and conditions of this Agreement, at the Closing, (i) the Employee
Trustee (at the express direction of Kraatz) and Donhardt shall sell, transfer
and assign to Acquiror, and Acquiror shall purchase, acquire and accept such
sale, transfer and assignment from the Employee Trustee (on behalf of Kraatz)
and Donhardt of, all of the Sub Shares owned beneficially by the Employee Group,
free and clear of any claims, liens, restrictions on transfer or voting or
encumbrances with respect thereto, and (ii) subject to the restrictions on
transfer contemplated by Section 7.9 of this Agreement, Acquiror shall transfer
and deliver to the Employee Trustee (on behalf of Kraatz) and Donhardt in
proportion to their respective ownership of Sub Shares and in consideration for
the sale, transfer and assignment of such Sub Shares to Acquiror 52,652 shares
of Acquiror Common Stock (such aggregate number of shares of Acquiror Common
Stock to be delivered to the Employee Trustee (on behalf of Kraatz) and Donhardt
in respect of such Sub Shares being herein referred to as the "Sub Acquiror
Shares"), free and clear of any claims, liens, restrictions on transfer or
voting or encumbrances with respect thereto, other than those required by law.
At the Closing, Acquiror shall deliver to the Employee Trustee (on behalf of
Kraatz) and Donhardt certificates evidencing the Sub Acquiror Shares as
specified herein and this Agreement (or a separate transfer document meeting the
requirements of German law) shall be notarized by a German public notary to
validate the sale and assignment of the Sub Shares by the Employee Trustee (on
behalf of Kraatz) and Donhardt to Acquiror.
2.3. Exchange of the Kilmer Shares. Subject to and upon the terms and
conditions of this Agreement, at the Closing, (i) Barbut and Hackel shall
transfer to Acquiror, and Acquiror shall acquire from Barbut and Hackel, all of
the Kilmer Shares, free and clear of any claims, liens, restrictions on transfer
or voting or encumbrances with respect thereto, and (ii) subject to the
provisions of Section 4.7 of the Stockholders' Agreement and the restrictions on
transfer contemplated by Section 7.9 of this Agreement, Acquiror shall transfer
and deliver to Barbut and Hackel in proportion to their respective ownership of
Kilmer Shares and in consideration and exchange for the transfer of the Kilmer
Shares to Acquiror 2 shares of Acquiror Common Stock (such aggregate number of
shares of Acquiror Common Stock to be delivered to Barbut and Hackel in respect
of the Kilmer Shares being herein referred to as the "Kilmer Acquiror Shares"),
free and clear of any claims, liens, restrictions on transfer or voting or
encumbrances with respect thereto, other than those required by law and those
contained in the Stockholders' Agreement. At the Closing, Acquiror shall deliver
to Barbut and Hackel certificates evidencing the Kilmer Acquiror Shares as
specified herein.
2.4. Closing. The Closing shall take place at the New York offices of
Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York 10022, at
10:00 a.m., local time, on such date within five Business Days following the
date on which the last of the conditions (excluding conditions that by their
terms cannot be satisfied until the Closing Date) set forth in Article VIII is
satisfied or waived in accordance herewith or at
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such other place, time or date as the parties may agree upon in writing. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants, in the form of an independent promise of
guarantee (selbstaendiges Garantieversprechen) in the case of Sub, to the
Company, Sub, Kilmer, the Trustee and the Interest Holders as follows:
3.1. Authorization, Validity and Effect. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Acquiror has the requisite corporate power and authority to execute
and deliver this Agreement and all agreements and documents contemplated hereby
to be executed and delivered by it, and subject to receipt of necessary
shareholder approval with respect to this Agreement and the other agreements
with the BioClin Affiliates with respect to the acquisition of all of the equity
interests of the BioClin Affiliates, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and such other agreements
and documents, and the consummation of the transactions contemplated herein and
therein, have been duly and validly authorized by all necessary corporate action
in respect thereof on the part of Acquiror, subject, with respect to this
Agreement, to the approval of the stockholders of Acquiror. This Agreement has
been duly and validly executed and delivered by Acquiror and, once approved by
the stockholders of Acquiror, represents the legal, valid and binding obligation
of Acquiror, enforceable against Acquiror in accordance with its terms.
3.2. Acquiror Shares. Assuming that all required stockholder action has
been taken and all conditions set forth in Article VIII have been satisfied or
waived, the Acquiror Shares to be issued hereunder have been duly authorized
and, when issued in accordance with this Agreement, will be validly issued,
fully paid and nonassessable.
3.3. Conflicts; Defaults. Neither the execution and delivery of this
Agreement by Acquiror, nor the performance of its obligations hereunder, will
conflict with or constitute a default under any of the terms or provisions of
Acquiror's Second Restated Certificate of Incorporation or Second Amended and
Restated By-Laws or any material agreement or other material instrument to which
Acquiror is a party or by which it or its properties are bound or subject.
3.4. Exchange Act Filings. Since December 10, 1991, Acquiror has filed all
documents (the "SEC Documents") required to be filed by it with the Securities
and Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of
1934 (the "Exchange Act"). As of their respective filing dates (and as amended
through the date hereof), the SEC Documents complied in all material respects
with the requirements of the Exchange Act and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances in which they were made, not
misleading except to the extent corrected by a subsequently filed SEC Document.
The financial statements of Acquiror included in the SEC Documents complied as
to form in all material respects with then applicable accounting requirements
and with the published rules and regulations of the SEC with respect thereto,
were prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP") applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto, or in the case of
unaudited statements, as permitted by Form 10-Q and Regulation S-X of the SEC)
and fairly present the consolidated financial position of Acquiror and its
consolidated subsidiaries as at the dates thereof and the consolidated results
of operations and changes in financial position for the periods then ended
(subject, in the case of unaudited statements, to normal, recurring audit
adjustments).
3.5. Absence of Material Adverse Changes. Except as set forth in Part 3.5
of the Acquiror Letter or in any SEC Document, since March 31, 1996, there has
not been any material adverse change in the business, operations, properties,
prospects, assets or condition of Acquiror that would be required to be
disclosed by Acquiror in a report required to be filed with the SEC pursuant to
the Exchange Act, and no event has
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occurred or circumstance exists that may result in such a material adverse
change that would be required to be disclosed by Acquiror in any such report.
3.6. Taxes. (a) Except as set forth in Part 3.6 of the Acquiror Letter,
(i) all Tax Returns with respect to Taxes that were required to be filed by or
on behalf of Acquiror at and prior to the date of this Agreement have been duly
filed on a timely basis (giving effect to any extensions granted to Acquiror)
and are true, correct and complete in all material respects, (ii) all Taxes due
with respect to periods covered by the Tax Returns referred to in clause (i)
have been paid in full or Acquiror has adequately reserved or made adequate
accruals (in accordance with U.S. GAAP) with respect to any such Taxes which are
due and payable by Acquiror and Acquiror has not had and will not have any
liability for Taxes materially in excess of the amounts so paid or so reserved
or accrued, and (iii) Acquiror is not a party to or the subject of any action,
investigation or proceeding, exclusive of normal recurring audits, nor, to the
knowledge of Acquiror, is any such action, investigation or proceeding
threatened, by any Governmental Authority for the assessment or collection of
any Taxes and no deficiency notices or reports have been received by Acquiror
with respect to any deficiency of Acquiror for any Taxes.
(b) The statute of limitations for the assessment of U.S. federal income
taxes and all state income taxes of Acquiror has expired for each period through
December 31, 1990.
3.7. Legal Proceedings; Orders. (a) Except as set forth in Part 3.7 of the
Acquiror Letter or in any SEC Document, since March 31, 1996, no Proceeding has
been instituted or threatened by or against Acquiror or that otherwise relates
to or may materially affect the business of, or any of the assets owned or used
by, Acquiror that would be required to be disclosed by Acquiror in a report
required to be filed with the SEC pursuant to the Exchange Act.
(b) Except as set forth in Part 3.7 of the Acquiror Letter or in any SEC
Document, since March 31, 1996, no Order has arisen or been threatened to which
Acquiror or any of the assets owned or used by Acquiror is subject that would be
required to be disclosed by Acquiror in a report required to be filed with the
SEC pursuant to the Exchange Act.
3.8. Absence Of Certain Changes and Events. Except as set forth in Part
3.8 of the Acquiror Letter or in any SEC Document, since March 31, 1996,
Acquiror has conducted its business only in the ordinary course of business and
there has not occurred any:
(a) change in Acquiror's authorized or issued capital stock; grant of
any stock option or right to purchase shares of capital stock of Acquiror
(other than as contemplated by this Agreement); issuance of any security
convertible into such capital stock; grant of any registration rights;
purchase, redemption, retirement, or other acquisition by Acquiror of any
shares of any such capital stock; or declaration or payment of any dividend
or other distribution or payment in respect of shares of capital stock;
(b) amendment to the Second Restated Certificate of Incorporation of
Acquiror;
(c) payment or increase by Acquiror of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the
ordinary course of business consistent with past practice) employee or
entry into any employment, severance, or similar Contract with any
director, officer, or employee;
(d) adoption of, or increase (except in the ordinary course of
business consistent with past practice) in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or with
any employees of Acquiror;
(e) damage to or destruction or loss of any asset or property of
Acquiror, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or
prospects of Acquiror, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of
(i) any material Contract or any material license, distributorship, dealer,
sales representative, joint venture, credit, or similar agreement, or (ii)
transaction involving a total remaining commitment by or to Acquiror of at
least U.S. $500,000;
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(g) sale (other than sales of inventory in the ordinary course of
business), lease, or other disposition of any material asset or property of
Acquiror;
(h) cancellation or waiver of any claims or rights with a value to
Acquiror in excess of U.S. $500,000;
(i) material change in the accounting methods used by Acquiror, except
for any change required as a result of a change in U.S. GAAP;
(j) incurrence or payment of any indebtedness for borrowed money other
than pursuant to Acquiror's financing arrangements in existence on March
31, 1996;
(k) acquisition of any assets or properties or any commitment to do so
other than in the ordinary course of business; or
(l) agreement, whether oral or written, by Acquiror to do any of the
foregoing.
3.9. Contracts; No Defaults. (a) Except as set forth in Part 3.9(a) of the
Acquiror Letter, the SEC Documents contain as exhibits all of the material
Contracts, other than those entered into by Acquiror subsequent to March 31,
1996, to which Acquiror is a party or by which it or its properties or assets
are bound or subject.
(b) Part 3.9(b) of the Acquiror Letter sets forth a summary schedule of
certain of such Contracts produced by Acquiror in the ordinary course of its
business which sets forth, among other things, the parties to such Contracts and
the amount of the remaining commitment of Acquiror under such Contracts.
3.10. Insurance. Except as set forth in Part 3.10 of the Acquiror Letter:
(i) All insurance policies to which Acquiror is a party or that
provide coverage to any of Acquiror or any director or officer of Acquiror:
(A) to Acquiror's knowledge, are valid, outstanding, and enforceable; (B)
are issued by an insurer that is financially sound and reputable; (C) taken
together, provide adequate insurance coverage for the assets and the
operations of Acquiror for all risks to which Acquiror is normally exposed;
(D) are sufficient for compliance in all material respects with all Legal
Requirements that are or were applicable to Acquiror or to the conduct or
operation of its business or the ownership or use of any of its properties
or assets and all Contracts to which Acquiror is a party or by which it is
bound; (E) will continue in full force and effect following the
consummation of the transactions contemplated hereby; and (F) do not
provide for any retrospective premium adjustment or other experienced-based
liability on the part of Acquiror.
(ii) Acquiror has not received (A) any refusal of coverage or any
notice that a defense will be afforded with reservation of rights, or (B)
any notice of cancellation or any other indication that any insurance
policy is no longer in full force or effect or will not be renewed or that
the issuer of any insurance policy is not willing or able to perform its
obligations thereunder.
(iii) Acquiror has paid all premiums due, and has otherwise performed
in all material respects all of its obligations, under each insurance
policy to which Acquiror is a party or that provides coverage to Acquiror
or any director or officer thereof.
(iv) Acquiror has given notice to the insurer of all claims that may
be insured thereby.
3.11. Environmental Matters. Except as set forth in Part 3.11 of the
Acquiror Letter or in any SEC Document, since March 31, 1996, Acquiror has not
been in material violation of or liable under, any Environmental Law to an
extent that would be required to be disclosed by Acquiror in a report required
to be filed with the SEC pursuant to the Exchange Act.
3.12. Labor Relations; Compliance. Part 3.12 of the Acquiror Letter sets
forth each collective bargaining or other labor contract to which Acquiror is a
party or otherwise subject. Since December 10, 1991, there has not been, there
is not presently pending or existing, and there is not threatened, (a) any
strike, slowdown, picketing, work stoppage, or employee grievance process, (b)
any Proceeding against or affecting Acquiror relating to the alleged material
violation of any Legal Requirement applicable to Acquiror pertaining
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to labor relations or employment matters, including any charge or complaint
filed by an employee or union with any Governmental Body, organizational
activity, or other labor or employment dispute against or affecting Acquiror or
its premises, or (c) any application for certification of a collective
bargaining agent. No event has occurred or circumstance exists that could
provide the basis for any work stoppage or other labor dispute. There is no
lockout of any employees by Acquiror, and no such action is contemplated by
Acquiror. Acquiror has complied in all material respects with all Legal
Requirements applicable to Acquiror relating to employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar taxes, occupational
safety and health, and plant closing. Acquiror is not liable for the payment of
any compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to materially comply with any of the foregoing Legal
Requirements.
3.13. Intellectual Property. Except as set forth in Part 3.13 of the
Acquiror Letter, all intellectual property necessary for the conduct of
Acquiror's business as currently conducted has been disclosed in the SEC
Documents.
3.14. Disclosure. No notice given by Acquiror pursuant to Section 7.6 will
contain any untrue statement or omit to state a material fact necessary to make
the statements therein or in this Agreement, in light of the circumstances in
which they were made, not misleading.
3.15. Brokers and Finders. Except with respect to arrangements with Vector
Securities International, Inc., neither Acquiror nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
finder's fees, and no broker or finder has acted directly or indirectly for
Acquiror in connection with this Agreement or the transactions contemplated
hereby.
ARTICLE IV
REPRESENTATIONS OF THE TRUSTEE AND THE EMPLOYEE
TRUSTEE REGARDING THE TRUSTEE AND THE COMPANY SHARES
AND THE EMPLOYEE TRUSTEE AND THE SUB SHARES
The Trustee represents and warrants to Acquiror, in the form of an
independent promise of guarantee (selbstaendiges Garantieversprechen), as
follows:
4.1. Authorization, Validity and Effect. The Trustee, at the explicit
direction of the Joint Beneficial Shareholders, has all requisite power and
authority to carry out his obligations arising in connection with the
transactions contemplated by this Agreement. This Agreement and all other
agreements and documents to be executed and delivered by the Trustee in
connection with this Agreement constitute in all respects the valid and binding
obligation of the Trustee, enforceable against the Trustee in accordance with
their respective terms. The execution, delivery and performance of this
Agreement by the Trustee on behalf of the Joint Beneficial Shareholders are
within the Trustee's powers and have been duly authorized by all necessary
action on the part of the Trustee or the Joint Beneficial Shareholders, as
applicable.
4.2. Consents and Approvals; No Violation. The execution, delivery and
performance of this Agreement by the Trustee and the consummation of the
transactions contemplated hereby do not and will not (i) require the advance
consent or approval of, or filing with, any person or public authority (other
than the express direction of the Joint Beneficial Shareholders) or (ii)
constitute or result in the breach of any provision of, or constitute a default
under, the Trust Agreement or any material agreement or other material
instrument to which the Trustee is a party or by which he (or the Company
Shares) is bound or subject.
4.3. Title and Power to Sell. The Trustee is the legal owner of the
Company Shares owned beneficially by the Joint Beneficial Shareholders, which,
together with the Company Shares owned by Jensen, constitute all of the equity
interests of the Company. Good, valid and marketable title to such equity
interests is held by the Trustee free and clear of any claims, liens,
restrictions on transfer or voting or encumbrances. The Company Shares owned by
the Trustee are validly issued, fully paid and non-assessable. The Trustee has
full power and authority, at the express direction of the Joint Beneficial
Shareholders, to transfer to Acquiror at
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the Closing the Company Shares owned beneficially by the Joint Beneficial
Shareholders, and upon consummation of the transactions contemplated by this
Agreement, Acquiror will have acquired good, valid and marketable title to the
Company Shares owned beneficially by the Joint Beneficial Shareholders, free and
clear of any claims, liens, restrictions on transfer or voting or encumbrances.
4.4. Litigation. As of the date of this Agreement, there is no action,
suit or proceeding pending against, or to the knowledge of the Trustee,
threatened against or affecting, the Trustee or the Company Shares owned by the
Trustee before any court or arbitrator or any Governmental Body or official
which in any manner challenges or seeks to prevent, enjoin, alter or materially
delay any of the transactions contemplated by this Agreement.
The Employee Trustee represents and warrants to Acquiror, in the form of an
independent promise of guarantee (selbstaendiges Garantieversprechen), as
follows:
4.5. Authorization, Validity and Effect. The Employee Trustee, at the
explicit direction of Kraatz, has all requisite power and authority to carry out
his obligations arising in connection with the transactions contemplated by this
Agreement. This Agreement and all other agreements and documents to be executed
and delivered by the Employee Trustee in connection with this Agreement
constitute in all respects the valid and binding obligation of the Employee
Trustee, enforceable against the Employee Trustee in accordance with their
respective terms. The execution, delivery and performance of this Agreement by
the Employee Trustee on behalf of Kraatz are within the Employee Trustee's
powers and have been duly authorized by all necessary action on the part of the
Employee Trustee or Kraatz, as applicable.
4.6. Consents and Approvals; No Violation. The execution, delivery and
performance of this Agreement by the Employee Trustee and the consummation of
the transactions contemplated hereby do not and will not (i) require the advance
consent or approval of, or filing with, any person or public authority (other
than a public notary and the express direction of Kraatz) or (ii) constitute or
result in the breach of any provision of, or constitute a default under, the
Employee Trust Agreement or any material agreement or other material instrument
to which the Employee Trustee is a party or by which he (or the Sub Shares owned
by the Employee Trustee) is bound or subject.
4.7. Title and Power to Sell. The Employee Trustee is the legal owner of
the Sub Shares owned beneficially by Kraatz, which, together with the Sub Shares
owned by Donhardt and the Sub Shares owned by the Company (through a
wholly-owned subsidiary), constitute all of the equity interests of the Company.
Good, valid and marketable title to such equity interests is held by the
Employee Trustee free and clear of any claims, liens, restrictions on transfer
or voting or encumbrances. The Sub Shares owned by the Employee Trustee are
fully paid up, not repaid and non-assessable (keine Nachschusspflict). The
Employee Trustee has full power and authority, at the express direction of
Kraatz, to sell, transfer and assign to Acquiror at the Closing the Sub Shares
owned beneficially by Kraatz, and upon consummation of the transactions
contemplated by this Agreement, Acquiror will have acquired good, valid and
marketable title to the Sub Shares owned beneficially by Kraatz, free and clear
of any claims, liens, restrictions on transfer or voting or encumbrances.
4.8. Litigation. As of the date of this Agreement, there is no action,
suit or proceeding pending against, or to the knowledge of the Employee Trustee,
threatened against or affecting, the Employee Trustee or the Sub Shares owned by
the Employee Trustee before any court or arbitrator or any Governmental Body or
official which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE
ACQUIRED ENTITIES AND THE INTEREST HOLDERS
WITH RESPECT TO THE ACQUIRED ENTITIES
Each of the Acquired Entities and the Interest Holders hereby jointly and
severally represent and warrant, in the form of an independent promise of
guarantee (selbstaendiges Garantieversprechen) in the case of Sub, to Acquiror
that:
5.1. Organization, Authority and Authorization. (a) (i) The Company is a
corporation duly organized, validly existing and in good standing under the
Canton of Zug, and federal laws of Switzerland. The Company has the requisite
corporate power and authority to execute and deliver this Agreement and all
agreements and documents contemplated hereby to be executed and delivered by it
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and such other agreements and documents, and the
consummation of the transactions contemplated herein and therein, have been duly
and validly authorized by all necessary corporate action in respect thereof on
the part of the Company. This Agreement has been duly and validly executed and
delivered by the Company and represents the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms.
(ii) The extract from the Commercial Registry of the Canton of Zug with
respect to the Company, attached hereto as Exhibit C, is true, correct and
complete.
(b) Sub is a Gellschaft mit beschraenkter Haftung (GmbH) duly organized and
validly existing under the laws of the State of Baden-Wuertenberg, Germany. Sub
has the requisite corporate power and authority to execute and deliver this
Agreement and all agreements and documents contemplated hereby to be executed
and delivered by it and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and such other agreements and
documents, and the consummation of the transactions contemplated herein and
therein, have been duly and validly authorized by all necessary corporate action
in respect thereof on the part of Sub. This Agreement has been duly and validly
executed and delivered by Sub and represents the legal, valid and binding
obligation of Sub, enforceable against Sub in accordance with its terms.
(c) Kilmer is a corporation duly organized, validly existing and in good
standing under the laws of the Netherlands Antilles. Kilmer has the requisite
corporate power and authority to execute and deliver this Agreement and all
agreements and documents contemplated hereby to be executed and delivered by it
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and such other agreements and documents, and the
consummation of the transactions contemplated herein and therein, have been duly
and validly authorized by all necessary corporate action in respect thereof on
the part of Kilmer. This Agreement has been duly and validly executed and
delivered by Kilmer and represents the legal, valid and binding obligation of
Kilmer, enforceable against Kilmer in accordance with its terms.
(d) Each Acquired Entity has the full corporate power and authority to own
its properties and assets, to carry on its business as it is now being conducted
and to perform all its obligations under Applicable Contracts and this
Agreement. No Acquired Entity is required to qualify to do business in any
jurisdiction where not already so qualified except where a failure to so qualify
would not, individually or in the aggregate, have a material adverse effect on
the financial condition, business or results of operations of the Acquired
Entities taken as a whole. Each Acquired Entity has all Governmental
Authorizations required in order to own or lease its properties and assets and
to carry on its business as now being conducted in all respects material to the
financial condition, business or results of operations of the Acquired Entities
taken as a whole. The Interest Holders have delivered to Acquiror copies of the
organizational and organic documents of each of the Acquired Entities, as
currently in effect.
5.2. Consents and Approvals; No Violation. The execution, delivery and
performance of this Agreement by each of the Acquired Entities and each of the
Interest Holders and the consummation of the transactions contemplated hereby do
not and will not (i) require the advance consent or approval of, or filing with,
any person or public authority (other than a public notary with respect to Sub)
or (ii) constitute or
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result in the breach of any provision of, or constitute a default under, the
organizational or organic documents of any Acquired Entity, the Trust Agreement
or any material agreement or other material instrument to which any Acquired
Entity or any Interest Holder is a party or by which such Person (or the Company
Shares, the Sub Shares or the Kilmer Shares) is bound or subject; provided,
however, that Acquiror must register as the shareholder of Sub before its
acquisition of the Sub Shares will become fully effective under German law.
5.3. Title and Power to Sell. (a) The Trustee (for the benefit of the
Joint Beneficial Shareholders) and Jensen are the legal owners of the Company
Shares, which constitute all of the equity interests of the Company. Good, valid
and marketable title to such equity interests is held by the Trustee and Jensen
free and clear of any claims, liens, restrictions on transfer or voting or
encumbrances. The Company Shares are validly issued, fully paid and
non-assessable. The Trustee (at the express direction of the Joint Beneficial
Shareholders) and Jensen have full power and authority to transfer to Acquiror
at the Closing the Company Shares, and upon consummation of the transactions
contemplated by this Agreement, Acquiror will have acquired good, valid and
marketable title to the Company Shares, free and clear of any claims, liens,
restrictions on transfer or voting or encumbrances.
(b) The Company (through its wholly owned Subsidiary, BioClin AG), the
Employee Trustee (for the benefit of Kraatz) and Donhardt are the legal owners
of the Sub Shares, which constitute all of the equity interests of Sub. Good,
valid and marketable title to such equity interests is held by the Company
(through its wholly owned Subsidiary, BioClin AG), the Employee Trustee (for the
benefit of Kraatz) and Donhardt free and clear of any claims, liens,
restrictions on transfer or voting or encumbrances. The Sub Shares are fully
paid up, not repaid and non-assessable (keine Nachschusspflicht). The Employee
Trustee (for the benefit of Kraatz) and Donhardt have full power and authority
to sell, transfer and assign to Acquiror at the Closing the Sub Shares
beneficially owned by the Employee Group, and upon consummation of the
transactions contemplated by this Agreement, Acquiror will have acquired good,
valid and marketable title to the Sub Shares beneficially owned by the Employee
Group, free and clear of any claims, liens, restrictions on transfer or voting
or encumbrances.
(c) Barbut and Hackel are the legal owners of the Kilmer Shares, which
constitute all of the equity interests of Kilmer. Good, valid and marketable
title to such equity interests is held by Barbut and Hackel free and clear of
any claims, liens, restrictions on transfer or voting or encumbrances. The
Kilmer Shares are validly issued, fully paid and non-assessable. Barbut and
Hackel have full power and authority to transfer to Acquiror at the Closing the
Kilmer Shares, and upon consummation of the transactions contemplated by this
Agreement, Acquiror will have acquired good, valid and marketable title to the
Kilmer Shares, free and clear of any claims, liens, restrictions on transfer or
voting or encumbrances.
5.4. Capitalization. (a) (i) The Company has a stated capital of 50,000
Swiss Francs ("SFR") which is divided into 100 bearer shares of 500 SFR each,
fully paid up, of which the Trustee (for the benefit of the Joint Beneficial
Shareholders) contributed 25,050 SFR and Jensen contributed 24,950 SFR. There
are no other equity interests in the Company and no outstanding options,
warrants, scrip, participation capital, rights to subscribe to, calls,
commitments or agreements of any character whatsoever relating to, or securities
or rights convertible into or exchangeable for, equity interests of the Company.
The Company does not hold any treasury shares. Except for the Trust Agreement,
there are no voting trusts or other agreements or understandings with respect to
the voting of the equity interests of the Company.
(ii) The Company does not hold, directly or indirectly, nor is it a member
nor does it have any Contract to acquire, any share, equity or other interest in
any corporation (other than BioClin AG, a Swiss corporation, Sub, Pulpwood
Investments N.V., a Netherlands Antilles corporation, Merlik B.V., a Dutch
corporation, and Merlik CV, a Dutch corporation) or limited liability company,
partnership, limited partnership or other entity including single partnerships,
cooperatives and joint ventures.
(iii) As of the date hereof, the Subsidiaries of the Company (the "Company
Subsidiaries") consist only of BioClin AG, Sub, Pulpwood Investments N.V.,
Merlik Holding B.V. and Merlik C.V. All outstanding capital stock or equity
interests in each of the Company Subsidiaries (other than Sub and Merlik C.V.)
are held by the Company or a direct or indirect wholly-owned Company Subsidiary,
free and clear of any claims, liens, restrictions on transfer or voting or
encumbrances.
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(iv) As of the date hereof, there are (A) outstanding no options, warrants
or other rights to acquire, or obligations of the Company or any Company
Subsidiary to issue, shares of capital stock or other equity interests in, or
securities convertible into or exchangeable for capital stock of or equity
interests in any Company Subsidiary and (B) no agreements restricting the
transfer of, or affecting the rights of the Company in, the capital stock or
equity interests in any of the Company Subsidiaries.
(b) (i) Sub has a stated capital of 100,000 Deutschmarks ("DM") which is
fully paid up, of which the Trustee (for the benefit of Kraatz) contributed
25,000 DM, Ms. Donhardt contributed 24,900 DM and BioClin AG, a wholly-owned
Subsidiary of the Company, contributed 50,000 DM. There are no other equity
interests in Sub and no outstanding options, warrants, scrip, rights to
subscribe to, calls, commitments or agreements of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
equity interests of Sub. Sub does not hold any treasury shares (eigne
Geschaeftsanteile). There are no loans or economically corresponding
transactions, the repayment of which would constitute a violation of Section 32
a and 32 b of the German law of limited liability companies ("GmbHG"). Except
for the trust agreement with respect to the Sub Shares beneficially owned by Ms.
Dune-Kraatz, there are no voting trusts or other agreements or understandings to
which Sub is a party with respect to the voting of the equity interests of Sub.
(ii) Sub does not hold, directly or indirectly, nor is it a member nor does
it have any Contract to acquire, any share, equity or other interest in any
corporation or limited liability company (Kapitalgesellschaft), partnership
(Personengesellschaft), or other entity including silent partnerships,
cooperatives and joint ventures.
(iii) There are no enterprise contracts (Unternehmensvertraege) as defined
in Sections 291 and 292 of the German Stock Corporation Act (Aktiengesetz) to
which Sub is or has been a party.
(c) (i) Kilmer has a stated capital of $6,000 which is fully paid up, of
which Barbut contributed $3,000 and Hackel contributed $3,000. There are no
other equity interests in Kilmer and no outstanding options, warrants, scrip,
rights to subscribe to, calls, commitments or agreements of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, equity interests of Kilmer. Kilmer does not hold any treasury shares. There
are no voting trusts or other agreements or understandings to which Kilmer is a
party with respect to the voting of the equity interests of Kilmer.
(ii) Kilmer does not hold, directly or indirectly, nor is it a member nor
does it have any Contract to acquire, any share, equity or other interest in any
corporation (other than Merlik C.V.) or limited liability company, partnership
or other entity including silent partnerships, cooperatives and joint ventures.
5.5. Company Financial Statements. The Acquired Entities and the Interest
Holders have delivered to Acquiror as Part 5.5 of the Disclosure Letter: (i) an
unaudited combined consolidated balance sheet of the Company and the BioClin
Affiliates as at December 31, 1994, and the related unaudited combined
consolidated statement of income for the fiscal year then ended as well as the
fiscal year ended December 31, 1993, and (ii) an unaudited combined consolidated
balance sheet of the Company and the BioClin Affiliates as at December 31, 1995
(the "Balance Sheet") and the related unaudited combined consolidated statement
of income for the fiscal year then ended. The financial statements with respect
to fiscal 1995 have been prepared in accordance with U.S. GAAP (which except
where noted therein, have been consistently applied), and fairly present the
financial condition and results of operations, changes in stockholders' equity
and cash flow of the Company as at the respective dates and for the periods
referred to in such financial statements. The financial statements with respect
to fiscal 1993 and 1994 have been prepared in accordance with Swiss GAAP and
have been reconciled to U.S. GAAP.
5.6. Books and Records. Except as set forth in Part 5.6 of the Disclosure
Letter, the books of account and other records of the Acquired Entities,
including records of all meetings held by, and the corporate action taken by,
the shareholders of the Acquired Entities and the directors, managing directors,
"Prokurists," holders of procuration and commercial mandate holders of the
Acquired Entities, all of which have been made available to Acquiror, are
complete and correct and have been maintained in accordance with sound business
practices and in compliance in all material respects with all applicable Legal
Requirements and accounting
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requirements. At the Closing, all of the foregoing books and records will be in
the possession of the Acquired Entities.
5.7. Reports. Except as set forth in Part 5.7 of the Disclosure Letter,
since June 26, 1987 with respect to the Company, February 9, 1990 with respect
to Sub and October 12, 1989 with respect to Kilmer, each Acquired Entity has
filed all reports, registrations and statements, together with any amendments
required to be made with respect thereto, that were required to be filed with
respect to such Acquired Entity with any Governmental Body with jurisdiction
over such Acquired Entity or its employees, assets or properties (all such
reports and statements are collectively referred to herein as the "Company
Reports"). As of their respective dates, the Company Reports complied in all
material respects with the statutes, rules, regulations and orders enforced or
promulgated by the regulatory authority with which they were filed.
5.8. Absence of Material Adverse Changes. Except as set forth in Part 5.8
of the Disclosure Letter, since December 31, 1995, there has not been any
material adverse change in the business, operations, properties, prospects,
assets or condition of any Acquired Entity, and no event has occurred or
circumstance exists that may result in such a material adverse change.
5.9. Title to Properties; Encumbrances. The Acquired Entities do not own
any real property. Part 5.9 of the Disclosure Letter contains a complete and
accurate list of all leaseholds or other interests in real property held or
possessed by the Acquired Entities and a summary of the material provisions of
any lease or other Applicable Contract relating to such leasehold or other
interest, including the identity of the other party thereto, a description of
the interest held, the location of the real property, the duration thereof,
payment terms and any rights of termination. The Acquired Entities and the
Interest Holders have made available to Acquiror copies of all leases and other
instruments (as recorded) by which the Acquired Entities acquired such real
property interests, and copies of any title insurance policies, opinions,
abstracts and surveys in the possession of the Interest Holders or the Acquired
Entities and relating to such interests. Each of the Acquired Entities owns all
of the properties and assets (whether real, personal or mixed and whether
tangible or intangible) that it purports to own, including all of the properties
and assets reflected in the Balance Sheet (except for assets held under
capitalized leases disclosed or not required to be disclosed on Part 5.9 of the
Disclosure Letter, licenses for intangible personal property (including software
licenses) and personal property sold since the date of the Balance Sheet, in the
ordinary course of business), and all of the properties and assets purchased or
otherwise acquired by such Acquired Entity since the date of the Balance Sheet.
Except as set forth in Part 5.9 of the Disclosure Letter, all material
properties and assets reflected in the Balance Sheet are free and clear of all
Encumbrances and are not, in the case of real property interests, subject to any
rights of way, building use restrictions, exceptions, variances, reservations or
limitations of any nature except, with respect to all such properties and assets
(i) security interests shown on the Balance Sheet as securing specified
liabilities or obligations, with respect to which no default (or event that,
with notice or lapse of time or both, would constitute a default) exists, (ii)
security interests incurred in connection with the purchase of property or
assets after the date of the Balance Sheet (such security interests being
limited to the property or assets so acquired), with respect to which no default
(or event that, with notice or lapse of time or both, would constitute a
default) exists, and (iii) liens for current taxes not yet due. To the knowledge
of the Acquired Entities, all buildings and structures occupied by the Acquired
Entities lie wholly within the boundaries of the real property leased by the
Acquired Entities and do not encroach upon the property of, or otherwise
conflict with the property rights of, any other Person.
5.10. Condition and Sufficiency of Assets. Except as set forth in Part
5.10 of the Disclosure Letter, the buildings and structures conform to
applicable code requirements and commercial standards for the localities where
the premises are located, and the equipment and other tangible personal property
of the Acquired Entities are in good operating condition and repair, and are
adequate for the uses to which they are being put, and none of such buildings,
structures, equipment and other tangible personal property is in need of
maintenance or repair, except ordinary, routine maintenance and repairs that are
not material in nature or cost. The buildings, structures, equipment and other
tangible personal property of each Acquired Entity are sufficient for the
continued conduct of such Acquired Entity's business after the Closing in
substantially the same manner as conducted prior to the Closing.
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5.11. Accounts Receivable. All accounts receivable of the Acquired
Entities that are reflected on the Balance Sheet (collectively, the "Accounts
Receivable") represent valid obligations arising from sales actually made or
services actually performed in the ordinary course of business. Except as set
forth in Part 5.11 of the Disclosure Letter, unless paid prior to the Closing
Date, the Accounts Receivable are or will be as of the Closing Date current and
collectible net of the reserves, if any, shown on the Balance Sheet or on the
accounting records of the Company on the Closing Date (which, in the case of the
reserve as of the Closing Date, is adequate and will not represent a material
adverse change in the composition of such Accounts Receivable in terms of aging
since the date of the Balance Sheet). To the knowledge of the Acquired Entities
and the Interest Holders, no event has occurred nor circumstances exist which
make it improbable that any of the Acquired Entities will be able to collect the
Accounts Receivable outstanding as of the date of this Agreement or as of the
Closing Date consistent with its prior collection experience.
5.12. No Undisclosed Liabilities. Except as set forth in Part 5.12 of the
Disclosure Letter, the Acquired Entities have no material liabilities or
obligations of any nature (whether known or unknown and whether absolute,
accrued, contingent or otherwise) except for liabilities or obligations
reflected or reserved against in the Balance Sheet and current liabilities
incurred in the ordinary course of business since the date thereof.
5.13. Taxes. (a) Except as set forth in Part 5.13 of the Disclosure
Letter, (i) all Tax Returns with respect to Taxes that were required to be filed
by or on behalf of each Acquired Entity at or prior to the date of this
Agreement have been duly filed on a timely basis (giving effect to any
extensions granted to such Acquired Entity) and are true, correct and complete
in all material respects, (ii) all Taxes due with respect to periods covered by
the Tax Returns referred to in clause (i) have been paid in full or each of the
Acquired Entities has adequately reserved or made adequate accruals (which are
reflected on the Balance Sheet) with respect to any such Taxes which are due and
payable by such Acquired Entity, and the Acquired Entities have not had and will
not have any liability for Taxes materially in excess of the amounts so paid,
reserved or accrued, and (iii) no Acquired Entity is a party to or the subject
of any action, investigation or proceeding, exclusive of normal recurring
audits, nor to the knowledge of the Acquired Entities and the Interest Holders,
is any such action, investigation or proceeding threatened, by any Governmental
Authority for the assessment or collection of any Taxes, and no deficiency
notices or reports have been received by any Acquired Entity or any of the
Interest Holders with respect to any deficiency of the Acquired Entities for any
Taxes.
(b) The statute of limitations for the assessment of (i) Swiss income and
other Taxes of the Company has expired for each period through December 31,
1991, (ii) German income and other Taxes of Sub has expired for each period
through December 31, 1991, and (iii) Netherland Antilles income and other Taxes
of Kilmer has expired for each period through December 31, 1991.
(c) No Tax is required to be withheld as a result of the transactions
contemplated by this Agreement.
(d) As a result of compliance with this Agreement and the matters referred
to herein, none of the Acquired Entities nor the Interest Holders will be
obligated to make any payment to any individual that would be a "parachute
payment" to a "disqualified individual" as those terms are defined in Section
280G of the IRC without regard to whether such payment is to be made in the
future.
5.14. Compliance with Legal Requirements; Governmental Authorizations. (a)
Except as set forth in Part 5.14(a) of the Disclosure Letter: (i) each Acquired
Entity is, and has been, in compliance in all material respects with each Legal
Requirement that is or was applicable to it or to the conduct or operation of
its business or the ownership or use of any of its properties or assets; (ii) no
event has occurred or circumstance exists that (with or without notice or lapse
of time) (A) may constitute or result in a material violation by any Acquired
Entity of, or a failure on the part of any Acquired Entity to comply in all
material respects with, any Legal Requirement that is or was applicable to it or
to the conduct or operation of its business or the ownership or use of any of
its properties or assets, or (B) may give rise to any material obligation on the
part of any Acquired Entity to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature; and (iii) no Acquired Entity has
received any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of, or failure to comply with, any Legal
Requirement that is or was applicable to it or to the conduct or operation of
its business or the ownership or use of any of its properties or assets, or (B)
any actual,
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alleged, possible, or potential obligation on the part of such Acquired Entity
to undertake, or to bear all or any portion of the cost of, any remedial action
of any nature.
(b) Except as set forth in Part 5.14 (b) of the Disclosure Letter: (i) each
Acquired Entity is, and has been, in full compliance with all of the terms and
requirements of each Governmental Authorization owned, possessed or otherwise
applicable to such Acquired Entity, the conduct of its business or any assets
owned or used by it; (ii) no event has occurred or circumstance exists that may
(with or without notice or lapse of time) (A) constitute or result directly or
indirectly in a violation of or a failure to comply with any term or requirement
of any Governmental Authorization owned, possessed or otherwise applicable to
any Acquired Entity, the conduct of its business or any assets owned or used by
it, or (B) result directly or indirectly in the revocation, withdrawal,
suspension, cancellation, or termination of, or any modification to, any such
Governmental Authorization; (iii) no Acquired Entity has received any notice or
other communication (whether oral or written) from any Governmental Body or any
other Person regarding (A) any actual, alleged, possible, or potential violation
of or failure to comply with any term or requirement of any Governmental
Authorization owned, possessed or otherwise applicable to such Acquired Entity,
the conduct of its business or any assets owned or used by it, or (B) any
actual, proposed, possible, or potential revocation, withdrawal, suspension,
cancellation, termination of, or modification to any such Governmental
Authorization; and (iv) all applications required to have been filed for the
renewal of the Governmental Authorizations owned, possessed or otherwise
applicable to each Acquired Entity, the conduct of its business or any assets
owned or used by it have been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other filings required to have been made with
respect to such Governmental Authorizations have been duly made on a timely
basis with the appropriate Governmental Bodies.
(c) Except as set forth in Part 5.14(c) of the Disclosure Letter, the
Governmental Authorizations owned, possessed or otherwise applicable to the
Acquired Entities, the conduct of their respective businesses or the assets
owned or used by them collectively constitute all of the Governmental
Authorizations required in order to permit each of the Acquired Entities to
lawfully conduct and operate its business in the manner it currently conducts
and operates such business and to permit each of the Acquired Entities to own
and use its assets in the manner in which it currently owns and uses such
assets.
5.15. Legal Proceedings; Orders. (a) Except as set forth in Part 5.15(a) of
the Disclosure Letter, there is no pending Proceeding: (i) that has been
commenced by or against any Acquired Entity or any of the Interest Holders or
that otherwise relates to or may materially affect the business of, or any of
the assets owned or used by, any Acquired Entity; or (ii) that challenges, or
that may have the effect of preventing, delaying, making illegal, or otherwise
interfering with, any of the transactions contemplated by this Agreement.
(b) Except as set forth in Part 5.15(b) of the Disclosure Letter, to the
knowledge of the Acquired Entities and the Interest Holders, (i) no such
Proceeding has been threatened, and (ii) no event has occurred or circumstance
exists that may give rise to or serve as a basis for the commencement of any
such Proceeding. The Acquired Entities and the Interest Holders have delivered
to Acquiror copies of all pleadings, correspondence with third parties, and
other non-privileged documents relating to each Proceeding listed in Part 5.15
of the Disclosure Letter. The Proceedings listed in Part 5.15 of the Disclosure
Letter will not have a material adverse effect on the business, operations,
assets, condition, or prospects of the Acquired Entities taken as a whole.
(c) Except as set forth in Part 5.15(c) of the Disclosure Letter: (i) there
is no Order to which any Acquired Entity, or any of the assets owned or used by
any Acquired Entity, is subject; (ii) none of the Interest Holders is subject to
any Order that relates to the business of, or any of the assets owned or used
by, any Acquired Entity; and (iii) no officer, director, managing director,
Prokurist, holder of procuration, commercial mandate holder, agent or employee
of any Acquired Entity is subject to any Order that prohibits such officer,
director, managing director, Prokurist, holder of procuration, commercial
mandate holder, agent or employee from engaging in or continuing any conduct,
activity, or practice relating to the business of such Acquired Entity.
(d) Except as set forth in Part 5.15(d) of the Disclosure Letter: (i) each
Acquired Entity is, and at all times has been, in compliance in all material
respects with all of the terms and requirements of each Order to
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which it, or any of the assets owned or used by it, is or has been subject; (ii)
no event has occurred or circumstance exists that may constitute or result in
(with or without notice or lapse of time) a material violation of or failure to
comply in all material respects with any term or requirement of any Order to
which any Acquired Entity, or any of the assets owned or used by it, is subject;
and (iii) no Acquired Entity has received any notice or other communication
(whether oral or written) from any Governmental Body or any other Person
regarding any actual, alleged, possible, or potential violation of, or failure
to comply with, any term or requirement of any Order to which any Acquired
Entity, or any of the assets owned or used by it, is or has been subject.
5.16. Absence Of Certain Changes and Events. Except as set forth in Part
5.16 of the Disclosure Letter, since the date of the Balance Sheet, each
Acquired Entity has conducted its business only in the ordinary course of
business and there has not been any:
(a) change in such Acquired Entity's stated capital or equity
interests; grant of any option or right to purchase shares of such Acquired
Entity; issuance of any security convertible into such shares; grant of any
registration rights; purchase, redemption, retirement, or other acquisition
by such Acquired Entity of any such shares; or declaration or payment of
any shares in such Acquired Entity's profits;
(b) amendment to the organizational or organic documents of such
Acquired Entity;
(c) payment or increase by such Acquired Entity of any bonuses,
salaries, or other compensation to any shareholder, director, managing
director, Prokurist, holder of procuration, commercial mandate holder,
officer, or (except in the ordinary course of business consistent with past
practice) employee or entry into any employment, severance, or similar
Contract with any director, managing director, Prokurist, holder of
procuration, commercial mandate holder, officer, or employee;
(d) adoption of, or increase (except in the ordinary course of
business consistent with past practice) in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or with
any employees of such Acquired Entity;
(e) damage to or destruction or loss of any asset or property of such
Acquired Entity, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial condition,
or prospects of such Acquired Entity;
(f) entry into, termination of, or receipt of notice of termination of
(i) any Contract, any license, distributorship, dealer, sales
representative, joint venture, credit, or similar agreement, or (ii) any
transaction involving a total remaining commitment by or to such Acquired
Entity of at least 60,000 SFR, 70,000 DM or U.S. $50,000;
(g) sale (other than sales of inventory in the ordinary course of
business), lease, or other disposition of any asset or property of such
Acquired Entity or mortgage, pledge, or imposition of any Encumbrance on
any material asset or property of such Acquired Entity, including the sale,
lease, or other disposition of any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to
such Acquired Entity in excess of 60,000 SFR, 70,000 DM or U.S. $50,000;
(i) material change in the accounting methods used by such Acquired
Entity;
(j) incurrence or payment (other than regularly scheduled payments
under debt obligations existing as of the date of this Agreement) of any
indebtedness for borrowed money or any incurrence of or commitment to incur
any material capital expenditures by such Acquired Entity, in each case, in
excess of U.S. $30,000;
(k) acquisition of any assets or properties or any commitment to do so
other than in the ordinary course of business by such Acquired Entity; or
(l) agreement, whether oral or written, by such Acquired Entity to do
any of the foregoing.
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5.17. Contracts; No Defaults. (a) Part 5.17(a) of the Disclosure Letter
contains a complete and accurate list, and the Company, Sub, Kilmer and the
Interest Holders have delivered to Acquiror true and complete copies, of:
(i) each Applicable Contract that involves performance of services by
any Acquired Entity of an amount or value in excess of 125,000 SFR, 150,000
DM or U.S. $100,000, except any such Applicable Contract that can be
terminated without cause by either party thereto without penalty on 30 days
or less notice;
(ii) each Applicable Contract that involves performance of services or
delivery of goods or materials to any Acquired Entity of an amount or value
in excess of 125,000 SFR, 150,000 DM or U.S. $100,000, except any such
Applicable Contract that can be terminated without cause by either party
thereto without penalty on 30 days or less notice;
(iii) each Applicable Contract that was not entered into in the
ordinary course of business and that involves expenditures or receipts by
any Acquired Entity in excess of 125,000 SFR, 150,000 DM or U.S. $100,000,
except any such Applicable Contract that can be terminated without cause by
either party thereto without penalty on 30 days or less notice;
(iv) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any personal property of any Acquired Entity (except personal
property leases and installment and conditional sales agreements having a
value per item or aggregate payments of less than U.S. $20,000);
(v) each licensing agreement or other Applicable Contract with respect
to patents, trademarks, copyrights, or other intellectual property,
including agreements with current or former employees, consultants, or
contractors regarding the appropriation or the non-disclosure of any of the
Intellectual Property Assets;
(vi) each collective bargaining agreement, voluntary company agreement
between an employer and employees (or works council) concerning working
conditions (Betriebsvereinbarung) and other Applicable Contract to or with
any labor union or other employee representative of a group of employees or
with a group of employees;
(vii) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by any Acquired Entity with any other Person;
(viii) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of any Acquired Entity or any
Affiliate thereof or limit the freedom of any Acquired Entity or any
Affiliate thereof to engage in any line of business or to compete with any
Person;
(ix) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments
for goods, except that, with respect to all Applicable Contracts relating
to the retaining of Clinical Research Assistants ("CRAs") by any Acquired
Entity, Part 5.17(a) of the Disclosure Letter need only set forth the
aggregate payments made by the Acquired Entities to all such CRAs during
fiscal 1995;
(x) each power of attorney with respect to any Acquired Entity or any
Interest Holder that is currently effective and outstanding;
(xi) each Applicable Contract entered into other than in the ordinary
course of business that contains or provides for an express undertaking by
any Acquired Entity to be responsible for consequential damages;
(xii) each Applicable Contract for capital expenditures by any
Acquired Entity in excess of 70,000 SFR, 75,000 DM or U.S. $50,000;
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(xiii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by any
Acquired Entity other than in the ordinary course of business; and
(xiv) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
(b) Except as set forth in Part 5.17(b) of the Disclosure Letter: (i) none
of the Interest Holders (and no Related Person of any Interest Holder) has or
may acquire any material rights under, and none of the Interest Holders have or
may become subject to any material obligation or liability under, any Contract
that relates to the business of, or any of the assets owned or used by, any
Acquired Entity; and (ii) no officer, director, managing director, Prokurist,
holder of procuration, commercial mandate holder, officer, agent, employee,
consultant, or contractor of any Acquired Entity is bound by any Contract that
purports to limit the ability of such officer, director, managing director,
Prokurist, holder of procuration, commercial mandate holder, agent, employee,
consultant, or contractor to (A) engage in or continue any conduct, activity, or
practice relating to the business of such Acquired Entity, or (B) assign to such
Acquired Entity or to any other Person any rights to any invention, improvement,
or discovery.
(c) Except as set forth in Part 5.17(c) of the Disclosure Letter, each
Contract identified or required to be identified in Part 5.17(a) of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.
(d) Except as set forth in Part 5.17(d) of the Disclosure Letter:
(i) each Acquired Entity is, and at all times has been, in full
compliance with all material terms and requirements of each Contract under
which it has or had any obligation or liability or by which it or any of
its assets is or was bound;
(ii) each other Person that has or had any obligation or liability
under any Contract under which any Acquired Entity has or had any rights
is, and at all times has been, in full compliance with all material terms
and requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene in any material respect,
conflict in any material respect with, or result in a material violation or
breach of, or give any Acquired Entity or other Person the right to declare
a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Applicable
Contract; and
(iv) no Acquired Entity has given to or received from any other
Person, at any time any notice or other communication (whether oral or
written) regarding any actual, alleged, possible, or potential material
violation or breach of, or default under, any Contract.
(e) Except as set forth in Part 5.17(e) of the Disclosure Letter, there are
no renegotiations of, attempts to renegotiate, written demands to renegotiate or
outstanding rights to renegotiate any material amounts paid or payable to or by
any Acquired Entity under current or completed Contracts with any Person, other
than any reduction of less than 10% of the aggregate amount due to any Acquired
Entity under any Applicable Contract with a sponsor which is proportional to a
corresponding reduction of services to be performed by such Acquired Entity
under such Contract.
(f) Except as set forth in Part 5.23 of the Disclosure Letter, the
Contracts relating to the sale, design, manufacture, or provision of products or
services by any Acquired Entity have been entered into in the ordinary course of
business and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been paid or
promised, that is or would be in material violation of any Legal Requirement
that is or was applicable to any Acquired Entity or to the conduct or operation
of its business or the ownership or use of any of its properties or assets.
5.18. Insurance. (a) The Company, Sub, Kilmer and the Interest Holders
have delivered to Acquiror: (i) true and complete copies of all policies of
insurance to which any Acquired Entity is a party or under which any Acquired
Entity, or any director, managing director, Prokurist, holder of procuration,
commercial
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mandate holder, or officer of any Acquired Entity, is or has been covered at any
time within the two years preceding the date of this Agreement; (ii) true and
complete copies of all pending applications for policies of insurance; and (iii)
any statement by the auditor of any Acquired Entity's financial statements with
regard to the adequacy of such Acquired Entity's coverage or of the reserves for
claims.
(b) Except as set forth on Part 5.18(b) of the Disclosure Letter:
(i) All insurance policies to which any Acquired Entity is a party or
that provide coverage to any of the Interest Holders, any Acquired Entity
or any director, managing director, Prokurist, holder of procuration,
commercial mandate holder, or officer of any Acquired Entity; (A) to such
Person's knowledge, are valid, outstanding, and enforceable; (B) are issued
by an insurer that is financially sound and reputable; (C) taken together,
provide adequate insurance coverage for the assets and the operations of
the Acquired Entities taken as a whole for all risks to which the Acquired
Entities are normally exposed; (D) are sufficient for compliance in all
material respects with all Legal Requirements that are or were applicable
to the Acquired Entities or to the conduct or operation of their business
or the ownership or use of any of their properties or assets and all
Contracts to which the Acquired Entities are party or by which they are
bound; (E) will continue in full force and effect following the
consummation of the transactions contemplated hereby; and (F) do not
provide for any retrospective premium adjustment or other experienced-based
liability on the part of the Acquired Entities.
(ii) None of the Interest Holders, Sub, Kilmer nor the Company has
received (A) any refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of cancellation or
any other indication that any insurance policy is no longer in full force
or effect or will not be renewed or that the issuer of any insurance policy
is not willing or able to perform its obligations thereunder.
(iii) Each Acquired Entity has paid all premiums due, and has
otherwise performed in all material respects all of its obligations, under
each insurance policy to which it is a party or that provides coverage to
such Acquired Entity or a director, managing director, Prokurist, holder of
procuration, commercial mandate holder, or officer thereof.
(iv) The Acquired Entities have given notice to the insurer of all
claims that may be insured thereby.
5.19. Environmental Matters. Except as set forth in Part 5.19 of the
Disclosure Letter:
(a) Each of the Acquired Entities is, and at all times has been, in
compliance in all material respects with, and has not been and is not in
material violation of or liable under, any Environmental Law that is or was
applicable to it or to the conduct or operation of its business or the ownership
or use of any of its properties or assets. None of the Interest Holders, Sub,
Kilmer nor the Company has any basis to expect, nor has any of them or any other
Person for whose conduct they are or may be held to be responsible received, any
actual or threatened order, notice, or other communication from (i) any
Governmental Body or private citizen acting or purporting to act in the public
interest, or (ii) the current or prior owner or operator of any Facilities, of
any actual or potential material violation or failure to comply in all material
respects with any Environmental Law that is or was applicable to it or to the
conduct or operation of its business or the ownership or use of any of its
properties or assets, or of any actual or threatened obligation to undertake or
bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which any of the Interest Holders or any Acquired Entity
has or had an interest, or with respect to any property or Facility at or to
which Hazardous Materials were generated, manufactured, refined, transferred,
imported, used, or processed by the Interest Holders, the Acquired Entities, or
any other Person for whose conduct they are or may be held responsible, or from
which Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled, or received.
(b) There are no pending or, to the knowledge of the Acquired Entities or
the Interest Holders, threatened claims, Encumbrances, or other restrictions of
a material nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law that is or was
applicable to any of the Acquired Entities or to the conduct or operation of its
business or the ownership or use
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of any of its properties or assets, with respect to or affecting any of the
Facilities or any other properties and assets (whether real, personal, or mixed)
in which any of the Interest Holders or any Acquired Entity has or had an
interest.
(c) None of the Acquired Entities nor the Interest Holders has any basis to
expect, nor has any of them or any other Person for whose conduct they are or
may be held responsible, received, any citation, directive, inquiry, notice,
Order, summons, warning, or other communication that relates to Hazardous
Activity, Hazardous Materials, or any alleged, actual, or potential material
violation or failure to comply in all material respects with any Environmental
Law that is or was applicable to any Acquired Entity or to the conduct or
operation of its business or the ownership or use of any of its properties or
assets, or of any alleged, actual, or potential obligation to undertake or bear
the cost of any Environmental, Health, and Safety Liabilities with respect to
any of the Facilities or any other properties or assets (whether real, personal,
or mixed) in which any of the Interest Holders or any Acquired Entity has or had
an interest, or with respect to any property or Facility to which Hazardous
Materials generated, manufactured, refined, transferred, imported, used, or
processed by the Interest Holders, the Acquired Entities, or any other Person
for whose conduct they are or may be held responsible, have been transported,
treated, stored, handled, transferred, disposed, recycled, or received.
(d) None of the Acquired Entities nor the Interest Holders, or any other
Person for whose conduct they are or may be held responsible, has any material
Environmental, Health, and Safety Liabilities with respect to the Facilities or
with respect to any other properties and assets (whether real, personal, or
mixed) in which any of the Interest Holders or the Acquired Entities (or any
predecessor), has or had an interest, or at any property geologically or
hydrologically adjoining the Facilities or any such other property or assets.
(e) There are no Hazardous Materials present on or in the Environment at
the Facilities or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited or
located in land, water or any other part of the Facilities or such adjoining
property, or incorporated into any structure therein or thereon. None of the
Interest Holders, the Acquired Entities, any other Person for whose conduct they
are or may be held responsible, or any other Person, has permitted or conducted,
or is aware of, any Hazardous Activity conducted with respect to the Facilities
or any other properties or assets (whether real, personal, or mixed) in which
any of the Interest Holders or the Acquired Entities has or had an interest
except in compliance in all material respects with all Environmental Laws that
are or were applicable to any Acquired Entity or to the conduct or operation of
its business or the ownership or use of any of its properties or assets.
(f) There has been no Release or, to the knowledge of the Acquired Entities
or the Interest Holders, Threat of Release, of any Hazardous Materials at or
from the Facilities or at any other locations where any Hazardous Materials were
generated, manufactured, refined, transferred, produced, imported, used, or
processed from or by the Facilities, or from or by any other properties and
assets (whether real, personal, or mixed) in which any of the Interest Holders
or the Acquired Entities has or had an interest, or any geologically or
hydrologically adjoining property, whether by the Interest Holders, the Acquired
Entities, or any other Person.
(g) The Interest Holders and the Acquired Entities have delivered to
Acquiror true and complete copies and results of any reports, studies, analyses,
tests, or monitoring possessed or initiated by the Interest Holders or the
Acquired Entities pertaining to Hazardous Materials or Hazardous Activities in,
on, or under the Facilities, or concerning compliance by the Interest Holders,
the Acquired Entities, or any other Person for whose conduct they are or may be
held responsible, with Environmental Laws that are or were applicable to any of
the Acquired Entities or to the conduct or operation of its business or the
ownership or use of any of its properties or assets.
5.20. Employees. (a) Part 5.20 of the Disclosure Letter contains a
complete and accurate summary of the following information for each employee,
officer or director, managing director or Prokurist, holder of procuration or
commercial mandate holder of each Acquired Entity, including each employee on
leave of absence or layoff status: name; job title; current compensation paid or
payable and any change in
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compensation since December 31, 1995; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under any pension,
retirement, profit-sharing, thrift-savings, deferred compensation, stock bonus,
stock option, cash bonus, employee stock ownership (including investment credit
or payroll stock ownership), other equity participation arrangement, severance
pay, insurance, medical, welfare, or vacation plan or any other employee benefit
plan.
(b) Except as set forth in Part 5.20 of the Disclosure Letter, no employee,
officer or director, managing director or Prokurist, holder of procuration or
commercial mandate holder of any Acquired Entity is a party to, or is otherwise
bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such employee, officer
or director, managing director or Prokurist, holder of procuration or commercial
mandate holder and any other Person ("Proprietary Rights Agreement") that in any
way adversely affects or will affect the ability of such Acquired Entity to
conduct its business, including any Proprietary Rights Agreement with the
Interest Holders or the Acquired Entities by any such employee, officer or
director, managing director or Prokurist, holder of procuration or commercial
mandate holder. Except as set forth in Part 5.20 of the Disclosure Letter, to
the knowledge of the Acquired Entities and the Interest Holders, no director,
managing director, Prokurist, holder of procuration, commercial mandate holder,
officer, or other key employee of any Acquired Entity intends to terminate his
employment with the Acquired Entities.
(c) Part 5.20 of the Disclosure Letter also contains a complete and
accurate list of the following information for each retired employee, officer or
director, managing director or Prokurist, holder of procuration or commercial
mandate holder of any Acquired Entity, or their dependents, receiving benefits
or scheduled to receive benefits in the future: name, pension benefit, pension
option election, retiree medical insurance coverage, retiree life insurance
coverage, and other benefits.
5.21. Labor Relations; Compliance. Except as set forth in Part 5.21 of the
Disclosure Letter, since June 26, 1987 with respect to the Company, February 9,
1990 with respect to Sub and October 12, 1989 with respect to Kilmer, no
Acquired Entity has been nor is it currently a party to any collective
bargaining or other labor Contract. Since June 26, 1987 with respect to the
Company, February 9, 1990 with respect to Sub and October 12, 1989 with respect
to Kilmer, there has not been, there is not presently pending or existing, and,
to the knowledge of the Acquired Entities, there is not threatened, (a) any
strike, slowdown, picketing, work stoppage, or employee grievance process, (b)
any Proceeding against or affecting any Acquired Entity relating to the alleged
material violation of any Legal Requirement applicable to such Acquired Entity
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with any Governmental Body,
organizational activity, or other labor or employment dispute against or
affecting any Acquired Entity or its premises, or (c) any application for
certification of a collective bargaining agent. Except as set forth in Part 5.21
of the Disclosure Letter, no event has occurred or circumstance exists that
could provide the basis for any work stoppage or other labor dispute. There is
no lockout of any employees by any Acquired Entity, and no such action is
contemplated by any Acquired Entity. Except as set forth in Part 5.21 of the
Disclosure Letter, each Acquired Entity has complied in all material respects
with all Legal Requirements applicable to it relating to employment, equal
employment opportunity, nondiscrimination, immigration, wages, hours, benefits,
collective bargaining, the payment of social security and similar taxes,
occupational safety and health, and plant closing. Except as set forth in Part
5.21 of the Disclosure Letter, no Acquired Entity is liable for the payment of
any compensation, damages, Taxes, fines, penalties, or other amounts, however
designated, for failure to comply in all material respects with any of the
foregoing Legal Requirements.
5.22. Intellectual Property. (a) The term "Intellectual Property Assets"
includes: (i) the name "BioClin Europe AG," "BioClin AG," "BioClin GmbH" and all
fictional business names, trading names, registered and unregistered trademarks,
service marks, and applications (collectively, "Marks"); (ii) all patents,
patent applications, and inventions and discoveries that may be patentable
(collectively, "Patents"); (iii) all copyrights in both published works and
unpublished works (collectively, "Copyrights"); and (iv) all know-how, trade
secrets, confidential information, customer lists, software, technical
information, data, process technology, plans, drawings, and blue prints
(collectively, "Trade Secrets"); owned, used, or licensed by any Acquired Entity
as licensee or licensor.
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(b) Part 5.22(b) of the Disclosure Letter contains a complete and accurate
list and summary description, including any royalties paid or received by any
Acquired Entity, of all Contracts relating to the Intellectual Property Assets
to which any Acquired Entity is a party or by which it is bound, except for any
license implied by the sale of a product and perpetual, paid-up licenses for
commonly available software programs with a value of less than 40,000 SFR,
50,000 DM or U.S. $30,000 under which any Acquired Entity is the licensee. There
are no outstanding and, to the knowledge of the Interest Holders and the
Acquired Entities, no threatened disputes or disagreements with respect to any
such agreement.
(c) (i) The Intellectual Property Assets are all those necessary for the
operation of each Acquired Entity's business as it is currently conducted. The
Acquired Entities are the owners or licensees of all right, title, and interest
in and to the Intellectual Property Assets (other than to the extent that any
Acquired Entity is obligated to assign any application, invention, development,
etc. relating to such Intellectual Property Assets to another Person under an
Applicable Contract with a sponsor), free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse claims, and,
except as set forth in Part 5.17(a) of the Disclosure Letter, have the right to
use without payment to a third party all of the Intellectual Property Assets.
(ii) Except as set forth in Part 5.22(c) of the Disclosure Letter, all
former and current employees of each Acquired Entity have executed written
Contracts with such Acquired Entity that assign to it all rights to any
inventions, improvements, discoveries, or information relating to the business
of such Acquired Entity. Except as set forth in Part 5.22(c) of the Disclosure
Letter, no employee of any Acquired Entity has entered into any Contract that
restricts or limits in any way the scope or type of work in which the employee
may be engaged or requires the employee to transfer, assign, or disclose
information concerning his work to anyone other than such Acquired Entity.
(d) (i) Part 5.22(d) of the Disclosure Letter contains a complete and
accurate list and summary description of all Patents owned by or licensed to the
Acquired Entities. Except as set forth in Part 5.22(d) of the Disclosure Letter,
the Acquired Entities are the owners or licensees of all right, title, and
interest in and to such Patents, free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse claims.
(ii) Except as set forth in Part 5.22(d) of the Disclosure Letter, all of
the issued Patents owned by the Acquired Entities are currently in compliance in
all material respects with applicable Legal Requirements (including payment of
filing, examination, and maintenance fees and proofs of working or use), are
valid and enforceable, and are not subject to any maintenance fees or Taxes or
actions falling due within ninety days after the Closing Date.
(iii) Except as set forth in Part 5.22(d) of the Disclosure Letter, no
Patent owned by the Acquired Entities has been or is now involved in any
interference, reissue, reexamination, or opposition proceeding nor to the
knowledge of the Interest Holders and the Acquired Entities is there any
potentially interfering patent or patent application of any third party.
(iv) Except as set forth in Part 5.22(d) of the Disclosure Letter, no
Patent is infringed or, to the knowledge of the Interest Holders and the
Acquired Entities, has been challenged or threatened in any way. Except as set
forth in Part 5.22(d) of the Disclosure Letter, none of the products
manufactured and sold, nor any process or know-how used, by the Acquired
Entities infringes or is alleged to infringe any patent or other proprietary
right of any other Person.
(v) Except as set forth in Part 5.22(d) of the Disclosure Letter, all
products made, used, or sold under the Patents owned by the Acquired Entities
have been marked with the proper patent notice.
(e) (i) Part 5.22(e) of Disclosure Letter contains a complete and accurate
list and summary description of all Marks owned by or licensed to the Acquired
Entities. Except as set forth in Part 5.22(e) of the Disclosure Letter, the
Acquired Entities are the owners or licensees of all right, title, and interest
in and to such Marks, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims.
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(ii) Except as set forth in Part 5.22(e) of the Disclosure Letter, all
Marks owned by the Acquired Entities that have been registered with the Swiss
Federal Intellectual Property Office or similar foreign Governmental Body are
currently in compliance in all material respects with applicable Legal
Requirements (including the timely post-registration filing of affidavits of use
and incontestability and renewal applications), are valid and enforceable, and
are not subject to any maintenance fees or Taxes or actions falling due within
ninety days after the Closing Date.
(iii) Except as set forth in Part 5.22(e) of the Disclosure Letter, no Mark
owned by the Acquired Entities has been or is now involved in any opposition,
invalidation, or cancellation and, to the knowledge of the Acquired Entities and
the Interest Holders, no such action is threatened with the respect to any of
such Marks.
(iv) Except as set forth in Part 5.22(e) of the Disclosure Letter, to the
knowledge of the Acquired Entities and the Interest Holders, there is no
potentially interfering trademark or trademark application of any third party.
(v) Except as set forth in Part 5.22(e) of the Disclosure Letter, no Mark
owned by the Acquired Entities is infringed or, to the knowledge of the Acquired
Entities and the Interest Holders, has been challenged or threatened in any way.
Except as set forth in Part 5.22(e) of the Disclosure Letter, none of the Marks
used by the Acquired Entities infringes or is alleged to infringe any trade
name, trademark, or service mark of any third party.
(vi) Except as set forth in Part 5.22(e) of the Disclosure Letter, all
products and materials containing a Mark owned by the Acquired Entities bear the
proper federal registration notice where permitted by law.
(f) (i) Part 5.22(f) of the Disclosure Letter contains a complete and
accurate list and summary description of all Copyrights owned by or licensed to
the Acquired Entities. Except as set forth in Part 5.22(f) of the Disclosure
Letter, the Acquired Entities are the owners or licensees of all right, title,
and interest in and to such Copyrights, free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse claims.
(ii) Except as set forth in Part 5.22(f) of the Disclosure Letter, all the
Copyrights owned by the Acquired Entities have been registered (to the extent
required to protect such Copyrights) and are currently in compliance in all
material respects with applicable Legal Requirements, are valid and enforceable,
and are not subject to any maintenance fees or Taxes or actions falling due
within ninety days after the date of Closing.
(iii) Except as set forth in Part 5.22(f) of the Disclosure Letter, no
Copyright owned by the Acquired Entities is infringed or, to the knowledge of
the Acquired Entities and the Interest Holders, has been challenged or
threatened in any way. Except as set forth in Part 5.22(f) of the Disclosure
Letter, none of the subject matter of any of the Copyrights infringes or is
alleged to infringe any copyright of any third party or is a derivative work
based on the work of a third party.
(iv) Except as set forth in Part 5.22(f) of the Disclosure Letter, all
works encompassed by the Copyrights owned by the Acquired Entities have been
marked with the proper copyright notice (to the extent required to protect such
Copyrights).
(g) (i) With respect to each Trade Secret owned by the Acquired Entities,
the documentation relating to such Trade Secret is current, accurate, and
sufficient in detail and content to identify and explain it and to allow its
full and proper use without reliance on the knowledge or memory of any
individual.
(ii) Except as set forth in Part 5.22(g) of the Disclosure Letter, the
Interest Holders and the Acquired Entities have taken all reasonable precautions
to protect the secrecy, confidentiality, and value of the Trade Secrets owned by
the Acquired Entities.
(iii) Except as set forth in Part 5.22(g) of the Disclosure Letter, the
Acquired Entities have good title and an absolute (but not necessarily
exclusive) right to use the Trade Secrets. Except as set forth in Part 5.22(g)
of the Disclosure Letter, the Trade Secrets owned by the Acquired Entities are
not part of the public knowledge or literature, and, to the knowledge of the
Acquired Entities and the Interest Holders, have not
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been used, divulged, or appropriated either for the benefit of any Person (other
than the Acquired Entities) or to the detriment of the Acquired Entities. Except
as set forth in Part 5.22(g) of the Disclosure Letter, no Trade Secret owned by
the Acquired Entities is subject to any adverse claim or has been challenged or
threatened in any way.
(h) Except as set forth in Part 5.22(h) of the Disclosure Letter, no
Contract (whether or not related to the Intellectual Property Assets) obligates
the Acquired Entities or any director, managing director, Prokurist, holder of
procuration, commercial mandate holder, officer or employee of the Acquired
Entities to disclose and/or assign to another Person, any Intellectual Property
Asset or any developments, inventions, etc. relating to the Intellectual
Property Assets.
5.23. Certain Payments. Except as set forth in Part 5.23 of the Disclosure
Letter, none of the Acquired Entities nor any director, managing director,
Prokurist, holder of procuration, commercial mandate holder, officer, agent, or
employee of the Acquired Entities, or any other Person associated with or acting
for or on behalf of the Acquired Entities, has directly or indirectly (a) made
any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or
other payment to any Person, private or public, regardless of form, whether in
money, property, or services (i) to obtain favorable treatment in securing
business, (ii) to pay for favorable treatment for business secured, (iii) to
obtain special concessions or for special concessions already obtained, for or
in respect of any Acquired Entity, or any Affiliate of any Acquired Entity, or
(iv) in violation of any Legal Requirement that is or was applicable to any of
the Acquired Entities or to the conduct or operation of its business or the
ownership or use of any of its properties or assets; (b) established or
maintained any fund or asset that has not been recorded in the books and records
of the Acquired Entities.
5.24. Disclosure. (a) No representation or warranty of the Acquired
Entities or the Interest Holders in this Agreement and no statement in the
Disclosure Letter omits to state a material fact necessary to make the
statements herein or therein, in light of the circumstances in which they were
made, not misleading. None of the information to be supplied by the Acquired
Entities or the Interest Holders for inclusion in, or to be incorporated by
reference in, the Proxy Statement will, at the time of the mailing of the Proxy
Statement and the time of the Stockholders Meeting, contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(b) No notice given by the Acquired Entities or any of the Interest Holders
pursuant to Section 7.6 will contain any untrue statement or omit to state a
material fact necessary to make the statements therein or in this Agreement, in
light of the circumstances in which they were made, not misleading.
(c) There is no fact known to any of the Acquired Entities or the Interest
Holders that has specific application to the Interest Holders or the Acquired
Entities (other than general economic or industry conditions) and that
materially adversely affects the assets, business, prospects, financial
condition, or results of operations of the Acquired Entities taken as a whole
that has not been set forth in this Agreement or the Disclosure Letter.
5.25. Relationships with Related Persons. Except as set forth in Part 5.25
of the Disclosure Letter, none of the Interest Holders or any Related Person of
such Interest Holders or of the Acquired Entities has, or since the first day of
the next to last completed fiscal year of the Company has had, any interest in
any property (whether real, personal, or mixed and whether tangible or
intangible), used in or pertaining to any Acquired Entity's business. Except as
set forth in Part 5.25 of the Disclosure Letter, none of the Interest Holders or
any Related Person of such Interest Holders or of the Acquired Entities owns, or
since the first day of the next to last completed fiscal year of the Company
owned (of record or as a beneficial owner), an equity interest or any other
financial or profit interest in, a Person that has (i) had business dealings or
a material financial interest in any transaction with any Acquired Entity, or
(ii) engaged in competition with any Acquired Entity with respect to any line of
the products or services of the Acquired Entities (a "Competing Business") in
any market presently served by the Acquired Entities, except for less than one
percent of the outstanding capital stock or stated capital of any Competing
Business that is publicly traded on any recognized exchange or in the
over-the-counter market. Except as set forth in Part 5.25 of the Disclosure
Letter, none of the Interest Holders or any Related Person of such Interest
Holders or of the Acquired Entities is a party to any Contract with, or
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has any claim or right against, any Acquired Entity, other than Contracts
relating to their employment with such Acquired Entity and claims for ordinary
compensation as provided by any such Contract.
5.26. Brokers and Finders. Neither the Interest Holders nor the Acquired
Entities nor any of their respective officers, directors, managing directors,
Prokurists, holder of procuration, commercial mandate holder, or employees has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or finder's fees, and no broker or
finder has acted, directly or indirectly, for any of the Interest Holders or the
Acquired Entities, in connection with this Agreement or the transactions
contemplated hereby or thereby.
5.27. Employee Benefit Plans. (a) Part 5.27 of the Disclosure Letter sets
forth a complete and accurate list and summary description of each employee
benefit plan or arrangement, including, without limitation, bonus, savings or
profit sharing plan, deferred compensation plan, pension or retirement plan,
stock option plan, stock appreciation right plan, executive compensation
practice and other executive perquisite, each plan or arrangement providing for
insurance (including, without limitation, health and life insurance) coverage,
severance, termination or similar coverage and each written compensation policy
and practice, which in each case, covers any current or former employee,
officer, director, managing director, Prokurist, holder of procuration,
commercial mandate holder, or agent of any Acquired Entity, and which is or was
maintained or contributed to by any Acquired Entity, other than those benefit
plans or arrangements mandated by applicable Legal Requirements.
(b) Except as set forth in Part 5.27 of the Disclosure Letter, each
Acquired Entity has (i) complied in all material respects with all Legal
Requirements applicable to the employee benefit plans and arrangements listed in
Part 5.27 of the Disclosure Letter applicable to it, (ii) made all contributions
to such plans and arrangements that were required to be made pursuant to
applicable Legal Requirements; (iii) in the Balance Sheet, made adequate
provision for pension obligations that have been accrued but are not yet due and
payable and (iv) no pension obligations other than those required by Swiss or
German law, as the case may be.
5.28. Investment Intent; Accredited Investor. (a) The Interest Holders are
acquiring the Acquiror Shares pursuant to Article II of this Agreement for their
own accounts and not with the view to, or for resale in connection with, any
distribution or public offering thereof with the meaning of the Securities Act,
except as contemplated by the Stockholders' Agreement. Each Interest Holder is
either (i) an "accredited investor" as such term is defined in Section 501(a) of
Regulation D promulgated under the Securities Act or (ii) otherwise has such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and the risks of the Acquiror Shares being delivered
pursuant to Section 2.1 of this Agreement so that such delivery of Acquiror
Shares is eligible for exemption from the registration and prospectus delivery
requirements of the Securities Act pursuant to Section 4(2) of the Securities
Act or Regulation S thereunder. Each Interest Holder has had an opportunity to
ask questions and receive answers concerning the terms and conditions of the
offering of the Acquiror Shares, has had full access to such information
concerning Acquiror as such Person has requested and possesses substantial
information about, and familiarity with, Acquiror as a result of the information
provided to such Person. The Interest Holders understand that the Acquiror
Shares have not been registered under the Securities Act by reason of their
contemplated issuance by Acquiror in a transaction exempt from the registration
and prospectus delivery requirements of the Securities Act pursuant to Section
4(2) thereof, and that the reliance of Acquiror upon this exemption is
predicated in part upon this representation and warranty by the Interest
Holders.
(b) Each member of the Employee Group is acquiring the Acquiror Shares
pursuant to Article II of this Agreement for her own account and not with the
view to, or for resale in connection with, any distribution or public offering
thereof within the meaning of the Securities Act. Each member of the Employee
Group is not a "U.S. Person" as such term is defined in Section 901(o) of
Regulation S promulgated under the Securities Act. Each member of the Employee
Group understands that the Acquiror Shares have not been registered under the
Securities Act by reason of their contemplated issuance by Acquiror in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act pursuant to Regulation S
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promulgated thereunder, and that the reliance of Acquiror upon this exemption is
predicated in part upon this representation and warranty by the Employee Group.
ARTICLE VI
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
6.1. Conduct Prior to Closing. (a) The Acquired Entities and the Interest
Holders hereby covenant and agree with Acquiror, that, prior to the Closing,
unless the prior written consent of Acquiror shall have been obtained and except
as otherwise contemplated herein, each of the Acquired Entities shall, and ths
except for acquisitions of such securities in the ordinary course of business;
(i) grant any increase in compensation (including any salaries or
bonuses) to its employees as a class, or to its officers or directors,
managing director or Prokurist, holder of procuration or commercial mandate
holder, except as required by law or at times and in a manner consistent
with past practice; effect any change in retirement benefits to any class
of employees or officers (unless any such change shall be required by
applicable law); enter into any employment, severance or similar agreements
or arrangements with any diron, Section 6.3), each of the Acquired Entities
agrees that it will not, and the Interest Holders covenant and agree that
they will not permit any Acquired Entity to, do or agree or commit to do,
without the prior written consent of Acquiror, any of the following:
(ii) incur any liabilities or obligations in excess of U.S. $50,000,
in the aggregate, whether directly or by way of guaranty, including any
obligation for borrowed money whether or not evidenced by a note, bond,
debenture or similar instrument;
(iii) acquire any equity, debt or other investment securities except
for acquisitions of such securities in the ordinary course of business;
(iv) grant any increase in compensation (including any salaries or
bonuses) to its employees as a class, or to its officers or directors,
managing director or Prokurist, holder of procuration or commercial mandate
holder, except as required by law or at times and in a manner consistent
with past practice; effect any change in retirement benefits to any class
of employees or officers (unless any such change shall be required by
applicable law); enter into any employment, severance or similar agreements
or arrangements with any director, managing director or Prokurist, holder
of procuration, commercial mandate holder, or officer or employee other
than the agreements or severance and other plans described in Part 5.27 of
the Disclosure Letter, which in the case of employment agreements would
extend beyond the Closing Date (it being understood that nothing contained
herein shall prohibit any Acquired Entity from paying individual merit
increases or promotional increases, or performance bonuses to its employees
based on formulas consistent with those used in the past for similar levels
of performance); or establish, adopt, enter into or amend any employee
benefit plan for the benefit of any director, managing director or
Prokurist, holder of procuration, commercial mandate holder, or officer or
employee;
(v) declare any profit to be distributed to its shareholders or pay
any profit and purchase, redeem or otherwise acquire any of its shares;
(vi) other than with respect to the loan and letter agreement relating
to the acquisition of real property in connection with establishing a
representative office in Lithuania, purchase or otherwise acquire any
substantial portion of the assets, or of any class of stock or equity
interests of any Person except in partial or complete satisfaction of debts
previously contracted; merge into any other Person or permit any other
Person to merge into it or consolidate with any other Person; liquidate,
sell, dispose of, or encumber any assets or acquire any assets, other than
in the ordinary course of business consistent with past practice, or issue
any shares or permit any shares held in its treasury to become outstanding;
or issue or grant or extend the term of any option, warrant, conversion or
stock appreciation right not in existence on the date hereof;
(vii) propose or adopt any amendments to its organizational or organic
documents;
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(viii) enter into any type of business not conducted by such Acquired
Entity as of the date of this Agreement or create or organize any new
Subsidiary or enter into or participate in any joint venture or
partnership;
(ix) propose or adopt any material changes to the accounting
principles used by such Acquired Entity except as required by applicable
generally accepted accounting principles and then only in consultation with
Acquiror;
(x) enter into any agreement or transactions with any of the Interest
Holders, another Acquired Entity or any Affiliate thereof or make any
material amendment or modification to any such agreement, except as
contemplated by this Agreement; or
(xi) agree or commit to do any of the foregoing.
Without limiting the foregoing, from the date hereof until the Closing, the
Acquired Entities shall not, and the Interest Holders agree that they will not
permit any Acquired Entity to, without first promptly notifying Acquiror and
obtaining the prior written consent of Acquiror, take any action or permit or
suffer to be taken any action, which is represented in Section 5.16 not to have
been taken since the date of the Balance Sheet.
(b) From the date hereof until the Closing, Acquiror shall not, without
first promptly notifying the Interest Holders and providing the Interest Holders
an opportunity to express their views, take any action or permit or suffer to be
taken any action, which is represented in Section 3.8 not to have been taken
since March 31, 1996.
6.2. Consents and Approvals. (a) Subject to the terms and conditions
herein provided, each of the parties hereto agrees to cooperate with the other
and use all reasonable best efforts to satisfy the conditions set forth in
Article VIII to be satisfied and to take, or cause to be taken, all action, and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws, regulations and contractual arrangements to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, using reasonable efforts to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby. Each of the parties hereto
hereby covenants and agrees subject, in the case of Acquiror to the fiduciary
obligations of Acquiror's Board of Directors, to take no action (a) which would
render any of its representations and warranties contained herein untrue at and
as of the Closing except as otherwise contemplated herein or (b) which would
adversely affect its ability to satisfy any of the conditions set forth in
Article VIII, including, without limitation, the ability to obtain any necessary
Governmental Authorizations required for the transactions contemplated hereby or
materially increase the period of time necessary to obtain such authorizations.
(b) To the extent that the rights of any Acquired Entity under any
agreement, arrangement or understanding may not be assigned without the consent
or approval of another party thereto, such Acquired Entity shall, and the
Interest Holders shall cause such Acquired Entity to, use all reasonable efforts
to obtain any such consent or to amend the agreement, arrangement or
understanding such that no consent is required.
6.3. Bookkeeping, Accounting and Financial Reporting Capabilities. (a) The
Acquired Entities and the Interest Holders hereby covenant and agree with
Acquiror, that (i) prior to the Closing, the Acquired Entities and the Interest
Holders will deliver to Acquiror: (A) an audited combined consolidated balance
sheet of the Company and the BioClin Affiliates as at December 31, 1994, and the
related audited combined consolidated statements of income, changes in
stockholders' equity and cash flows for the fiscal year then ended as well as
the fiscal year ended December 31, 1993, together with the report thereon of
KPMG Peat Marwick L.L.P., and (B) an audited combined consolidated balance sheet
of the Company and the BioClin Affiliates as at December 31, 1995 and the
related audited combined consolidated statements of income, changes in
stockholders' equity and cash flows for the fiscal year then ended, together
with the report thereon of KPMG Peat Marwick L.L.P., including, in each case,
the notes thereto, and (ii) (A) the financial statements with respect to fiscal
1995 will be prepared in accordance with U.S. GAAP (which except where noted
therein, will be consistently applied), and will fairly present the financial
condition and results of operations, changes in stockholders' equity and cash
flow of the Company and the BioClin Affiliates as at the respective dates and
for
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the periods referred to in such financial statements and (B) the financial
statements with respect to fiscal 1993 and 1994 will be prepared in accordance
with Swiss GAAP and will be reconciled to U.S. GAAP.
(b) The Acquired Entities and the Interest Holders hereby covenant and
agree with Acquiror, that, prior to the Closing, the Acquired Entities shall,
and the Interest Holders shall cause the Acquired Entities to, hire such number
of bookkeepers and/or accountants, or an accounting firm to provide such
bookkeeping and accounting services, reasonably acceptable to Acquiror, both in
terms of number and identity, such that the Acquired Entities will, upon the
Closing, have adequate financial reporting capabilities to ensure that the
reporting of consolidated financial results by Acquiror on a post-Closing basis
shall be made in a manner that will enable Acquiror meet all reporting
obligations applicable to it pursuant to the Exchange Act.
(c) Notwithstanding any other provision hereof to the contrary (including,
without limitation, Section 10.2), to the extent Acquiror incurs any fees or
expenses in connection with the employment of Persons in connection with the
rendering of services contemplated by Section 6.3(b), the Acquired Entities
shall promptly reimburse Acquiror for all such fees and expenses.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1. Current Information. During the period from the date of this
Agreement to the Closing, the Interest Holders, on the one hand, and Acquiror,
on the other hand, will cause one or more of their Representatives to confer on
a regular and frequent basis with Representatives of the other party with
respect to the status of the ongoing operations of the Acquired Entities. Each
party will promptly notify the other party of any material change in the normal
course of its business or in the operation of its properties and, to the extent
permitted by applicable law, of any governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated), or
the institution or the threat of material Proceedings involving such party which
would in any manner, challenge, prevent, alter or materially delay any of the
transactions contemplated by this Agreement, and each party will keep the other
party fully informed with respect to such events. Each party will also notify
the other party of the status of regulatory applications and third party
consents related to the transactions contemplated hereby.
7.2. Access and Investigation. To the full extent permitted by applicable
law, between the date of this Agreement and the Closing Date, the Acquired
Entities shall, and the Interest Holders shall cause the Acquired Entities and
its Representatives to, (a) afford Acquiror and its Representatives
(collectively, "Acquiror's Advisors") full and free access to the personnel,
properties (including subsurface testing), contracts, books and records, and
other documents and data of the Acquired Entities, (b) furnish Acquiror and
Acquiror's Advisors with copies of all such contracts, books and records, and
other existing documents and data as Acquiror may reasonably request, and (c)
furnish Acquiror and Acquiror's Advisors with such additional financial,
operating, and other data and information as Acquiror may reasonably request.
7.3. Effect of Investigations. Notwithstanding the notification and cure
provisions of Sections 7.6(c) and (d), but subject to the provisions of Sections
8.2 and 8.3, no investigation by the parties hereto made heretofore or
hereafter, whether pursuant to this Agreement or otherwise (including without
limitation, any action taken by or information provided to Acquiror pursuant to
the provisions of Sections 7.1 and 7.2) shall affect the representations and
warranties of the parties which are contained herein and each such
representation and warranty shall survive such investigation.
7.4. Press Releases, Etc. Acquiror and the Interest Holders will consult
with each other as to the form, substance and timing of any press release or
other public disclosure of matters related to this Agreement or any of the
transactions contemplated hereby and no such press release or other public
disclosure shall be made without the consent of the other party, which shall not
be unreasonably withheld or delayed; provided, however, that either party may
make such disclosures as are required by law after making reasonable efforts in
the circumstances to consult in advance with the other party.
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7.5. Acquisition Proposals. Until such time, if any, as this Agreement is
terminated pursuant to Article IX, the Acquired Entities and the Interest
Holders will not, and the Interest Holders will cause the Acquired Entities and
its Representatives not to, directly or indirectly solicit, initiate, or
encourage or take any other action to facilitate (including by way of providing
information) any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Acquiror) relating to any
transaction involving the sale of the business or assets (other than in the
ordinary course of business) of the Acquired Entities, or any of the equity
interests of the Acquired Entities, or any merger, consolidation, business
combination, or similar transaction involving the Acquired Entities. The
Acquired Entities and the Interest Holders shall promptly advise Acquiror orally
and in writing of any inquiry or proposal which relates to such a transaction.
7.6. Notification of Certain Matters. (a) Between the date of this
Agreement and the Closing Date, each Interest Holder will promptly notify
Acquiror in writing if such Interest Holder or any Acquired Entity has knowledge
of any fact or condition that causes or constitutes a breach of the Trustee's,
or any of the Interest Holders' or any Acquired Entity's representations and
warranties as of the date of this Agreement, or if such Interest Holder or any
Acquired Entity has knowledge of the occurrence after the date of this Agreement
of any fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition, or any
fact or condition disclosed to the Interest Holders by Acquiror pursuant to
Section 7.6(d), require any change in the Disclosure Letter, if the Disclosure
Letter were dated the date of the occurrence or discovery of any such fact or
condition, the Interest Holders will promptly deliver to Acquiror a supplement
to the Disclosure Letter specifying such change. During the same period, each
Interest Holder will promptly notify Acquiror if such Interest Holder or any
Acquired Entity has knowledge of the occurrence of any breach of any covenant of
the Interest Holders or the Acquired Entities in Article VI, this Article VII or
of the occurrence of any event that may make the satisfaction of the conditions
in Article VIII impossible or unlikely.
(b) Between the date of this Agreement and the Closing Date, Acquiror will
promptly notify the Interest Holders in writing if Acquiror has knowledge of any
fact or condition that causes or constitutes a breach of the Acquiror's
representations and warranties as of the date of this Agreement, or if Acquiror
has knowledge of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. Should any such fact or condition, or any fact or
condition disclosed to Acquiror by any Interest Holder pursuant to Section
7.6(c), require any change in the Acquiror Letter, if the Acquiror Letter were
dated the date of the occurrence or discovery of any such act or condition,
Acquiror will promptly deliver to the Interest Holders a supplement to the
Acquiror Letter specifying such change. During the same period, Acquiror will
promptly notify the Interest Holders if Acquiror has knowledge of the occurrence
of any breach of any covenant of Acquiror in Article VI, this Article VII or of
the occurrence of any event that may make the satisfaction of the conditions in
Article VIII impossible or unlikely.
(c) Between the date of this Agreement and the Closing Date, each Interest
Holder will promptly notify Acquiror in writing if such Interest Holder or any
Acquired Entity has knowledge of any fact or condition that causes or
constitutes a breach of Acquiror's representations and warranties as of the date
of this Agreement, or if such Interest Holder or any Acquired Entity has
knowledge of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. During the same period, each Interest Holder will
promptly notify Acquiror if such Interest Holder or any Acquired Entity has
knowledge of the occurrence of any breach of any covenant of Acquiror in Article
VI, this Article VII or of the occurrence of any event that may make the
satisfaction of the conditions in Article VIII impossible or unlikely.
(d) Between the date of this Agreement and the Closing Date, Acquiror will
promptly notify the Interest Holders in writing if Acquiror has knowledge of any
fact or condition that causes or constitutes a breach of the Trustee's, any
Acquired Entity's or any of the Interest Holders' representations and warranties
as of the date of
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this Agreement, or if Acquiror has knowledge of the occurrence after the date of
this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. During the same
period, Acquiror will promptly notify the Interest Holders if Acquiror has
knowledge of the occurrence of any breach of any covenant of the Acquired
Entities or the Interest Holders in Article VI, this Article VII or of the
occurrence of any event that may make the satisfaction of the conditions in
Article VIII impossible or unlikely.
(e) For purposes of this Agreement, "knowledge" on the part of Acquiror
means the actual knowledge of Mr. Paul J. Schmitt, Mr. John G. Cooper or Mr.
Lief Modeweg, and knowledge on the part of the Acquired Entities means the
actual knowledge of Dr. Jack Barbut or Dr. J. Chris Jensen; provided, however,
that all such Persons shall be deemed to have actual knowledge of all matters
disclosed in the Acquiror Letter and the Disclosure Letter.
(f) Not later than ten Business Days prior to the scheduled Closing Date,
(i) Acquiror shall deliver to the Interest Holders a supplement to the Acquiror
Letter and (ii) the Interest Holders shall deliver to Acquiror a supplement to
the Disclosure Letter, in each case, that updates such disclosure from the date
of this Agreement to such date of delivery. Thereafter, until the Closing,
Acquiror and the Interest Holders shall notify each other in writing of any
changes or supplements to the updated information necessary, to the knowledge of
Acquiror or the Interest Holders, as the case may be, to make such information
correct and complete at all times up to and including the Closing.
(g) Notwithstanding the foregoing provisions of this Section 7.6, nothing
herein contained shall be construed to, in any manner, (i) modify the
representations and warranties of the parties contained herein as made as of the
date hereof or (ii) affect any right or remedy of any party granted hereunder or
under the Stockholders' Agreement (including, without limitation, the conditions
to Closing set forth in Article VIII herein and the indemnification provisions
set forth in Article IV of the Stockholders' Agreement).
7.7. Customers. After execution of this Agreement and prior to Closing,
the Interest Holders, the Acquired Entities and Acquiror shall, either
individually or jointly, notify the customers of the Acquired Entities of the
transactions contemplated hereby. As promptly as practicable following the
Closing, the Interest Holders and Acquiror shall notify such customers thereof
and shall provide, or join in providing where appropriate, all notices to such
customers and other persons that the Interest Holders, the Acquired Entities or
Acquiror, as the case may be, are or is required to give by any Governmental
Body having jurisdiction over any such Person or under applicable law or other
terms of any other agreement between any Acquired Entity or its employees and
any customer in connection with the transactions contemplated hereby.
7.8. Preservation of Relationships. The Interest Holders (excluding, for
this purpose, Hackel) shall use their best efforts, and shall use their best
efforts to cause all of their Affiliates including, without limitation, the
Acquired Entities and their respective employees (in their capacity as
employees) to use their best efforts, to maintain in effect all material
contractual and business relationships with the Acquired Entities or the
employees (in their capacity as employees) and to waive any and all rights to
terminate any such relationship arising as a result of the transactions
contemplated by this Agreement, except as otherwise contemplated by this
Agreement.
7.9. Resale; Legends. (a) The Interest Holders and the Acquired Entities
shall not sell or otherwise transfer any of their Acquiror Shares until (a) such
Acquiror Shares shall have been registered under the Securities Act, or (b)
Acquiror shall have received an opinion of legal counsel, satisfactory to
Acquiror, that such Acquiror Shares may be legally sold or otherwise transferred
without such registration.
(b) For a period of forty days following the Closing, no member of the
Employee Group shall sell or otherwise transfer, or offer to sell or otherwise
transfer, any of their Acquiror Shares in the United States or to or for the
account or the benefit of a "U.S. Person" as such term is defined in Section
901(o) of Regulation S promulgated under the Securities Act. Thereafter, no
member of the Employee Group shall sell or otherwise transfer, or offer to sell
or otherwise transfer, any of their Acquiror Shares in the United States or to
or for the account or the benefit of a U.S. Person until (a) such Acquiror
Shares shall have been registered under the
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Securities Act, or (b) Acquiror shall have received an opinion of legal counsel,
satisfactory to Acquiror, that such Acquiror Shares may be legally offered, sold
or otherwise transferred in the United States or to or for the account or the
benefit of a U.S Person without such registration.
(c) The Acquiror Shares to be delivered to the Interest Holders and/or the
Acquired Entities shall be imprinted with a legend, in substantially the
following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"), and may not be
sold or transferred in the absence of an effective registration statement
under the Act or an exemption from registration thereunder. Prior to any
sale or transfer of the securities represented by this certificate, except
pursuant to an effective registration statement under the Act covering such
sale or transfer, the holder hereof shall have delivered to the issuer
hereof (the "Company") an opinion of counsel reasonably satisfactory to the
Company to the effect that such sale or transfer is exempt from
registration under the Act."
(d) The Acquiror Shares to be delivered to the Employee Group shall be
imprinted with a legend in substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"), and, for a period
of 40 days after delivery pursuant to the Share Exchange Agreement dated
August 19, 1996, may not be sold or otherwise transferred or offered for
sale or transfer in the United States or to or for the account or the
benefit of a U.S. Person (as such term is defined in Section 901(o) of
Regulation S promulgated under the Act) or at any time thereafter in the
absence of an effective registration statement under the Act or an
exemption from registration thereunder. Prior to any offer, sale or
transfer of the securities represented by this certificate following such
40 day period in the United States or to or for the account or the benefit
of a U.S. Person, except pursuant to an effective registration statement
under the Act covering such offer, sale or transfer, the holder hereof
shall have delivered to the issuer hereof (the "Company") an opinion of
counsel reasonably satisfactory to the Company to the effect that such
offer, sale or transfer is exempt from registration under the Act."
7.10. Pooling Treatment. Neither Acquiror nor any Acquired Entity nor any
of the Interest Holders shall intentionally take, fail to take or cause to be
taken or not taken any action within its control, whether before or after the
Closing, which would disqualify the transactions consummated under this
Agreement as a "pooling of interests" for accounting purposes.
7.11. Shareholder Approval; Proxy Statement. (a) As soon as practicable
after the date hereof, Acquiror shall prepare a proxy statement (the "Proxy
Statement"), file it with the SEC, respond to comments of the Staff of the SEC,
clear the Proxy Statement with the Staff of the SEC and promptly thereafter mail
the Proxy Statement to all holders of Acquiror Common Stock. The Interest
Holders shall, and shall cause the Acquired Entities to, cooperate with Acquiror
in the preparation of the Proxy Statement.
(b) Acquiror shall take all action necessary, in accordance with applicable
law and its certificate of incorporation and by-laws, to convene a meeting of
the holders of Acquiror Common Stock (the "Stockholders Meeting") for the
purpose of considering and taking action with respect to the approval of the
issuance of the Acquiror Shares as required by the rules of the National
Association of Securities Dealers, Inc. in connection with the transactions
contemplated by this Agreement and any of the other transactions pursuant to
which Acquiror shall acquire all of the outstanding capital stock or equity
interests in each of the BioClin Affiliates.
ARTICLE VIII
CONDITIONS
8.1. Conditions to Each Party's Obligation to Consummate the Closing. The
respective obligations of each party to consummate the Closing shall be subject
to the fulfillment or waiver at or prior to the Closing of the following
conditions:
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(a) The issuance of the Acquiror Shares shall have been approved by the
requisite vote of the holders of Acquiror Common Stock.
(b) The transfer of the Company Shares and the Kilmer Shares and the sale,
transfer and assignment of Sub Shares and the transfer and delivery of the
Acquiror Shares in consideration and in exchange therefor as contemplated by
this Agreement and the transactions contemplated hereby shall have been approved
by the Governmental Bodies whose approval is required to consummate the
transactions contemplated hereby without any condition which is reasonably
likely to have a material adverse effect on the financial condition, business or
results of operations of the Acquired Entities or Acquiror taken as a whole; all
conditions required to be satisfied prior to the Closing imposed by the terms of
such approvals shall have been satisfied; and all notifications to any
Governmental Bodies that are required shall have been made.
(c) None of Acquiror, the Trustee, the Interest Holders nor the Acquired
Entities shall be subject to any order, decree or injunction of any Governmental
Body which enjoins or prohibits the consummation of the transactions
contemplated by this Agreement.
(d) Acquiror, the Acquired Entities and the Interest Holders shall have
received a letter, dated the Closing Date, from KPMG Peat Marwick L.L.P. to the
effect that, for financial reporting purposes, the transactions contemplated
hereby qualify for pooling-of-interests accounting treatment under U.S. GAAP if
consummated in accordance with this Agreement.
(e) The Stockholders' Agreement and the Employment Agreements shall have
been entered into by the parties thereto.
8.2. Conditions to Obligation of Acquiror to Consummate the Closing. The
obligations of Acquiror to consummate the Closing shall be subject to the
fulfillment or waiver at or prior to the Closing of the following additional
conditions:
(a) (i) The representations and warranties of the Acquired Entities, the
Trustee, the Employee Trustee and the Interest Holders set forth in Articles IV
and V hereof (A) that contain a materiality qualification shall be true and
correct and (B) that do not contain a materiality qualification shall be true
and correct in all material respects, as of the Closing as though made at and as
of the Closing (it being understood that representations and warranties that
speak as of a specified date shall continue to speak only as of the date so
specified) without giving effect to any supplement to the Disclosure Letter,
except for such changes occurring after the date hereof in the ordinary course
of business of the Acquired Entities and in accordance with the terms and
provisions of this Agreement (including, without limitation, Section 6.1(a)),
which, in the aggregate, would not have a material adverse effect on the
financial condition, operations or prospects of the Acquired Entities and the
BioClin Affiliates taken as a whole, and (ii) Acquiror shall have received a
signed certificate of each of the Acquired Entities (which is to the knowledge
of a principal executive officer thereof), the Trustee and the Interest Holders
to that effect. Acquiror's closing of the transactions contemplated by this
Agreement and the agreements with the BioClin Affiliates with respect to
Acquiror's acquisition of all of the outstanding capital stock or equity
interests of the BioClin Affiliates shall constitute acceptance of the
disclosures made by the Acquired Entities and/or the Interest Holders prior to
Closing in the Disclosure Letter and waiver of any purported misrepresentation
or breach of any representation or warranty made by such Persons in Article V or
any covenant of such Persons contained in Article VI or VII to the extent the
Disclosure Letter, as supplemented pursuant to Section 7.6(a) and (f), discloses
information pertaining thereto.
(b) The Acquired Entities, the Trustee and the Interest Holders shall have
in all material respects performed all obligations required to be performed by
them under this Agreement prior to the Closing, and Acquiror shall have received
a signed certificate of each of the Acquired Entities, the Trustee and the
Interest Holders to that effect.
(c) Acquiror shall have received a legal opinion dated the Closing, from
Piper & Marbury, L.L.P., counsel of the Interest Holders, with respect to the
transactions contemplated herein in form mutually agreed upon by Acquiror and
the Interest Holders.
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(d) The Board of Directors of Acquiror shall have received an opinion from
Vector Securities International, Inc., dated not later than the date of
Acquiror's Proxy Statement (and such opinion shall not have been withdrawn on or
before the Closing Date) to the effect that as of the date thereof, the number
of Acquiror Shares to be delivered in consideration for the transfer of the
Company Shares, the Sub Shares, the Kilmer Shares and the capital stock or
equity interests in each of the BioClin Affiliates is fair to Acquiror and to
Acquiror's stockholders from a financial point of view.
(e) Acquiror shall have acquired all of the outstanding capital stock or
equity interests in each of the BioClin Affiliates.
(f) The Acquired Entities shall have obtained the written consent(s) of the
Person(s) specified in Part 8.2 of the Acquiror Letter.
8.3. Conditions to Obligation of the Acquired Entities, the Trustee, the
Employee Trustee, the Employee Group and the Interest Holders to Consummate the
Closing. The obligations of the Acquired Entities, the Trustee, the Employee
Trustee, the Employee Group and the Interest Holders to consummate the Closing
shall be subject to the fulfillment or waiver at or prior to the Closing of the
following additional conditions:
(a) (i) The representations and warranties of Acquiror set forth in Article
III hereof (A) that contain a materiality qualification shall be true and
correct, and (B) that do not contain a materiality qualification shall be true
and correct in all material respects, as of the Closing as though made at and as
of the Closing (it being understood that representations and warranties that
speak as of a specified date shall continue to speak only as of the date so
specified) without giving effect to any supplement to the Acquiror Letter,
except for such changes occurring after the date hereof in the ordinary course
of business of Acquiror and in accordance with the terms and provisions of this
Agreement (including, without limitation, Section 6.1(b)), which, in the
aggregate, would not have a material adverse effect on the financial condition,
operations or prospects of Acquiror and its Subsidiaries taken as a whole, and
(ii) each of the Acquired Entities and the Interest Holders shall have received
a signed certificate which is to the knowledge of a principal executive officer
of Acquiror to that effect. The closing of the transactions contemplated by this
Agreement and the agreements with the BioClin Affiliates with respect to
Acquiror's acquisition of all of the outstanding capital stock or equity
interests of the BioClin Affiliates shall constitute acceptance by the Acquired
Entities, the Trustee and the Interest Holders of the disclosures made by
Acquiror prior to the Closing in the Acquiror Letter and waiver of any purported
misrepresentation or breach of any representation or warranty made by Acquiror
in Article III or any covenant of Acquiror contained in Article VI or VII to the
extent the Acquiror Letter, as supplemented pursuant to Section 7.6(b) and (f),
discloses information pertaining thereto.
(b) Acquiror shall have in all material respects performed all obligations
required to be performed by it under this Agreement prior to the Closing, and
each of the Acquired Entities, the Trustee and the Interest Holders shall have
received a signed certificate which is to the knowledge of a principal executive
officer of Acquiror to that effect.
(c) The Interest Holders shall have received a legal opinion dated the
Closing from Jones, Day, Reavis & Pogue, counsel of Acquiror, with respect to
the transactions contemplated herein in form mutually agreed upon by Acquiror
and the Interest Holders.
(d) All liabilities and obligations of Hackel (direct or indirect) and
Barbut pursuant to any guarantees of the indebtedness of the Acquired Entities
and the BioClin Affiliates shall have been terminated.
ARTICLE IX
TERMINATION
9.1. Termination. This Agreement may, by notice given prior to or at the
Closing, be terminated:
(a) by either Acquiror or the Interest Holders if a material breach of any
provision of this Agreement has been committed by the other party and such
breach has not been waived;
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(b) (i) by Acquiror, if any of the conditions in Section 8.1 or 8.2 has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Acquiror to comply with
its obligations under this Agreement) and Acquiror has not waived such condition
on or before the Closing Date; or (ii) by the Interest Holders, if any of the
conditions in Section 8.1 or 8.3 has not been satisfied as of the Closing Date
or if satisfaction of such a condition is or becomes impossible (other than
through the failure of the Trustee, the Acquired Entities or the Interest
Holders to comply with their obligations under this Agreement) and the Interest
Holders have not waived such condition on or before the Closing Date;
(c) by mutual consent of Acquiror and the Interest Holders;
(d) by either Acquiror or the Interest Holders if any of the agreements
relating to the transfer and delivery of the Acquiror Common Stock in
consideration for the sale, transfer and assignment of the outstanding capital
stock or equity interests in each of the BioClin Affiliates is terminated; or
(e) by either Acquiror or the Interest Holders if the Closing has not
occurred (other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before December 31, 1996, or such later date as the parties may agree upon.
9.2. Effect of Termination. If this Agreement is terminated pursuant to
Section 9.1, all further obligations of the parties under this Agreement will
terminate, except that the obligations set forth in Sections 6.3(c), 10.2 and
10.3 will survive; provided, however, that if this Agreement is terminated by
Acquiror or the Interest Holders because of the intentional breach of the
Agreement (including, without limitation, the making by any party hereto of any
representation or warranty hereunder that is known by such party not to be true
and correct in all material respects at the time such representation or warranty
is made) by the Interest Holders or Acquiror, as the case may be, or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's intentional failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
ARTICLE X
GENERAL PROVISIONS
10.1. Survival of Representations, Warranties and Agreements. Except as
specifically provided in the this Agreement and the Stockholders' Agreement, all
representations, warranties and agreements of the parties hereto in this
Agreement or in any instrument delivered by the parties hereto pursuant to this
Agreement shall expire on the Report Date or upon termination of this Agreement
in accordance with its terms.
10.2. Expenses. Except as otherwise expressly provided in this Agreement
(including, without limitation, in Section 6.3(b)) and the Letter Agreement,
dated May 16, 1996, by and among Acquiror, the Company, and the BioClin
Affiliates, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the transactions contemplated hereby, including all fees and
expenses of agents, representatives, counsel, and accountants. Acquiror will pay
all amounts payable to Vector Securities International, Inc. in connection with
this Agreement and the transactions contemplated hereby. In the event of
termination of this Agreement pursuant to Article IX, the obligation of each
party to pay its own expenses shall be subject to the right of such party to
pursue any legal remedies arising from the intentional breach of this Agreement
by the other party or the other party's failure to comply with its obligations
under this Agreement as provided in Section 9.2.
10.3. Confidentiality. Between the date of this Agreement and the Closing
Date, Acquiror and the Interest Holders will maintain in confidence, and will
cause the directors, managing directors, Prokurists, holders of procuration,
commercial mandate holders, officers, employees, agents, and advisors of
Acquiror and the Acquired Entities to maintain in confidence, and not use to the
detriment of another party hereto any written, oral, or other information
obtained in confidence from another party in connection with this
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Agreement or the transactions contemplated hereby, unless (a) such information
is already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available through no fault
of such party, (b) the use of such information is necessary or appropriate in
making any filing or obtaining any consent or approval required for the
consummation of the transactions contemplated hereby, or (c) the furnishing or
use of such information is required by or necessary or appropriate in connection
with legal proceedings. If any party hereto or its Representatives are requested
or become legally compelled (by oral questions, interrogatories, requests for
information or documents, subpoena, civil or criminal investigative demand, or
similar process) or is required by a regulatory body to make any disclosure that
is prohibited or otherwise constrained by this Agreement, such party or its
Representative, as the case may be, will provide the party providing the
confidential information with prompt notice of such request so that an
appropriate protective order or other appropriate remedy may be sought. Subject
to the foregoing, such party or its Representative may furnish that portion (and
only that portion) of the confidential information that, in the written opinion
of its counsel reasonably acceptable to the party providing such information,
such party is legally compelled or is otherwise required to disclose the
information at issue or else stand liable for contempt or suffer other material
censure or material penalty. If the transactions contemplated hereby are not
consummated, each party hereto will return or destroy as much of such written
information as the other party may reasonably request. Whether or not the
Closing takes place, the Interest Holders waive, and will upon Acquiror's
request cause the Acquired Entities to waive, any cause of action, right, or
claim arising out of the access of Acquiror or its Representatives to any trade
secrets or other confidential information of the Acquired Entities except for
the intentional competitive misuse by Acquiror of such trade secrets or
confidential information. Each of the Acquired Entities and each Interest Holder
acknowledges that, and agrees that it will advise its Representatives and
Affiliates, that any non-public information provided by or relating to Acquiror
may constitute material non-public information for purposes of the Exchange Act,
and agrees that it will not engage in any transaction in violation of the
restrictions on trading while in possession of material non-public information
under applicable securities laws or regulations while in possession of such
information.
10.4. Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), or (c) when received
by the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
(a) if to Acquiror:
DNX Corporation
303B College Road East
Princeton, New Jersey 08540
Attention: President
Telecopier No.: (908) 722-6677
with copies to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Thomas C. Daniels, Esq.
Telecopier No.: (216) 579-0212
(b) if to the Employee Trustee:
Dr. Gerald Rittershaus
Theodor-Heuss-Anlage 2
68165 Mannheim
Germany
Telecopier No.: (621) 4256-250
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(c) if to the Trustee:
Mr. Manfred Wissmann
Theodor-Heuss-Anlage 2
68165 Mannheim
Germany
Telecopier No.: (621) 4256-250
(d) if to the Interest Holders:
Jack Barbut
c/o Piper & Marbury, L.L.P.
1251 Avenue of the Americas
New York, New York 10020-1104
Telecopier No.: (212) 835-6001
Alec Hackel
Flueliweg 3
6045 Meggen
Switzerland
Telecopier No.: (011) 41-41-377-3053
Dr. John Christian Jensen
Bohlstrasse 9a
6300 Zug
Switzerland
Telecopier No.: (011) 41-41-710-2341
with copies to:
Piper & Marbury L.L.P.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ray A. Mantle, Esq.
Telecopier No.: (212) 835-6001
(e) if to any Acquired Entity:
c/o BioClin, Inc.
1001 East Main Street
Suite 808
Richmond, Virginia 23219
Attention: Chief Executive Officer
Telecopier No.: (804) 788-0040
with copies to:
Piper & Marbury L.L.P.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ray A. Mantle, Esq.
Telecopier No.: (212) 835-6001
10.5. Jurisdiction; Service of Process. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of New York, County of New York, or, if it has or can acquire jurisdiction, in
the United States District Court for the Southern District of New York, and each
of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to
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venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world.
10.6. Further Assurances. The parties agree (a) to furnish upon request to
each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
10.7. Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Except as otherwise specifically provided by
Sections 8.2 and 8.3 of this Agreement, neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, and except as otherwise specifically
provided by Sections 8.2 and 8.3 of this Agreement (a) no claim or right arising
out of this Agreement or the documents referred to in this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
10.8. Entire Agreement and Modification. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes (along with the Stockholders' Agreement and the other documents
referred to in this Agreement and the documents executed in connection with
Acquiror's acquisition of the equity interests of the BioClin Affiliates) a
complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter. This Agreement may not be amended
except by a written agreement executed by each of the parties hereto.
10.9. Assignments, Successors, and No Third-Party Rights. No party hereto
may assign any of its rights under this Agreement without the prior consent of
the other parties, except that Acquiror may assign any of its rights under this
Agreement to any Subsidiary of Acquiror. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the parties to this Agreement and their successors and assigns any
legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.
10.10. Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable. The
invalid or unenforceable provision shall be replaced by a provision which
ensures the economic purpose of the invalid or unenforceable provision as far as
possible.
10.11. Foreign Currencies. For purposes of the representations and
warranties set forth in this Agreement, any reference to "U.S. $" shall be
construed to include the U.S. dollar equivalent of any foreign currency (other
than DM and SFR) computed using the noon buying rate in New York City for cable
transfers of such foreign currency as announced for customs purposes by the
Federal Reserve Bank of New York prevailing on the date of this Agreement.
10.12. Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
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Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
10.13. Governing Law. This Agreement will be governed by the laws of the
State of New York without regard to conflicts of laws principles.
10.14. Specific Performance. Each of the Acquired Entities, the Interest
Holders, the Trustee, the Employee Trustee, the Employee Group and Acquiror
acknowledges and agrees that the other parties would be damaged irreparably in
the event any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached. Accordingly,
each of the Acquired Entities, the Interest Holders, the Trustee and Acquiror
agrees that the other parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court in the United States or in any state having jurisdiction
over the parties and the matter in addition to any other remedy to which they
may be entitled pursuant hereto.
10.15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
DNX CORPORATION
By: /s/ PAUL J. SCHMITT
Name: Paul J. Schmitt
Title: President and Chief
Executive Officer
/s/ DR. GERALD RITTERSHAUS
Dr. Gerald Rittershaus,
as Employee Trustee
/s/ MANFRED WISSMANN
Mr. Manfred Wissmann,
as Trustee
/s/ JACK BARBUT
Dr. Jack Barbut
/s/ ALEC HACKEL
Alec Hackel
/s/ DR. JOHN CHRISTIAN JENSEN
Dr. John Christian Jensen
/s/ BETTINA DONHARDT
Ms. Bettina Donhardt
/s/ CHRISTINE DUNE-KRAATZ
Ms. Christine Dune-Kraatz
BIOCLIN EUROPE AG
By: /s/ DR. JOHN CHRISTIAN JENSEN
Name: Dr. John Christian Jensen
Title: President
BIOCLIN GMBH
By: /s/ BETTINA DONHARDT
Name: Bettina Donhardt
Title: Authorized Signatory
KILMER N.V.
By: /s/ CURACAO CORPORATION COMPANY
N.V.
Name: Curacao Corporation Company
N.V.
Title: Managing Director
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<PAGE> 261
EXHIBIT A
SEE EXHIBIT A TO APPENDIX B
<PAGE> 262
EXHIBIT B
SEE APPENDIX E
<PAGE> 263
APPENDIX D
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARE ACQUISITION AGREEMENT
AMONG
DNX CORPORATION
(A DELAWARE CORPORATION),
DR. GERALD RITTERSHAUS, AS TRUSTEE,
DR. JACK BARBUT,
ALEC HACKEL,
DR. JOHN CHRISTIAN JENSEN
AND
BIOCLIN INSTITUTE OF CLINICAL PHARMACOLOGY GMBH
(A GERMAN CORPORATION)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 264
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Recitals................................................................................ 1
ARTICLE I DEFINITIONS.................................................................. 2
ARTICLE II PURCHASE AND SALE OF THE COMPANY SHARES..................................... 9
2.1. Sale, Purchase and Assignment of the Company Shares......................... 9
2.2. Closing..................................................................... 10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR................................. 10
3.1. Authorization, Validity and Effect.......................................... 10
3.2. Acquiror Shares............................................................. 11
3.3 Conflicts; Defaults......................................................... 11
3.4. Exchange Act Filings........................................................ 11
3.5. Absence of Material Adverse Changes......................................... 11
3.6. Taxes....................................................................... 12
3.7. Legal Proceedings; Orders................................................... 12
3.8. Absence Of Certain Changes and Events....................................... 12
3.9. Contracts; No Defaults...................................................... 14
3.10. Insurance................................................................... 14
3.11. Environmental Matters....................................................... 15
3.12. Labor Relations; Compliance................................................. 15
3.13. Intellectual Property....................................................... 15
3.14. Disclosure.................................................................. 15
3.15. Brokers and Finders......................................................... 16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE REGARDING THE TRUSTEE AND THE
COMPANY SHARES.............................................................. 16
4.1. Authorization, Validity and Effect.......................................... 16
4.2. Consents and Approvals; No Violation........................................ 16
4.3. Title and Power to Sell..................................................... 16
4.4. Litigation.................................................................. 17
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE INTEREST HOLDERS WITH
RESPECT TO THE COMPANY....................................................... 17
5.1. Organization, Authority and Authorization................................... 17
5.2. Consents and Approvals; No Violation........................................ 18
5.3. Title and Power to Sell..................................................... 18
5.4. Capitalization of the Company; Subsidiaries................................. 18
5.5. Company Financial Statements................................................ 19
5.6. Books and Records........................................................... 19
5.7. Reports..................................................................... 20
5.8. Absence of Material Adverse Changes......................................... 20
5.9. Title to Properties; Encumbrances........................................... 20
5.10. Condition and Sufficiency of Assets......................................... 21
5.11. Accounts Receivable......................................................... 21
5.12. No Undisclosed Liabilities.................................................. 22
5.13. Taxes....................................................................... 22
5.14. Compliance with Legal Requirements; Governmental Authorizations............. 23
5.15. Legal Proceedings; Orders................................................... 24
5.16. Absence Of Certain Changes and Events....................................... 25
5.17. Contracts; No Defaults...................................................... 26
5.18. Insurance................................................................... 29
5.19. Environmental Matters....................................................... 30
5.20. Employees................................................................... 33
</TABLE>
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5.21. Labor Relations; Compliance................................................. 33
5.22. Intellectual Property....................................................... 34
5.23. Certain Payments............................................................ 38
5.24. Disclosure.................................................................. 38
5.25. Relationships with Related Persons.......................................... 39
5.26. Brokers and Finders......................................................... 39
5.27. Employee Benefit Plans...................................................... 39
5.28. Investment Intent; Accredited Investor...................................... 40
ARTICLE VI CONDUCT OF BUSINESS PRIOR TO THE CLOSING.................................... 40
6.1. Conduct Prior to Closing.................................................... 40
6.2. Consents and Approvals...................................................... 43
6.3. Bookkeeping, Accounting and Financial Reporting Capabilities................ 43
ARTICLE VII ADDITIONAL AGREEMENTS...................................................... 44
7.1. Current Information......................................................... 44
7.2. Access and Investigation.................................................... 45
7.3. Effect of Investigations.................................................... 45
7.4. Press Releases, Etc......................................................... 45
7.5. Acquisition Proposals....................................................... 45
7.6. Notification of Certain Matters............................................. 46
7.7. Customers................................................................... 48
7.8. Preservation of Relationships............................................... 48
7.9. Resale; Legends............................................................. 48
7.10. Pooling Treatment........................................................... 49
7.11. Shareholder Approval; Proxy Statement....................................... 49
ARTICLE VIII CONDITIONS................................................................ 50
8.1. Conditions to Each Party's Obligation to Consummate the Closing............. 50
8.2. Conditions to Obligation of Acquiror to Consummate the Closing.............. 50
8.3. Conditions to Obligation of Interest Holders Owner to Consummate the 52
Closing.....................................................................
ARTICLE IX TERMINATION................................................................. 53
9.1. Termination................................................................. 53
9.2. Effect of Termination....................................................... 53
ARTICLE X GENERAL PROVISIONS........................................................... 54
10.1. Survival of Representations, Warranties and Agreements...................... 54
10.2. Expenses.................................................................... 54
10.3. Confidentiality............................................................. 54
10.4. Notices..................................................................... 55
10.5. Jurisdiction; Service of Process............................................ 57
10.6. Further Assurances.......................................................... 57
10.7. Waiver...................................................................... 57
10.8. Entire Agreement and Modification........................................... 58
10.9. Assignments, Successors, and No Third-Party Rights.......................... 58
10.10. Severability................................................................ 58
10.11. Foreign Currencies.......................................................... 59
10.12. Section Headings, Construction.............................................. 59
10.13. Governing Law............................................................... 59
10.14. Specific Performance........................................................ 59
10.15. Counterparts................................................................ 59
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Exhibits
A-1 Employment Agreement between Acquiror and Dr. Jack Barbut
A-2 Consulting Agreement between Acquiror and Dr. Jack Barbut
A-3 Employment Agreement between Acquiror and Dr. J. Chris Jensen
B Stockholders' Agreement
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SHARE ACQUISITION AGREEMENT
This Share Acquisition Agreement (this "Agreement") made as of the 19th day
of August, 1996 by and among DNX Corporation, a Delaware corporation
("Acquiror"), with its principal offices at 575 Route 28, Raritan, New Jersey,
Dr. Gerald Rittershaus, acting solely in his capacity as trustee (the "Trustee")
pursuant to an Agreement among the Trustee, Dr. Jack Barbut and Alec Hackel,
dated August 29, 1991 (the "Trust Agreement"), Dr. Jack Barbut whose address is
c/o Piper & Marbury, L.L.P. 1251 Avenue of the Americas, New York, New York
10020-1104 ("Barbut"), Alec Hackel whose address is Flueliweg 3, 6045 Meggen,
Switzerland ("Hackel"), Dr. John Christian Jensen whose address is Bohlstrasse
9a, 6300 Zug, Switzerland ("Jensen," collectively with Barbut and Hackel, the
"Interest Holders"), as the holders of all of the equity interests in the
Company, and BioClin Institute of Clinical Pharmacology GmbH, a German
corporation (the "Company").
RECITALS
A. The Trustee, for the benefit of Hackel and Barbut (the "Joint Beneficial
Shareholders"), and Jensen hold equity interests (Geschaeftsanteile) in the
Company (the "Company Shares"), which constitute all of the equity interests in
the Company.
B. The Trustee, at the direction of the Joint Beneficial Shareholders, and
Jensen desire to sell, transfer and assign, and Acquiror desires to purchase and
acquire, the Company Shares, on the terms and subject to the conditions set
forth in this Agreement.
C. As a condition hereto and simultaneously herewith, Acquiror shall
purchase and acquire all of the issued and outstanding stock or equity interests
of BioClin Europe AG, a Swiss corporation, BioClin GmbH, a German corporation,
and Kilmer N.V., a Netherlands Antilles corporation (collectively,
"BioClin/Europe"), and BioClin Inc., a Delaware corporation, ("BioClin/U.S.,"
and collectively with BioClin/Europe, the "BioClin Affiliates").
D. The Interest Holders, the Trustee, the Company and Acquiror wish to
enter into this Agreement for the purpose of making certain representations and
warranties to each other and entering into certain other obligations in favor of
each other.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article I:
"Acquiror" has the meaning given in the first paragraph of this Agreement.
"Accounts Receivable" has the meaning given in Section 5.11.
"Acquiror's Advisors" has the meaning given in Section 7.2.
"Acquiror Common Stock" has the meaning given in Section 2.1(a).
"Acquiror Letter" means the disclosure letter delivered by Acquiror to the
Interest Holders concurrently with the execution and delivery of this Agreement.
"Acquiror Shares" has the meaning given in Section 2.1(a).
"Affiliate" of a specified Person is a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the Person specified.
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"Agreement" has the meaning given in the first paragraph of this Agreement.
"Applicable Contract" means any Contract (a) under which the Company has or
may acquire any rights, (b) under which the Company has or may become subject to
any obligation or liability, or (c) by which the Company or any of the assets
owned or used by it is or may become bound.
"Balance Sheet" has the meaning given in Section 5.5.
"Barbut" has the meaning given in the first paragraph of this Agreement.
"BioClin Affiliates" has the meaning given in the Recitals of this
Agreement.
"BioClin/Europe" has the meaning given in the Recitals of this Agreement.
"BioClin/U.S." has the meaning given in the Recitals of this Agreement.
"Business Day" means any day on which banks are generally open to conduct
business in New York, New York.
"Closing" has the meaning given in Section 2.1(a).
"Closing Date" has the meaning given in Section 2.2.
"Company" has the meaning given in the first paragraph of this Agreement.
"Company Reports" has the meaning given in Section 5.7.
"Company Shares" has the meaning given in the Recitals of this Agreement.
"Competing Business" has the meaning given in Section 5.25.
"Consent" means any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contract" means any agreement, contract, obligation, promise or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Copyrights" has the meaning given in Section 5.22(a).
"CRAs" has the meaning given in Section 5.17(a)(ix).
"Disclosure Letter" means the disclosure letter delivered by the Interest
Holders to Acquiror concurrently with the execution and delivery of this
Agreement.
"DM" has the meaning given in Section 5.4.
"Employment Agreements" means collectively the Employment Agreements to be
entered at the Closing by and between Acquiror and each of Barbut and Jensen, in
substantially the form attached hereto as Exhibits A-1 and A-2.
"Encumbrance" means any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"Environment" means soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental, Health, and Safety Liabilities" means any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to: (a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products); (b) fines, penalties,
judgments, awards, settlements, legal or administrative proceedings, damages,
losses,
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claims, demands and response, investigative, remedial, or inspection costs and
expenses arising under Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational Safety and
Health Law for cleanup costs or corrective action, including any investigation,
cleanup, removal, containment, or other remediation or response actions
("Cleanup") required by applicable Environmental Law or Occupational Safety and
Health Law (whether or not such Cleanup has been required or requested by any
Governmental Body or any other Person) and for any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law or Occupational Safety and Health Law.
"Environmental Law" means any Legal Requirement that requires or relates
to: (a) advising appropriate authorities, employees, and the public of intended
or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the commencements
of activities, such as resource extraction or construction, that could have
significant impact on the Environment; (b) preventing or reducing to acceptable
levels the release of pollutants or hazardous substances or materials into the
Environment; (c) reducing the quantities, preventing the release, or minimizing
the hazardous characteristics of wastes that are generated; (d) assuring that
products are designed, formulated, packaged, and used so that they do not
present unreasonable risks to human health or the Environment when used or
disposed of; (e) protecting resources, species, or ecological amenities; (f)
reducing to acceptable levels the risks inherent in the transportation of
hazardous substances, pollutants, oil, or other potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing the threat of
release, or paying the costs of such clean up or prevention; or (h) making
responsible parties pay private parties, or groups of them, for damages done to
their health or the Environment, or permitting self-appointed representatives of
the public interest to recover for injuries done to public assets.
"Exchange Act" has the meaning given in Section 3.4.
"Facilities" means any real property, leaseholds or other interests
currently or formerly owned or operated by the Company and any buildings,
plants, structures or equipment currently or formerly owned or operated by the
Company.
"German GAAP" means generally accepted accounting principles prevailing in
Germany (Grundsaetze ordnungsgemaesser Buchfuehrung und Bilanzierung).
"Governmental Authorization" means any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" means any: (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal (Bund),
county (Land), state, local, municipal, foreign, or other government; (c)
governmental or quasi-governmental authority of any nature (including any
governmental agency, branch, department, official, or entity and any court or
other tribunal); (d) multi-national organization or body; or (e) body
exercising, or entitled to exercise, any administrative, executive, judicial,
legislative, police, regulatory, or taxing authority or power of any nature.
"Hackel" has the meaning given in the first paragraph of this Agreement.
"Hazardous Activity" means the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment, and any
other act, business, operation, or thing that increases the danger, or risk of
danger, or poses an unreasonable risk of harm to persons or property on or off
the Facilities, or that may affect the value of the Facilities or the Acquired
Companies.
"Hazardous Materials" means any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
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including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"Intellectual Property Assets" has the meaning given in Section 5.22(a).
"Interest Holders" has the meaning given in the first paragraph of this
Agreement.
"IRC" has the meaning given in the definition of "Tax Laws" in Article I.
"IRS" has the meaning given in the definition of "Tax Laws" in Article I.
"Jensen" has the meaning given in the first paragraph of this Agreement.
"Joint Beneficial Shareholders" has the meaning given in the Recitals of
this Agreement.
"knowledge" has the meaning given in Section 7.6(e).
"Legal Requirement" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Marks" has the meaning given in Section 5.22(a).
"Occupational Safety and Health Law" means any Legal Requirement designed
to provide safe and healthful working conditions and to reduce occupational
safety and health hazards, and any program, whether governmental or private
(including those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Patents" has the meaning given in Section 5.22(a).
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership (Personengesellschaft), limited
liability company (Kapitalgesellschaft), joint venture, estate, trust,
association, organization, labor union, or other entity or Governmental Body.
"Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Proprietary Rights Agreement" has the meaning given in Section 5.20(b).
"Proxy Statement" has the meaning given in Section 7.11(a).
"Related Person" means (i) with respect to a particular individual: (a)
each other member of such individual's Family; (b) any Person that is directly
or indirectly controlled by such individual or one or more members of such
individual's Family; (c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material Interest;
and (d) any Person with respect to which such individual or one or more members
of such individual's Family serves as a director, managing director, Prokurist,
officer, partner, executor, or trustee (or in a similar capacity); and (ii) with
respect to a specified Person other than an individual: (a) any Person that
directly or indirectly controls, is directly or indirectly controlled by, or is
directly or indirectly under common control with such specified Person; (b) any
Person that holds a Material Interest in such specified Person; (c) each Person
that serves as a director, managing director, Prokurist, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity); (d)
any Person in which such specified Person holds a Material Interest; (e) any
Person with respect to which such specified Person serves as a general partner
or a trustee (or in a similar capacity); and (f) any Related Person of any
individual described in clause (b) or (c). For purposes of this definition, (a)
the "Family" of an individual includes (i) the individual, (ii) the individual's
spouse and former spouses, (iii) any other natural person who is related to the
individual or the individual's spouse within the second degree, and (iv) any
other natural person who resides with such individual, and (b) "Material
Interest" means direct or indirect
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beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of voting securities or other voting interests representing at least 5%
of the outstanding voting power of a Person or equity securities or other equity
interests representing at least 5% of the outstanding equity securities or
equity interests in a Person.
"Release" means any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"Report Date" has the meaning given in the Stockholders' Agreement.
"Representative" means, with respect to a particular Person, any director,
managing director, Prokurist, officer, employee, agent, consultant, advisor, or
other representative of such Person, including legal counsel, accountants, and
financial advisors.
"SEC" has the meaning given in Section 3.4.
"SEC Documents" has the meaning given in Section 3.4.
"Securities Act" means the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"Stockholders' Agreement" means the Stockholders' Agreement to be entered
into at the Closing by, among others, Acquiror, the Trustee, the Interest
Holders, Sherby N.V., Martha Lee Reynolds, Barry Dvorchik, Christine
Dune-Kraatz, Dr. Gerald Rittershaus, acting solely in his capacity as trustee
(the "Employee Trustee") pursuant to a Trust Agreement between the Employee
Trustee and Christine Dune-Kraatz, and Bettina Donhardt, in substantially the
form attached hereto as Exhibit B.
"Stockholders Meeting" has the meaning given in Section 7.11(b).
"Subsidiary" means, with respect to any Person, any corporation or other
Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"Taxes" means, to the extent applicable to any party hereto, all German,
U.S. and foreign and all state, municipal and local taxes, charges, fees, levies
or other assessments of whatever kind or nature, including without limitation,
all net income, gross income, gross receipts, sales, value added, use, services,
ad valorem, occupation, transfer, franchise, capital stock, profits, license,
withholding, payroll, employment, unemployment, excise, estimated, severance,
stamp, occupancy or property taxes, custom duties, assessments or governmental
fiscal charges of any kind whatever (together with any interest, penalty, or
addition to tax).
"Taxing Authority" means, to the extent applicable to any party hereto, the
German tax authorities (Finanzamt Dusseldorf Sued), the United States Internal
Revenue Service (the "IRS") or, in either case, any successor agency, and, to
the extent applicable to any party hereto, any similar foreign, state, municipal
or local Governmental Body.
"Tax Laws" means, to the extent applicable to any party hereto, the German
tax laws (Umsatzsteuergesetz, Mehrwertsteuergesetz und Gewerbesteuergesetz) and
regulations issued by the German tax authorities (Finanzamt Dusseldorf Sued)
pursuant thereto, the Internal Revenue Code of 1986, as amended (the "IRC"), and
regulations issued by the IRS thereunder, or, in either case, any successor law
or regulations, and, to the extent applicable to any party hereto, any similar
foreign, state, municipal or local laws and regulations.
"Tax Return" means any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax
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or in connection with the administration, implementation, or enforcement of or
compliance with any Legal Requirement relating to any Tax.
"Threat of Release" means a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"Trade Secrets" has the meaning given in Section 5.22(a).
"Trust Agreement" has the meaning given in the first paragraph of this
Agreement.
"Trustee" has the meaning given in the first paragraph of this Agreement.
"U.S. GAAP" has the meaning given in Section 3.4.
ARTICLE II
PURCHASE AND SALE OF THE COMPANY SHARES
2.1. Sale, Purchase and Assignment of the Company Shares. Subject to and
upon the terms and conditions of this Agreement, at the closing of the
transactions contemplated by this Agreement (the "Closing"), (i) the Trustee (at
the express direction of the Joint Beneficial Shareholders) and Jensen shall
sell, transfer and assign to Acquiror, and Acquiror shall purchase, acquire and
accept such sale, transfer and assignment from the Trustee and Jensen of, all of
the Company Shares, free and clear of any claims, liens, restrictions on
transfer or voting or encumbrances with respect thereto, and (ii) subject to the
provisions of Section 4.7 of the Stockholders' Agreement and the restrictions on
transfer contemplated by Section 7.9 of this Agreement, the Acquiror shall
transfer and deliver in consideration for the sale, transfer and assignment of
the Company Shares to Acquiror 816,106 shares of Common Stock, par value U.S.
$.01 per share, of Acquiror ("Acquiror Common Stock") to the Trustee and Jensen
in proportion to their respective ownership of Company Shares (such aggregate
number of shares of Acquiror Common Stock to be delivered to the Trustee and
Jensen being herein referred to as the "Acquiror Shares"), free and clear of any
claims, liens, restrictions on transfer or voting or encumbrances with respect
thereto, other than those required by law and those contained in the
Stockholders' Agreement. At the Closing, Acquiror shall deliver to the Trustee
and Jensen certificates evidencing the Acquiror Shares as specified herein and
this Agreement (or a separate transfer document meeting the requirements of
German law) shall be notarized by a German public notary to validate the sale
and assignment of the Company Shares by the Trustee (on behalf of the Joint
Beneficial Shareholders) and Jensen to Acquiror.
2.2. Closing. The Closing shall take place at the New York offices of
Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York 10022, at
10:00 a.m., local time, on such date within five Business Days following the
date on which the last of the conditions (excluding conditions that by their
terms cannot be satisfied until the Closing Date) set forth in Article VIII is
satisfied or waived in accordance herewith or at such other place, time or date
as the parties may agree upon in writing. The date on which the Closing occurs
is hereinafter referred to as the "Closing Date."
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants, in the form of an independent promise of
guarantee (selbstaendiges Garantieversprechen), to the Company, the Trustee and
the Interest Holders as follows:
3.1. Authorization, Validity and Effect. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Acquiror has the requisite corporate power and authority to execute
and deliver this Agreement and all agreements and documents contemplated hereby
to be executed and delivered by it, and subject to receipt of necessary
shareholder approval with respect to this Agreement and the other agreements
with the BioClin Affiliates with respect to the acquisition of all of the equity
interests of the BioClin Affiliates, to consummate the transactions contemplated
hereby. The execution
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and delivery of this Agreement and such other agreements and documents, and the
consummation of the transactions contemplated herein and therein, have been duly
and validly authorized by all necessary corporate action in respect thereof on
the part of Acquiror, subject, with respect to this Agreement, to the approval
of the stockholders of Acquiror. This Agreement has been duly and validly
executed and delivered by Acquiror and, once approved by the stockholders of
Acquiror, represents the legal, valid and binding obligation of Acquiror,
enforceable against Acquiror in accordance with its terms.
3.2. Acquiror Shares. Assuming that all required stockholder action has
been taken and all conditions set forth in Article VIII have been satisfied or
waived, the Acquiror Shares to be issued to the Trustee (on behalf of the Joint
Beneficial Shareholders) and Jensen hereunder have been duly authorized and,
when issued in accordance with this Agreement, will be validly issued, fully
paid and nonassessable.
3.3. Conflicts; Defaults. Neither the execution and delivery of this
Agreement by Acquiror, nor the performance of its obligations hereunder, will
conflict with or constitute a default under any of the terms or provisions of
Acquiror's Second Restated Certificate of Incorporation or Second Amended and
Restated ByLaws or any material agreement or other material instrument to which
Acquiror is a party or by which it or its properties are bound or subject.
3.4. Exchange Act Filings. Since December 10, 1991, Acquiror has filed all
documents (the "SEC Documents") required to be filed by it with the Securities
and Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of
1934 (the "Exchange Act"). As of their respective filing dates (and as amended
through the date hereof), the SEC Documents complied in all material respects
with the requirements of the Exchange Act and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances in which they were made, not
misleading except to the extent corrected by a subsequently filed SEC Document.
The financial statements of Acquiror included in the SEC Documents complied as
to form in all material respects with then applicable accounting requirements
and with the published rules and regulations of the SEC with respect thereto,
were prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP") applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto, or in the case of
unaudited statements, as permitted by Form 10-Q and Regulation S-X of the SEC)
and fairly present the consolidated financial position of Acquiror and its
consolidated subsidiaries as at the dates thereof and the consolidated results
of operations and changes in financial position for the periods then ended
(subject, in the case of unaudited statements, to normal, recurring audit
adjustments).
3.5. Absence of Material Adverse Changes. Except as set forth in Part 3.5
of the Acquiror Letter or in any SEC Document, since March 31, 1996, there has
not been any material adverse change in the business, operations, properties,
prospects, assets or condition of Acquiror that would be required to be
disclosed by Acquiror in a report required to be filed with the SEC pursuant to
the Exchange Act, and no event has occurred or circumstance exists that may
result in such a material adverse change that would be required to be disclosed
by Acquiror in any such report.
3.6. Taxes. (a) Except as set forth in Part 3.6 of the Acquiror Letter,
(i) all Tax Returns with respect to Taxes that were required to be filed by or
on behalf of Acquiror at and prior to the date of this Agreement have been duly
filed on a timely basis (giving effect to any extensions granted to Acquiror)
and are true, correct and complete in all material respects, (ii) all Taxes due
with respect to periods covered by the Tax Returns referred to in clause (i)
have been paid in full or Acquiror has adequately reserved or made adequate
accruals (in accordance with U.S. GAAP) with respect to any such Taxes which are
due and payable by Acquiror and Acquiror has not had and will not have any
liability for Taxes materially in excess of the amounts so paid or so reserved
or accrued, and (iii) Acquiror is not a party to or the subject of any action,
investigation or proceeding, exclusive of normal recurring audits, nor, to the
knowledge of Acquiror, is any such action, investigation or proceeding
threatened, by any Governmental Authority for the assessment or collection of
any Taxes and no deficiency notices or reports have been received by Acquiror
with respect to any deficiency of Acquiror for any Taxes.
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(b) The statute of limitations for the assessment of U.S. federal income
Taxes and all state income Taxes of Acquiror has expired for each period through
December 31, 1990.
3.7. Legal Proceedings; Orders. (a) Except as set forth in Part 3.7 of the
Acquiror Letter or in any SEC Document, since March 31, 1996, no Proceeding has
been instituted or threatened by or against Acquiror or that otherwise relates
to or may materially affect the business of, or any of the assets owned or used
by, Acquiror that would be required to be disclosed by Acquiror in a report
required to be filed with the SEC pursuant to the Exchange Act.
(b) Except as set forth in Part 3.7 of the Acquiror Letter or in any SEC
Document, since March 31, 1996, no Order has arisen or been threatened to which
Acquiror or any of the assets owned or used by Acquiror is subject that would be
required to be disclosed by Acquiror in a report required to be filed with the
SEC pursuant to the Exchange Act.
3.8. Absence Of Certain Changes and Events. Except as set forth in Part
3.8 of the Acquiror Letter or in any SEC Document, since March 31, 1996,
Acquiror has conducted its business only in the ordinary course of business and
there has not occurred any:
(a) change in Acquiror's authorized or issued capital stock; grant of
any stock option or right to purchase shares of capital stock of Acquiror
(other than as contemplated by this Agreement); issuance of any security
convertible into such capital stock; grant of any registration rights;
purchase, redemption, retirement, or other acquisition by Acquiror of any
shares of any such capital stock; or declaration or payment of any dividend
or other distribution or payment in respect of shares of capital stock;
(b) amendment to the Second Restated Certificate of Incorporation of
Acquiror;
(c) payment or increase by Acquiror of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the
ordinary course of business consistent with past practice) employee or
entry into any employment, severance, or similar Contract with any
director, officer, or employee;
(d) adoption of, or increase (except in the ordinary course of
business consistent with past practice) in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or with
any employees of Acquiror;
(e) damage to or destruction or loss of any asset or property of
Acquiror, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or
prospects of Acquiror, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of
(i) any material Contract or any material license, distributorship, dealer,
sales representative, joint venture, credit, or similar agreement, or (ii)
transaction involving a total remaining commitment by or to Acquiror of at
least U.S. $500,000;
(g) sale (other than sales of inventory in the ordinary course of
business), lease, or other disposition of any material asset or property of
Acquiror;
(h) cancellation or waiver of any claims or rights with a value to
Acquiror in excess of U.S. $500,000;
(i) material change in the accounting methods used by Acquiror, except
for any change required as a result of a change in U.S. GAAP;
(j) incurrence or payment of any indebtedness for borrowed money other
than pursuant to Acquiror's financing arrangements in existence on March
31, 1996;
(k) acquisition of any assets or properties or any commitment to do so
other than in the ordinary course of business; or
(l) agreement, whether oral or written, by Acquiror to do any of the
foregoing.
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3.9. Contracts; No Defaults. (a) Except as set forth in Part 3.9(a) of the
Acquiror Letter, the SEC Documents contain as exhibits all of the material
Contracts, other than those entered into by Acquiror subsequent to March 31,
1996, to which Acquiror is a party or by which it or its properties or assets
are bound or subject.
(b) Part 3.9(b) of the Acquiror Letter sets forth a summary schedule of
certain of such Contracts produced by Acquiror in the ordinary course of its
business which sets forth, among other things, the parties to such Contracts and
the amount of the remaining commitment of Acquiror under such Contracts.
3.10. Insurance. Except as set forth in Part 3.10 of the Acquiror Letter:
(i) All insurance policies to which Acquiror is a party or that
provide coverage to any of Acquiror or any director or officer of Acquiror:
(A) to Acquiror's knowledge, are valid, outstanding, and enforceable; (B)
are issued by an insurer that is financially sound and reputable; (C) taken
together, provide adequate insurance coverage for the assets and the
operations of Acquiror for all risks to which Acquiror is normally exposed;
(D) are sufficient for compliance in all material respects with all Legal
Requirements that are or were applicable to Acquiror or to the conduct or
operation of its business or the ownership or use of any of its properties
or assets and all Contracts to which Acquiror is a party or by which it is
bound; (E) will continue in full force and effect following the
consummation of the transactions contemplated hereby; and (F) do not
provide for any retrospective premium adjustment or other experienced-based
liability on the part of Acquiror.
(ii) Acquiror has not received (A) any refusal of coverage or any
notice that a defense will be afforded with reservation of rights, or (B)
any notice of cancellation or any other indication that any insurance
policy is no longer in full force or effect or will not be renewed or that
the issuer of any insurance policy is not willing or able to perform its
obligations thereunder.
(iii) Acquiror has paid all premiums due, and has otherwise performed
in all material respects all of its obligations, under each insurance
policy to which Acquiror is a party or that provides coverage to Acquiror
or any director or officer thereof.
(iv) Acquiror has given notice to the insurer of all claims that may
be insured thereby.
3.11. Environmental Matters. Except as set forth in Part 3.11 of the
Acquiror Letter or in any SEC Document, since March 31, 1996, Acquiror has not
been in material violation of or liable under, any Environmental Law to an
extent that would be required to be disclosed by Acquiror in a report required
to be filed with the SEC pursuant to the Exchange Act.
3.12. Labor Relations; Compliance. Part 3.12 of the Acquiror Letter sets
forth each collective bargaining or other labor contract to which Acquiror is a
party or otherwise subject. Since December 10, 1991, there has not been, there
is not presently pending or existing, and there is not threatened, (a) any
strike, slowdown, picketing, work stoppage, or employee grievance process, (b)
any Proceeding against or affecting Acquiror relating to the alleged material
violation of any Legal Requirement applicable to Acquiror pertaining to labor
relations or employment matters, including any charge or complaint filed by an
employee or union with any Governmental Body, organizational activity, or other
labor or employment dispute against or affecting Acquiror or its premises, or
(c) any application for certification of a collective bargaining agent. No event
has occurred or circumstance exists that could provide the basis for any work
stoppage or other labor dispute. There is no lockout of any employees by
Acquiror, and no such action is contemplated by Acquiror. Acquiror has complied
in all material respects with all Legal Requirements applicable to Acquiror
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, occupational safety and health, and plant
closing. Acquiror is not liable for the payment of any compensation, damages,
taxes, fines, penalties, or other amounts, however designated, for failure to
materially comply with any of the foregoing Legal Requirements.
3.13. Intellectual Property. Except as set forth in Part 3.13 of the
Acquiror Letter, all intellectual property necessary for the conduct of
Acquiror's business as currently conducted has been disclosed in the SEC
Documents.
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3.14. Disclosure. No notice given by Acquiror pursuant to Section 7.6 will
contain any untrue statement or omit to state a material fact necessary to make
the statements therein or in this Agreement, in light of the circumstances in
which they were made, not misleading.
3.15. Brokers and Finders. Except with respect to arrangements with Vector
Securities International, Inc., neither Acquiror nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
finder's fees, and no broker or finder has acted directly or indirectly for
Acquiror in connection with this Agreement or the transactions contemplated
hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE REGARDING
THE TRUSTEE AND THE COMPANY SHARES
The Trustee represents and warrants, in the form of an independent promise
of guarantee (selbstaendiges Garantieversprechen), to Acquiror as follows:
4.1. Authorization, Validity and Effect. The Trustee, at the explicit
direction of the Joint Beneficial Shareholders, has all requisite power and
authority to carry out his obligations arising in connection with the
transactions contemplated by this Agreement. This Agreement and all other
agreements and documents to be executed and delivered by the Trustee in
connection with this Agreement constitute in all respects the valid and binding
obligation of the Trustee, enforceable against the Trustee in accordance with
their respective terms. The execution, delivery and performance of this
Agreement by the Trustee on behalf of the Joint Beneficial Shareholders are
within the Trustee's powers and have been duly authorized by all necessary
action on the part of the Trustee or the Joint Beneficial Shareholders, as
applicable.
4.2. Consents and Approvals; No Violation. The execution, delivery and
performance of this Agreement by the Trustee and the consummation of the
transactions contemplated hereby do not and will not (i) require the advance
consent or approval of, or filing with, any person or public authority (other
than a public notary and the express direction of the Joint Beneficial
Shareholders) or (ii) constitute or result in the breach of any provision of, or
constitute a default under, the Trust Agreement or any material agreement or
other material instrument to which the Trustee is a party or by which he (or the
Company Shares) is bound or subject.
4.3. Title and Power to Sell. The Trustee is the legal owner of the
Company Shares owned beneficially by the Joint Beneficial Shareholders, which,
together with the Company Shares owned by Jensen, constitute all of the equity
interests of the Company. Good, valid and marketable title to such equity
interests is held by the Trustee free and clear of any claims, liens,
restrictions on transfer or voting or encumbrances. The Company Shares owned by
the Trustee are fully paid up, not repaid and non-assessable (keine
Nachschusspflicht). The Trustee has full power and authority, at the express
direction of the Joint Beneficial Shareholders, to sell, transfer and assign to
Acquiror at the Closing the Company Shares owned beneficially by the Joint
Beneficial Shareholders, and upon consummation of the transactions contemplated
by this Agreement, Acquiror will have acquired good, valid and marketable title
to the Company Shares owned beneficially by the Joint Beneficial Shareholders,
free and clear of any claims, liens, restrictions on transfer or voting or
encumbrances.
4.4. Litigation. As of the date of this Agreement, there is no action,
suit or proceeding pending against, or to the knowledge of the Trustee,
threatened against or affecting, the Trustee or the Company Shares owned by the
Trustee before any court or arbitrator or any Governmental Body or official
which in any manner challenges or seeks to prevent, enjoin, alter or materially
delay any of the transactions contemplated by this Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE INTEREST HOLDERS
WITH RESPECT TO THE COMPANY
Each of the Company and the Interest Holders hereby jointly and severally
represent and warrant, in the form of an independent promise of guarantee
(selbstaendiges Garantieversprechen), to Acquiror that:
5.1. Organization, Authority and Authorization. (a) The Company is a
Gellschaft mit beschraenkter Haftung (GmbH) duly organized and validly existing
under the laws of the State of Northrhine Westphalen, Germany. The Company has
the requisite corporate power and authority to execute and deliver this
Agreement and all agreements and documents contemplated hereby to be executed
and delivered by it and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and such other agreements and
documents, and the consummation of the transactions contemplated herein and
therein, have been duly and validly authorized by all necessary corporate action
in respect thereof on the part of the Company. This Agreement has been duly and
validly executed and delivered by the Company and represents the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms.
(b) The Company has the full corporate power and authority to own its
properties and assets, to carry on the Company's business as it is now being
conducted and to perform all its obligations under Applicable Contracts and this
Agreement. The Company is not required to qualify to do business in any
jurisdiction where not already so qualified except where a failure to so qualify
would not, individually or in the aggregate, have a material adverse effect on
the financial condition, business or results of operations of the Company. The
Company has all Governmental Authorizations required in order to own or lease
its properties and assets and to carry on its business as now being conducted in
all respects material to the financial condition, business or results of
operations of the Company. The Interest Holders have delivered to Acquiror
copies of the Articles of Association of the Company, as currently in effect.
5.2. Consents and Approvals; No Violation. The execution, delivery and
performance of this Agreement by the Company and each of the Interest Holders
and the consummation of the transactions contemplated hereby do not and will not
(i) require the advance consent or approval of, or filing with, any person or
public authority (other than a public notary) or (ii) constitute or result in
the breach of any provision of, or constitute a default under, the Articles of
Association of the Company, the Trust Agreement or any material agreement or
other material instrument to which the Company or any Interest Holder is a party
or by which such Person (or the Company Shares) is bound or subject; provided,
however, that Acquiror must register as the shareholder of the Company before
its acquisition of the Company Shares will become fully effective under German
Law.
5.3. Title and Power to Sell. The Trustee (for the benefit of the Joint
Beneficial Shareholders) and Jensen are the legal owners of the Company Shares,
which constitute all of the equity interests of the Company. Good, valid and
marketable title to such equity interests is held by the Trustee and Jensen free
and clear of any claims, liens, restrictions on transfer or voting or
encumbrances. The Company Shares are fully paid up, not repaid and
non-assessable (keine Nachschusspflicht). The Trustee (at the express direction
of the Joint Beneficial Shareholders) and Jensen have full power and authority
to sell, transfer and assign to Acquiror at the Closing the Company Shares, and
upon consummation of the transactions contemplated by this Agreement, Acquiror
will have acquired good, valid and marketable title to the Company Shares, free
and clear of any claims, liens, restrictions on transfer or voting or
encumbrances.
5.4. Capitalization of the Company; Subsidiaries. (a) The Company has a
stated capital of 150,000 Deutschmarks ("DM") which is fully paid up, of which
the Trustee (for the benefit of the Joint Beneficial Shareholders) contributed
127,500 DM and Jensen contributed 22,500 DM. There are no other equity interests
in the Company and no outstanding options, warrants, scrip, rights to subscribe
to, calls, commitments or agreements of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, equity interests of
the Company. The Company does not hold any treasury shares (eigne
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Geschaeftsanteile).There are no loans or economically corresponding
transactions, the repayment of which would constitute a violation of Section 32
a and 32 b of the German law of limited liability companies ("GmbHG"). Except
for the Trust Agreement, there are no voting trusts or other agreements or
understandings to which the Company is a party with respect to the voting of the
equity interests of the Company.
(b) The Company does not hold, directly or indirectly, nor is it a member
nor does it have any Contract to acquire, any share, equity or other interest in
any corporation or limited liability company (Kapitalgesellschaft), partnership
(Personengesellschaft), or other entity including silent partnerships,
cooperatives and joint ventures.
(c) There are no enterprise contracts (Unternehmensvertraege) as defined in
Sections 291 and 292 of the German Stock Corporation Act (Aktiengesetz) to which
the Company is or has been a party.
5.5. Company Financial Statements. The Company and the Interest Holders
have delivered to Acquiror as Part 5.5 of the Disclosure Letter: (i) an
unaudited combined consolidated balance sheet of the Company and the BioClin
Affiliates as at December 31, 1994, and the related unaudited combined
consolidated statement of income for the fiscal year then ended as well as the
fiscal year ended December 31, 1993, and (ii) an unaudited combined consolidated
balance sheet of the Company and the BioClin Affiliates as at December 31, 1995
(the "Balance Sheet") and the related unaudited combined consolidated statement
of income for the fiscal year then ended. The financial statements with respect
to fiscal 1995 have been prepared in accordance with U.S. GAAP (which except
where noted therein, have been consistently applied), and fairly present the
financial condition and results of operations, changes in stockholders' equity
and cash flow of the Company as at the respective dates and for the periods
referred to in such financial statements. The financial statements with respect
to fiscal 1993 and 1994 have been prepared in accordance with German GAAP
(Grundsaetze ordnungsgemaesser Buchfuehrung und Bilanzierung) including the
principle of balance sheet consistency (Bilanskontinuitast) and have been
reconciled to U.S. GAAP.
5.6. Books and Records. Except as set forth in Part 5.6 of the Disclosure
Letter, the books of account and other records of the Company, including records
of all meetings held by, and the corporate action taken by, the shareholders of
the Company and the managing director or directors or "Prokurist" of the
Company, all of which have been made available to Acquiror, are complete and
correct and have been maintained in accordance with sound business practices and
in compliance in all material respects with all applicable Legal Requirements
and accounting requirements. At the Closing, all of the foregoing books and
records will be in the possession of the Company.
5.7. Reports. Except as set forth in Part 5.7 of the Disclosure Letter,
since November 11, 1991, the Company has filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that were required to be filed with respect to the Company with any
Governmental Body with jurisdiction over the Company or its employees, assets or
properties (all such reports and statements are collectively referred to herein
as the "Company Reports"). As of their respective dates, the Company Reports
complied in all material respects with the statutes, rules, regulations and
orders enforced or promulgated by the regulatory authority with which they were
filed.
5.8. Absence of Material Adverse Changes. Except as set forth in Part 5.8
of the Disclosure Letter, since December 31, 1995, there has not been any
material adverse change in the business, operations, properties, prospects,
assets or condition of the Company, and no event has occurred or circumstance
exists that may result in such a material adverse change.
5.9. Title to Properties; Encumbrances. The Company does not own any real
property. Part 5.9 of the Disclosure Letter contains a complete and accurate
list of all leaseholds or other interests in real property held or possessed by
the Company and a summary of the material provisions of any lease or other
Applicable Contract relating to such leasehold or other interest, including the
identity of the other party thereto, a description of the interest held, the
location of the real property, the duration thereof, payment terms and any
rights of termination. The Company and the Interest Holders have made available
to Acquiror copies of all leases and other instruments (as recorded) by which
the Company acquired such real property interests, and copies of any title
insurance policies, opinions, abstracts and surveys in the possession of the
Interest Holders
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or the Company and relating to such interests. The Company owns all of the
properties and assets (whether real, personal or mixed and whether tangible or
intangible) that it purports to own, including all of the properties and assets
reflected in the Balance Sheet (except for assets held under capitalized leases
disclosed or not required to be disclosed on Part 5.9 of the Disclosure Letter,
licenses for intangible personal property (including software licenses) and
personal property sold since the date of the Balance Sheet, in the ordinary
course of business), and all of the properties and assets purchased or otherwise
acquired by the Company since the date of the Balance Sheet. Except as set forth
in Part 5.9 of the Disclosure Letter, all material properties and assets
reflected in the Balance Sheet are free and clear of all Encumbrances and are
not, in the case of real property interests, subject to any rights of way,
building use restrictions, exceptions, variances, reservations or limitations of
any nature except, with respect to all such properties and assets (i) security
interests shown on the Balance Sheet as securing specified liabilities or
obligations, with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (ii) security
interests incurred in connection with the purchase of property or assets after
the date of the Balance Sheet (such security interests being limited to the
property or assets so acquired), with respect to which no default (or event
that, with notice or lapse of time or both, would constitute a default) exists,
and (iii) liens for current taxes not yet due. To the Company's knowledge, all
buildings and structures occupied by the Company lie wholly within the
boundaries of the real property leased by the Company and do not encroach upon
the property of, or otherwise conflict with the property rights of, any other
Person.
5.10. Condition and Sufficiency of Assets. Except as set forth in Part
5.10 of the Disclosure Letter, the buildings and structures conform to
applicable code requirements and commercial standards for the localities where
the premises are located and the equipment and other tangible personal property
of the Company are in good operating condition and repair, and are adequate for
the uses to which they are being put, and none of such equipment and other
tangible personal property is in need of maintenance or repair, except ordinary,
routine maintenance and repairs that are not material in nature or cost. The
buildings, structures, equipment and other tangible personal property of the
Company are sufficient for the continued conduct of the Company's business after
the Closing in substantially the same manner as conducted prior to the Closing.
5.11. Accounts Receivable. All accounts receivable of the Company that are
reflected on the Balance Sheet (collectively, the "Accounts Receivable")
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. Except as set forth in
Part 5.11 of the Disclosure Letter, unless paid prior to the Closing Date, the
Accounts Receivable are or will be as of the Closing Date current and
collectible net of the reserves, if any, shown on the Balance Sheet or on the
accounting records of the Company on the Closing Date (which, in the case of the
reserve as of the Closing Date, is adequate and will not represent a material
adverse change in the composition of such Accounts Receivable in terms of aging
since the date of the Balance Sheet). To the knowledge of the Company and the
Interest Holders, no event has occurred nor circumstances exist which make it
improbable that the Company will be able collect the Accounts Receivable
outstanding as of the date of this Agreement or as of the Closing Date
consistent with its prior collection experience.
5.12. No Undisclosed Liabilities. Except as set forth in Part 5.12 of the
Disclosure Letter, the Company has no material liabilities or obligations of any
nature (whether known or unknown and whether absolute, accrued, contingent or
otherwise) except for liabilities or obligations reflected or reserved against
in the Balance Sheet and current liabilities incurred in the ordinary course of
business since the date thereof.
5.13. Taxes. (a) Except as set forth in Part 5.13 of the Disclosure
Letter, (i) all Tax Returns with respect to Taxes that were required to be filed
by or on behalf of the Company at or prior to the date of this Agreement have
been duly filed on a timely basis (giving effect to any extensions granted to
the Company) and are true, correct and complete in all material respects, (ii)
all Taxes due with respect to periods covered by the Tax Returns referred to in
clause (i) have been paid in full or the Company has adequately reserved or made
adequate accruals in accordance with German GAAP (Grundsaetze ordnungsgemaesser
Buchfuehrung und Bilanzierung) including the principle of balance sheet
consistency (Bilanskontinuitast) (which are reflected on Balance Sheet) with
respect to any such Taxes which are due and payable by the Company and the
Company has not had and will not have any liability for Taxes materially in
excess of the amounts so paid, reserved or accrued, and (iii) the Company is not
a party to or the subject of any action, investigation or
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proceeding, exclusive of normal recurring audits, nor to the knowledge of the
Company and the Interest Holders, is any such action, investigation or
proceeding threatened, by any Governmental Authority for the assessment or
collection of any Taxes and no deficiency notices or reports have been received
by either the Company or any of the Interest Holders with respect to any
deficiency of the Company for any Taxes.
(b) The statute of limitations for the assessment of German income and
other Taxes of the Company has expired for each period through December 31,
1991.
(c) No Tax is required to be withheld pursuant to German tax laws
(Umsatzsteuergesetz, Mehrwertsteuergesetz und Gewerbesteuergesetz) as a result
of the transactions contemplated by this Agreement.
(d) As a result of compliance with this Agreement and the matters referred
to herein, neither the Company nor the Interest Holders will be obligated to
make any payment to any individual that would be a "parachute payment" to a
"disqualified individual" as those terms are defined in Section 280G of the IRC
without regard to whether such payment is to be made in the future.
5.14. Compliance with Legal Requirements; Governmental Authorizations. (a)
Except as set forth in Part 5.14(a) of the Disclosure Letter: (i) the Company
is, and has been, in compliance in all material respects with each Legal
Requirement that is or was applicable to the Company or to the conduct or
operation of its business or the ownership or use of any of its properties or
assets; (ii) no event has occurred or circumstance exists that (with or without
notice or lapse of time) (A) may constitute or result in a material violation by
the Company of, or a failure on the part of the Company to comply in all
material respects with, any Legal Requirement that is or was applicable to the
Company or to the conduct or operation of its business or the ownership or use
of any of its properties or assets, or (B) may give rise to any material
obligation on the part of the Company to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature; and (iii) the Company
has not received any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (A) any actual,
alleged, possible, or potential violation of, or failure to comply with, any
Legal Requirement that is or was applicable to the Company or to the conduct or
operation of its business or the ownership or use of any of its properties or
assets, or (B) any actual, alleged, possible, or potential obligation on the
part of the Company to undertake, or to bear all or any portion of the cost of,
any remedial action of any nature.
(b) Except as set forth in Part 5.14 (b) of the Disclosure Letter: (i) the
Company is, and has been, in full compliance with all of the terms and
requirements of each Governmental Authorization owned, possessed or otherwise
applicable to the Company, the conduct of its business or any assets owned or
used by the Company; (ii) no event has occurred or circumstance exists that may
(with or without notice or lapse of time) (A) constitute or result directly or
indirectly in a violation of or a failure to comply with any term or requirement
of any Governmental Authorization owned, possessed or otherwise applicable to
the Company, the conduct of its business or any assets owned or used by the
Company, or (B) result directly or indirectly in the revocation, withdrawal,
suspension, cancellation, or termination of, or any modification to, any such
Governmental Authorization; (iii) the Company has not received any notice or
other communication (whether oral or written) from any Governmental Body or any
other Person regarding (A) any actual, alleged, possible, or potential violation
of or failure to comply with any term or requirement of any Governmental
Authorization owned, possessed or otherwise applicable to the Company, the
conduct of its business or any assets owned or used by the Company, or (B) any
actual, proposed, possible, or potential revocation, withdrawal, suspension,
cancellation, termination of, or modification to any such Governmental
Authorization ; and (iv) all applications required to have been filed for the
renewal of the Governmental Authorizations owned, possessed or otherwise
applicable to the Company, the conduct of its business or any assets owned or
used by the Company have been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other filings required to have been made with
respect to such Governmental Authorizations have been duly made on a timely
basis with the appropriate Governmental Bodies.
(c) Except as set forth in Part 5.14(c) of the Disclosure Letter, the
Governmental Authorizations owned, possessed or otherwise applicable to the
Company, the conduct of its business or any assets owned or used by the Company
collectively constitute all of the Governmental Authorizations required in order
to permit the Company to lawfully conduct and operate its business in the manner
it currently conducts and
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operates such business and to permit the Company to own and use its assets in
the manner in which it currently owns and uses such assets.
5.15. Legal Proceedings; Orders. (a) Except as set forth in Part 5.15(a)
of the Disclosure Letter, there is no pending Proceeding: (i) that has been
commenced by or against the Company or any of the Interest Holders or that
otherwise relates to or may materially affect the business of, or any of the
assets owned or used by, the Company; or (ii) that challenges, or that may have
the effect of preventing, delaying, making illegal, or otherwise interfering
with, any of the transactions contemplated by this Agreement.
(b) Except as set forth in Part 5.15(b) of the Disclosure Letter, to the
knowledge of the Company and the Interest Holders, (i) no such Proceeding has
been threatened, and (ii) no event has occurred or circumstance exists that may
give rise to or serve as a basis for the commencement of any such Proceeding.
The Company and the Interest Holders have delivered to Acquiror copies of all
pleadings, correspondence with third parties, and other non-privileged documents
relating to each Proceeding listed in Part 5.15 of the Disclosure Letter. The
Proceedings listed in Part 5.15 of the Disclosure Letter will not have a
material adverse effect on the business, operations, assets, condition, or
prospects of the Company.
(c) Except as set forth in Part 5.15(c) of the Disclosure Letter: (i) there
is no Order to which the Company, or any of the assets owned or used by the
Company, is subject; (ii) none of the Interest Holders is subject to any Order
that relates to the business of, or any of the assets owned or used by, the
Company; and (iii) no officer, director, managing director, Prokurist, agent or
employee of the Company is subject to any Order that prohibits such officer,
director, managing director, Prokurist, agent or employee from engaging in or
continuing any conduct, activity, or practice relating to the business of the
Company.
(d) Except as set forth in Part 5.15(d) of the Disclosure Letter: (i) the
Company is, and at all times has been, in compliance in all material respects
with all of the terms and requirements of each Order to which it, or any of the
assets owned or used by it, is or has been subject; (ii) no event has occurred
or circumstance exists that may constitute or result in (with or without notice
or lapse of time) a material violation of or failure to comply in all material
respects with any term or requirement of any Order to which the Company, or any
of the assets owned or used by the Company, is subject; and (iii) the Company
has not received any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding any actual, alleged,
possible, or potential violation of, or failure to comply with, any term or
requirement of any Order to which the Company, or any of the assets owned or
used by the Company, is or has been subject.
5.16. Absence Of Certain Changes and Events. Except as set forth in Part
5.16 of the Disclosure Letter, since the date of the Balance Sheet, the Company
has conducted its business only in the ordinary course of business and there has
not been any:
(a) change in the Company's stated capital or equity interests; grant
of any option or right to purchase shares of the Company; issuance of any
security convertible into such shares; grant of any registration rights;
purchase, redemption, retirement, or other acquisition by the Company of
any such shares; or declaration or payment of any shares in the Company's
profits;
(b) amendment to the Articles of Association of the Company;
(c) payment or increase by the Company of any bonuses, salaries, or
other compensation to any shareholder, director, managing director,
Prokurist, officer, or (except in the ordinary course of business
consistent with past practice) employee or entry into any employment,
severance, or similar Contract with any director, managing director,
Prokurist, officer, or employee;
(d) adoption of, or increase (except in the ordinary course of
business consistent with past practice) in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or with
any employees of the Company;
(e) damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or
prospects of the Company, taken as a whole;
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(f) entry into, termination of, or receipt of notice of termination of
(i) any Contract, any license, distributorship, dealer, sales
representative, joint venture, credit, or similar agreement, or (ii) any
transaction involving a total remaining commitment by or to the Company of
at least 70,000 DM or U.S. $50,000;
(g) sale (other than sales of inventory in the ordinary course of
business), lease, or other disposition of any asset or property of the
Company or mortgage, pledge, or imposition of any Encumbrance on any
material asset or property of the Company, including the sale, lease, or
other disposition of any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to the
Company in excess of 70,000 DM or U.S. $50,000;
(i) material change in the accounting methods used by the Company;
(j) incurrence or payment (other than regularly scheduled payments
under debt obligations existing as of the date of this Agreement) of any
indebtedness for borrowed money or any incurrence of or commitment to incur
any material capital expenditures, in each case, in excess of 50,000 DM or
U.S. $30,000;
(k) acquisition of any assets or properties or any commitment to do so
other than in the ordinary course of business; or
(l) agreement, whether oral or written, by the Company to do any of
the foregoing.
5.17. Contracts; No Defaults. (a) Part 5.17(a) of the Disclosure Letter
contains a complete and accurate list, and the Company and the Interest Holders
have delivered to Acquiror true and complete copies, of:
(i) each Applicable Contract that involves performance of services by
the Company of an amount or value in excess of 150,000 DM or U.S. $100,000,
except any such Applicable Contract that can be terminated without cause by
either party thereto without penalty on 30 days or less notice;
(ii) each Applicable Contract that involves performance of services or
delivery of goods or materials to the Company of an amount or value in
excess of 150,000 DM or U.S. $100,000, except any such Applicable Contract
that can be terminated without cause by either party thereto without
penalty on 30 days or less notice;
(iii) each Applicable Contract that was not entered into in the
ordinary course of business and that involves expenditures or receipts by
Company in excess of 150,000 DM or U.S. $100,000, except any such
Applicable Contract that can be terminated without cause by either party
thereto without penalty on 30 days or less notice;
(iv) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any personal property (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than U.S. $20,000);
(v) each licensing agreement or other Applicable Contract with respect
to patents, trademarks, copyrights, or other intellectual property,
including agreements with current or former employees, consultants, or
contractors regarding the appropriation or the non-disclosure of any of the
Intellectual Property Assets;
(vi) each collective bargaining agreement, voluntary company agreement
between an employer and employees (or works council) concerning working
conditions (Betriebsvereinbarung) and other Applicable Contract to or with
any labor union or other employee representative of a group of employees or
with a group of employees;
(vii) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or
liabilities by the Company with any other Person;
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(viii) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of the Company or any Affiliate
of the Company or limit the freedom of the Company or any Affiliate of the
Company to engage in any line of business or to compete with any Person;
(ix) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments
for goods, except that, with respect to all Applicable Contracts relating
to the retaining of Clinical Research Assistants ("CRAs") by the Company,
Part 5.17(a) of the Disclosure Letter need only set forth the aggregate
payments made by the Company to such CRAs during fiscal 1995;
(x) each power of attorney that is currently effective and
outstanding;
(xi) each Applicable Contract entered into other than in the ordinary
course of business that contains or provides for an express undertaking by
the Company to be responsible for consequential damages;
(xii) each Applicable Contract for capital expenditures in excess of
75,000 DM or U.S. $50,000;
(xiii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by the Company
other than in the ordinary course of business; and
(xiv) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
(b) Except as set forth in Part 5.17(b) of the Disclosure Letter: (i) none
of the Interest Holders (and no Related Person of any Interest Holder) has or
may acquire any material rights under, and none of the Interest Holders have or
may become subject to any material obligation or liability under, any Contract
that relates to the business of, or any of the assets owned or used by, the
Company; and (ii) no officer, director, managing director, Prokurist, agent,
employee, consultant, or contractor of the Company is bound by any Contract that
purports to limit the ability of such officer, director, managing director,
Prokurist, agent, employee, consultant, or contractor to (A) engage in or
continue any conduct, activity, or practice relating to the business of the
Company, or (B) assign to the Company or to any other Person any rights to any
invention, improvement, or discovery.
(c) Except as set forth in Part 5.17(c) of the Disclosure Letter, each
Contract identified or required to be identified in Part 5.17(a) of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.
(d) Except as set forth in Part 5.17(d) of the Disclosure Letter:
(i) the Company is, and at all times has been, in full compliance with
all material terms and requirements of each Contract under which it has or
had any obligation or liability or by which it or any of its assets is or
was bound;
(ii) each other Person that has or had any obligation or liability
under any Contract under which the Company has or had any rights is, and at
all times has been, in full compliance with all material terms and
requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene in any material respect,
conflict in any material respect with, or result in a material violation or
breach of, or give the Company or other Person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Applicable
Contract; and
(iv) the Company has not given to or received from any other Person,
at any time any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential material violation or
breach of, or default under, any Contract.
(e) Except as set forth in Part 5.17(e) of the Disclosure Letter, there are
no renegotiations of, attempts to renegotiate, written demands to renegotiate or
outstanding rights to renegotiate any material amounts paid
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or payable to or by the Company under current or completed Contracts with any
Person, other than any reduction of less than 10% of the aggregate amount due to
the Company under any Applicable Contract with a sponsor which is proportional
to a corresponding reduction of services to be performed by the Company under
such Contract.
(f) Except as set forth in Part 5.23 of the Disclosure Letter, the
Contracts relating to the sale, design, manufacture, or provision of products or
services by the Company have been entered into in the ordinary course of
business and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been paid or
promised, that is or would be in material violation of any Legal Requirement
that is or was applicable to the Company or to the conduct or operation of its
business or the ownership or use of any of its properties or assets.
5.18. Insurance. (a) The Company and the Interest Holders have delivered
to Acquiror: (i) true and complete copies of all policies of insurance to which
the Company is a party or under which the Company, or any director, managing
director or Prokurist of the Company, is or has been covered at any time within
the two years preceding the date of this Agreement; (ii) true and complete
copies of all pending applications for policies of insurance; and (iii) any
statement by the auditor of the Company's financial statements with regard to
the adequacy of such entity's coverage or of the reserves for claims.
(b) Except as set forth on Part 5.18(b) of the Disclosure Letter:
(i) All insurance policies to which the Company is a party or that
provide coverage to any of the Interest Holders, the Company or any
director, managing director, Prokurist, or officer of the Company: (A) to
the Company's knowledge, are valid, outstanding, and enforceable; (B) are
issued by an insurer that is financially sound and reputable; (C) taken
together, provide adequate insurance coverage for the assets and the
operations of the Company for all risks to which the Company is normally
exposed; (D) are sufficient for compliance in all material respects with
all Legal Requirements that are or were applicable to the Company or to the
conduct or operation of its business or the ownership or use of any of its
properties or assets and all Contracts to which the Company is a party or
by which it is bound; (E) will continue in full force and effect following
the consummation of the transactions contemplated hereby; and (F) do not
provide for any retrospective premium adjustment or other experienced-based
liability on the part of the Company.
(ii) None of the Interest Holders or the Company has received (A) any
refusal of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other
indication that any insurance policy is no longer in full force or effect
or will not be renewed or that the issuer of any insurance policy is not
willing or able to perform its obligations thereunder.
(iii) The Company has paid all premiums due, and have otherwise
performed in all material respects all of their respective obligations,
under each insurance policy to which the Company is a party or that
provides coverage to the Company or any director, managing director,
Prokurist or officer thereof.
(iv) The Company has given notice to the insurer of all claims that
may be insured thereby.
5.19. Environmental Matters. Except as set forth in Part 5.19 of the
Disclosure Letter:
(a) The Company is, and at all times has been, in compliance in all
material respects with, and has not been and is not in material violation of or
liable under, any Environmental Law that is or was applicable to the Company or
to the conduct or operation of its business or the ownership or use of any of
its properties or assets. None of the Interest Holders or the Company has any
basis to expect, nor has any of them or any other Person for whose conduct they
are or may be held to be responsible received, any actual or threatened order,
notice, or other communication from (i) any Governmental Body or private citizen
acting or purporting to act in the public interest, or (ii) the current or prior
owner or operator of any Facilities, of any actual or potential material
violation or failure to comply in all material respects with any Environmental
Law that is or was applicable to the Company or to the conduct or operation of
its business or the ownership or use of any of its properties or assets, or of
any actual or threatened obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or
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assets (whether real, personal, or mixed) in which any of the Interest Holders
or the Company has or had an interest, or with respect to any property or
Facility at or to which Hazardous Materials were generated, manufactured,
refined, transferred, imported, used, or processed by Interest Holders, the
Company, or any other Person for whose conduct they are or may be held
responsible, or from which Hazardous Materials have been transported, treated,
stored, handled, transferred, disposed, recycled, or received.
(b) There are no pending or, to the knowledge of the Company or the
Interest Holders, threatened claims, Encumbrances, or other restrictions of a
material nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law that is or was
applicable to the Company or to the conduct or operation of its business or the
ownership or use of any of its properties or assets, with respect to or
affecting any of the Facilities or any other properties and assets (whether
real, personal, or mixed) in which any of the Interest Holders or the Company
has or had an interest.
(c) None of the Company or the Interest Holders has any basis to expect,
nor has any of them or any other Person for whose conduct they are or may be
held responsible, received, any citation, directive, inquiry, notice, Order,
summons, warning, or other communication that relates to Hazardous Activity,
Hazardous Materials, or any alleged, actual, or potential material violation or
failure to comply in all material respects with any Environmental Law that is or
was applicable to the Company or to the conduct or operation of its business or
the ownership or use of any of its properties or assets, or of any alleged,
actual, or potential obligation to undertake or bear the cost of any
Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal, or mixed)
in which any of the Interest Holders or the Company has or had an interest, or
with respect to any property or facility to which Hazardous Materials generated,
manufactured, refined, transferred, imported, used, or processed by the Interest
Holders, the Company, or any other Person for whose conduct they are or may be
held responsible, have been transported, treated, stored, handled, transferred,
disposed, recycled, or received.
(d) None of the Company or the Interest Holders, or any other Person for
whose conduct they are or may be held responsible, has any material
Environmental, Health, and Safety Liabilities with respect to the Facilities or
with respect to any other properties and assets (whether real, personal, or
mixed) in which any of the Interest Holders or the Company (or any predecessor),
has or had an interest, or at any property geologically or hydrologically
adjoining the Facilities or any such other property or assets.
(e) There are no Hazardous Materials present on or in the Environment at
the Facilities or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited or
located in land, water or any other part of the Facilities or such adjoining
property, or incorporated into any structure therein or thereon. None of the
Interest Holders, the Company, any other Person for whose conduct they are or
may be held responsible, or any other Person, has permitted or conducted, or is
aware of, any Hazardous Activity conducted with respect to the Facilities or any
other properties or assets (whether real, personal, or mixed) in which any of
the Interest Holders or the Company has or had an interest except in compliance
in all material respects with all Environmental Laws that are or were applicable
to the Company or to the conduct or operation of its business or the ownership
or use of any of its properties or assets.
(f) There has been no Release or, to the knowledge of Interest Holders,
Threat of Release, of any Hazardous Materials at or from the Facilities or at
any other locations where any Hazardous Materials were generated, manufactured,
refined, transferred, produced, imported, used, or processed from or by the
Facilities, or from or by any other properties and assets (whether real,
personal, or mixed) in which any of the Interest Holders or the Company has or
had an interest, or any geologically or hydrologically adjoining property,
whether by the Interest Holders, the Company, or any other Person.
(g) the Interest Holders have delivered to Acquiror true and complete
copies and results of any reports, studies, analyses, tests, or monitoring
possessed or initiated by the Interest Holders or the Company pertaining to
Hazardous Materials or Hazardous Activities in, on, or under the Facilities, or
concerning compliance by the Interest Holders, the Company, or any other Person
for whose conduct they are or may be held
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responsible, with Environmental Laws that are or were applicable to the Company
or to the conduct or operation of its business or the ownership or use of any of
its properties or assets.
5.20. Employees. (a) Part 5.20 of the Disclosure Letter contains a
complete and accurate summary of the following information for each employee,
officer or director, managing director or Prokurist of the Company, including
each employee on leave of absence or layoff status: name; job title; current
compensation paid or payable and any change in compensation since December 31,
1995; vacation accrued; and service credited for purposes of vesting and
eligibility to participate under the Company's pension, retirement, profit-
sharing, thrift-savings, deferred compensation, stock bonus, stock option, cash
bonus, employee stock ownership (including investment credit or payroll stock
ownership), other equity participation arrangement, severance pay, insurance,
medical, welfare, or vacation plan or any other employee benefit plan.
(b) Except as set forth in Part 5.20 of the Disclosure Letter, no employee,
officer or director, managing director or Prokurist of the Company is a party
to, or is otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition, or proprietary rights agreement, between such
employee, officer or director, managing director or Prokurist and any other
Person ("Proprietary Rights Agreement") that in any way adversely affects or
will affect the ability of the Company to conduct its business, including any
Proprietary Rights Agreement with the Interest Holders or the Company by any
such employee, officer or director, managing director or Prokurist. Except as
set forth in Part 5.20 of the Disclosure Letter, to the knowledge of the Company
and the Interest Holders, no director, managing director, Prokurist, officer, or
other key employee of the Company intends to terminate his employment with the
Company.
(c) Part 5.20 of the Disclosure Letter also contains a complete and
accurate list of the following information for each retired employee, officer or
director, managing director or Prokurist of the Company, or their dependents,
receiving benefits or scheduled to receive benefits in the future: name, pension
benefit, pension option election, retiree medical insurance coverage, retiree
life insurance coverage, and other benefits.
5.21. Labor Relations; Compliance. Except as set forth in Part 5.21 of the
Disclosure Letter, since November 11, 1991, the Company has not been nor is it
currently a party to any collective bargaining or other labor Contract. Since
November 11, 1991, there has not been, there is not presently pending or
existing, and, to the Company's knowledge, there is not threatened, (a) any
strike, slowdown, picketing, work stoppage, or employee grievance process, (b)
any Proceeding against or affecting the Company relating to the alleged material
violation of any Legal Requirement applicable to the Company pertaining to labor
relations or employment matters, including any charge or complaint filed by an
employee or union with any Governmental Body, organizational activity, or other
labor or employment dispute against or affecting the Company or its premises, or
(c) any application for certification of a collective bargaining agent. Except
as set forth in Part 5.21 of the Disclosure Letter, no event has occurred or
circumstance exists that could provide the basis for any work stoppage or other
labor dispute. There is no lockout of any employees by the Company, and no such
action is contemplated by the Company. Except as set forth in Part 5.21 of the
Disclosure Letter, the Company has complied in all material respects with all
Legal Requirements applicable to the Company relating to employment, equal
employment opportunity, nondiscrimination, immigration, wages, hours, benefits,
collective bargaining, the payment of social security and similar taxes,
occupational safety and health, and plant closing. Except as set forth in Part
5.21 of the Disclosure Letter, the Company is not liable for the payment of any
compensation, damages, Taxes, fines, penalties, or other amounts, however
designated, for failure to comply in all material respects with any of the
foregoing Legal Requirements.
5.22. Intellectual Property. (a) The term "Intellectual Property Assets"
includes: (i) the name "BioClin Institute of Clinical Pharmacology GmbH", all
fictional business names, trading names, registered and unregistered trademarks,
service marks, and applications (collectively, "Marks"); (ii) all patents,
patent applications, and inventions and discoveries that may be patentable
(collectively, "Patents"); (iii) all copyrights in both published works and
unpublished works (collectively, "Copyrights"); and (iv) all know-how, trade
secrets, confidential information, customer lists, software, technical
information, data, process technology, plans, drawings, and blue prints
(collectively, "Trade Secrets"); owned, used, or licensed by the Company as
licensee or licensor.
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(b) Part 5.22(b) of the Disclosure Letter contains a complete and accurate
list and summary description, including any royalties paid or received by the
Company, of all Contracts relating to the Intellectual Property Assets to which
the Company is a party or by which the Company is bound, except for any license
implied by the sale of a product and perpetual, paid-up licenses for commonly
available software programs with a value of less than 50,000 DM or U.S. $30,000
under which the Company is the licensee. There are no outstanding and, to the
knowledge of the Interest Holders, no threatened disputes or disagreements with
respect to any such agreement.
(c) (i) The Intellectual Property Assets are all those necessary for the
operation of the Company's business as it is currently conducted. The Company is
the owner or licensee of all right, title, and interest in and to each of the
Intellectual Property Assets (other than to the extent that the Company is
obligated to assign any application, invention, development, etc. relating to
such Intellectual Property Assets to another Person under an Applicable Contract
with a sponsor), free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims, and, except as set forth in
Part 5.22(c) of the Disclosure Letter, has the right to use without payment to a
third party all of the Intellectual Property Assets.
(ii) Except as set forth in Part 5.22(c) of the Disclosure Letter, all
former and current employees of the Company have executed written Contracts with
the Company that assign to it all rights to any inventions, improvements,
discoveries, or information relating to the business of the Company. Except as
set forth in Part 5.22(c) of the Disclosure Letter, no employee of the Company
has entered into any Contract that restricts or limits in any way the scope or
type of work in which the employee may be engaged or requires the employee to
transfer, assign, or disclose information concerning his work to anyone other
than the Company.
(d) (i) Part 5.22(d) of the Disclosure Letter contains a complete and
accurate list and summary description of all Patents owned by or licensed to the
Company. Except as set forth in Part 5.22(d) of the Disclosure Letter, the
Company is the owner or licensee of all right, title, and interest in and to
each of such Patents, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims.
(ii) Except as set forth in Part 5.22(d) of the Disclosure Letter, all of
the issued Patents owned by the Company are currently in compliance in all
material respects with applicable Legal Requirements (including payment of
filing, examination, and maintenance fees and proofs of working or use), are
valid and enforceable, and are not subject to any maintenance fees or Taxes or
actions falling due within ninety days after the Closing Date.
(iii) Except as set forth in Part 5.22(d) of the Disclosure Letter, no
Patent owned by the Company has been or is now involved in any interference,
reissue, reexamination, or opposition proceeding, nor to the knowledge of the
Company and the Interest Holders, is there any potentially interfering patent or
patent application of any third party.
(iv) Except as set forth in Part 5.22(d) of the Disclosure Letter, no
Patent owned by the Company is infringed or, to the knowledge of the Company and
the Interest Holders, has been challenged or threatened in any way. Except as
set forth in Part 5.22(d) of the Disclosure Letter, none of the products
manufactured and sold, nor any process or know-how used, by the Company
infringes or is alleged to infringe any patent or other proprietary right of any
other Person.
(v) Except as set forth in Part 5.22(d) of the Disclosure Letter, all
products made, used, or sold under the Patents owned by the Company have been
marked with the proper patent notice.
(e) (i) Part 5.22(e) of Disclosure Letter contains a complete and accurate
list and summary description of all Marks owned by or licensed to the Company.
Except as set forth in Part 5.22(e) of the Disclosure Letter, the Company is the
owner or licensee of all right, title, and interest in and to each of such
Marks, free and clear of all liens, security interests, charges, encumbrances,
equities, and other adverse claims.
(ii) Except as set forth in Part 5.22(e) of the Disclosure Letter, all
Marks owned by the Company that have been registered with the German patent
office (Bundespatentamt) or similar foreign Governmental Body are currently in
compliance in all material respects with applicable Legal Requirements
(including the timely
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post-registration filing of affidavits of use and incontestability and renewal
applications), are valid and enforceable, and are not subject to any maintenance
fees or Taxes or actions falling due within ninety days after the Closing Date.
(iii) Except as set forth in Part 5.22(e) of the Disclosure Letter, no Mark
owned by the Company has been or is now involved in any opposition,
invalidation, or cancellation and, to the knowledge of the Company and the
Interest Holders, no such action is threatened with the respect to any of such
Marks.
(iv) Except as set forth in Part 5.22(e) of the Disclosure Letter, to the
knowledge of the Company and the Interest Holders, there is no potentially
interfering trademark or trademark application of any third party.
(v) Except as set forth in Part 5.22(e) of the Disclosure Letter, no Mark
owned by the Company is infringed or, to the knowledge of the Company and the
Interest Holders, has been challenged or threatened in any way. Except as set
forth in Part 5.22(e) of the Disclosure Letter, none of the Marks used by the
Company infringes or is alleged to infringe any trade name, trademark, or
service mark of any third party.
(vi) Except as set forth in Part 5.22(e) of the Disclosure Letter, all
products and materials containing a Mark owned by the Company bear the proper
federal registration notice where permitted by law.
(f) (i) Part 5.22(f) of the Disclosure Letter contains a complete and
accurate list and summary description of all Copyrights owned by or licensed to
the Company. Except as set forth in Part 5.22(f) of the Disclosure Letter, the
Company is the owner or licensee of all right, title, and interest in and to
each of such Copyrights, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims.
(ii) Except as set forth in Part 5.22(f) of the Disclosure Letter, all the
Copyrights owned by the Company have been registered (to the extent required to
protect such Copyrights) and are currently in compliance in all material
respects with applicable Legal Requirements, are valid and enforceable, and are
not subject to any maintenance fees or Taxes or actions falling due within
ninety days after the date of Closing.
(iii) Except as set forth in Part 5.22(f) of the Disclosure Letter, no
Copyright owned by the Company is infringed or, to the knowledge of the Company
and the Interest Holders, has been challenged or threatened in any way. Except
as set forth in Part 5.22(f) of the Disclosure Letter, none of the subject
matter of any of such Copyrights infringes or is alleged to infringe any
copyright of any third party or is a derivative work based on the work of a
third party.
(iv) Except as set forth in Part 5.22(f) of the Disclosure Letter, all
works encompassed by the Copyrights owned by the Company have been marked with
the proper copyright notice (to the extent required to protect such Copyrights).
(g) (i) With respect to each Trade Secret owned by the Company, the
documentation relating to such Trade Secret is current, accurate, and sufficient
in detail and content to identify and explain it and to allow its full and
proper use without reliance on the knowledge or memory of any individual.
(ii) The Interest Holders and the Company have taken all reasonable
precautions to protect the secrecy, confidentiality, and value of the Trade
Secrets owned by the Company.
(iii) Except as set forth in Part 5.22(g) of the Disclosure Letter, the
Company has good title and an absolute (but not necessarily exclusive) right to
use the Trade Secrets owned by the Company. Except as set forth in Part 5.22(g)
of the Disclosure Letter, the Trade Secrets owned by the Company are not part of
the public knowledge or literature, and, to the knowledge of the Company and the
Interest Holders, have not been used, divulged, or appropriated either for the
benefit of any Person (other than the Company) or to the detriment of the
Company. Except as set forth in Part 5.22(g) of the Disclosure Letter, no Trade
Secret owned by the Company is subject to any adverse claim or has been
challenged or threatened in any way.
(h) Except as set forth in Part 5.22(h) of the Disclosure Letter, no
Contract (whether or not related to the Intellectual Property Assets) obligates
the Company or any director, managing director, Prokurist, officer or employee
of the Company to disclose and/or assign to another Person, any Intellectual
Property Asset or any developments, inventions, etc. relating to the
Intellectual Property Assets.
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5.23. Certain Payments. Except as set forth in Part 5.23 of the Disclosure
Letter, neither the Company nor any director, managing director, Prokurist,
officer, agent, or employee of the Company, or any other Person associated with
or acting for or on behalf of the Company, has directly or indirectly (a) made
any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or
other payment to any Person, private or public, regardless of form, whether in
money, property, or services (i) to obtain favorable treatment in securing
business, (ii) to pay for favorable treatment for business secured, (iii) to
obtain special concessions or for special concessions already obtained, for or
in respect of the Company or any Affiliate of the Company, or (iv) in violation
of any Legal Requirement that is or was applicable to the Company or to the
conduct or operation of its business or the ownership or use of any of its
properties or assets; (b) established or maintained any fund or asset that has
not been recorded in the books and records of the Company.
5.24. Disclosure. (a) No representation or warranty of the Company or the
Interest Holders in this Agreement and no statement in the Disclosure Letter
omits to state a material fact necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not misleading.
None of the information to be supplied by the Company or the Interest Holders
for inclusion in, or to be incorporated by reference in, the Proxy Statement
will, at the time of the mailing of the Proxy Statement and the time of the
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(b) No notice given by the Company or any of the Interest Holders pursuant
to Section 7.6 will contain any untrue statement or omit to state a material
fact necessary to make the statements therein or in this Agreement, in light of
the circumstances in which they were made, not misleading.
(c) There is no fact known to any of the Interest Holders that has specific
application to the Interest Holders or the Company (other than general economic
or industry conditions) and that materially adversely affects the assets,
business, prospects, financial condition, or results of operations of the
Company (on a consolidated basis) that has not been set forth in this Agreement
or the Disclosure Letter.
5.25. Relationships with Related Persons. Except as set forth in Part 5.25
of the Disclosure Letter, none of the Interest Holders or any Related Person of
such Interest Holders or of the Company has, or since the first day of the next
to last completed fiscal year of the Company has had, any interest in any
property (whether real, personal, or mixed and whether tangible or intangible),
used in or pertaining to the Company's business. Except as set forth in Part
5.25 of the Disclosure Letter, none of the Interest Holders or any Related
Person of such Interest Holders or of the Company owns, or since the first day
of the next to last completed fiscal year of the Company owned (of record or as
a beneficial owner), an equity interest or any other financial or profit
interest in, a Person that has (i) had business dealings or a material financial
interest in any transaction with the Company, or (ii) engaged in competition
with the Company with respect to any line of the products or services of the
Company (a "Competing Business") in any market presently served by the Company,
except for less than one percent of the outstanding capital stock or stated
capital of any Competing Business that is publicly traded on any recognized
exchange or in the over-the-counter market. Except as set forth in Part 5.25 of
the Disclosure Letter, none of the Interest Holders or any Related Person of
such Interest Holders or of the Company is a party to any Contract with, or has
any claim or right against, the Company, other than Contracts related to their
employment with the Company and claims for ordinary compensation as provided by
any such Contract.
5.26. Brokers and Finders. Neither the Interest Holders nor the Company
nor any of its officers, directors, managing director, Prokurist, or employees
has employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or finder's fees, and no broker or
finder has acted, directly or indirectly, for any of the Interest Holders or the
Company, in connection with this Agreement or the transactions contemplated
hereby or thereby.
5.27. Employee Benefit Plans. (a) Part 5.27 of the Disclosure Letter sets
forth a complete and accurate list and summary description of each employee
benefit plan or arrangement, including, without limitation, bonus, savings or
profit sharing plan, deferred compensation plan, pension or retirement plan,
stock option plan, stock appreciation right plan, executive compensation
practice and other executive perquisite, each plan
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or arrangement providing for insurance (including, without limitation, health
and life insurance) coverage, severance, termination or similar coverage and
each written compensation policy and practice, which in each case, covers any
current or former employee, officer, director, managing director, Prokurist or
agent of the Company, and which is or was maintained or contributed to by the
Company, other than those benefit plans or arrangements mandated by applicable
Legal Requirements.
(b) Except as set forth in Part 5.27 of the Disclosure Letter, the Company
has (i) complied in all material respects with all Legal Requirements applicable
to all employee benefit plans and arrangements maintained or contributed to by
the Company (whether or not listed or required to be listed in Part 5.27 of the
Disclosure Letter), (ii) made all contributions to such plans and arrangements
that were required to be made pursuant to applicable Legal Requirements; and
(iii) in the Balance Sheet, made adequate provision for existing pension
obligations on the basis of actuarial opinions (versicherungsmathematische
Gutachten)up to the maximum amount permitted under generally accepted valuation
methods.
5.28. Investment Intent; Accredited Investor. The Interest Holders are
acquiring the Acquiror Shares pursuant to Article II of this Agreement for their
own accounts and not with the view to, or for resale in connection with, any
distribution or public offering thereof with the meaning of the Securities Act,
except as contemplated by the Stockholders' Agreement. Each Interest Holder is
either (i) an "accredited investor" as such term is defined in Section 501(a) of
Regulation D promulgated under the Securities Act or (ii) otherwise has such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and the risks of the Acquiror Shares being delivered
pursuant to Section 2.1 of this Agreement so that such delivery of Acquiror
Shares is eligible for exemption from the registration and prospectus delivery
requirements of the Securities Act pursuant to Section 4(2) of the Securities
Act or Regulation S thereunder. Each Interest Holder has had an opportunity to
ask questions and receive answers concerning the terms and conditions of the
offering of the Acquiror Shares, has had full access to such information
concerning Acquiror as each Interest Holder has requested and possesses
substantial information about, and familiarity with, Acquiror as a result of the
information provided to each Interest Holder. The Interest Holders understand
that the Acquiror Shares have not been registered under the Securities Act by
reason of their contemplated issuance by Acquiror in a transaction exempt from
the registration and prospectus delivery requirements of the Securities Act
pursuant to Section 4(2) thereof, and that the reliance of Acquiror upon this
exemption is predicated in part upon this representation and warranty by the
Interest Holders.
ARTICLE VI
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
6.1. Conduct Prior to Closing. (a) The Company and the Interest Holders
hereby covenant and agree with Acquiror, that, prior to the Closing, unless the
prior written consent of Acquiror shall have been obtained and except as
otherwise contemplated herein, the Company shall, and the Interest Holders will
cause the Company to, operate its business only in the usual, regular and
ordinary course and in accordance with past practices and to conduct its
business in compliance in all material respects with the standards of the
industry in which it operates and provides services; and to preserve intact its
current business organization, keep available the services of the current
officers, employees and agents of the Company, and maintain the relations and
goodwill with suppliers, customers, landlords, creditors, employees, agents and
others having business relationships with the Company. From the date hereof
until the Closing, except as otherwise specifically provided in this Agreement
(including, without limitation, Section 6.3), the Company agrees that it will
not, and the Interest Holders covenant and agree that they will not permit the
Company to, do or agree or commit to do, without the prior written consent of
Acquiror, any of the following:
(i) incur any liabilities or obligations in excess of U.S. $50,000, in
the aggregate, whether directly or by way of guaranty, including any
obligation for borrowed money whether or not evidenced by a note, bond,
debenture or similar instrument, provided that the settlement of the VCU
litigation on the terms described in the Disclosure Letter and the
settlement of the pending litigation filed in Texas titled Linda Gail Frase
v. BioClin, Inc. and Jack Barbut on the terms previously discussed with
Acquiror shall not be within such limitation;
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(ii) acquire any equity, debt or other investment securities except
for acquisitions of such securities in the ordinary course of business;
(iii) grant any increase in compensation (including any salaries or
bonuses) to its employees as a class, or to its officers or directors,
managing director or Prokurist, except as required by law or at times and
in a manner consistent with past practice; effect any change in retirement
benefits to any class of employees or officers (unless any such change
shall be required by applicable law); enter into any employment, severance
or similar agreements or arrangements with any directors, managing director
or Prokurist or officers or employees other than the agreements or
severance and other plans described in Part 5.27 of the Disclosure Letter,
which in the case of employment agreements would extend beyond the Closing
Date (it being understood that nothing contained herein shall prohibit the
Company from paying individual merit increases or promotional increases, or
performance bonuses to its employees based on formulas consistent with
those used in the past for similar levels of performance); or establish,
adopt, enter into or amend any employee benefit plan for the benefit of any
officers, directors, managing director or Prokurist or employees;
(iv) declare any profit to be distributed to the shareholders or pay
any profit and purchase, redeem or otherwise acquire any shares of the
Company;
(v) other than with respect to the loan and letter agreement relating
to the acquisition of real property in connection with establishing a
representative office in Lithuania, purchase or otherwise acquire any
substantial portion of the assets, or of any class of stock or equity
interests of any Person except in partial or complete satisfaction of debts
previously contracted; merge into any other Person or permit any other
Person to merge into it or consolidate with any other Person; liquidate,
sell, dispose of, or encumber any assets or acquire any assets, other than
In the ordinary course of business consistent with past practice, or issue
any shares or permit any shares held in its treasury to become outstanding;
or issue or grant or extend the term of any option, warrant, conversion or
stock appreciation right not in existence on the date hereof;
(vi) propose or adopt any amendments to its Articles of Association;
(vii) enter into any type of business not conducted by the Company as
of the date of this Agreement or create or organize any new subsidiary or
enter into or participate in any joint venture or partnership
(Personengesellschaft);
(viii) propose or adopt any material changes to the accounting
principles used by the Company except as required by German GAAP
(Grundsaetze ordnungsgemaesser Buchfuehrung und Bilanzierung) and then only
in consultation with Acquiror;
(ix) enter into any agreement or transactions with any of the Interest
Holders or any Affiliate of the Interest Holders or make any material
amendment or modification to any such agreement, except as contemplated by
this Agreement; or
(x) agree or commit to do any of the foregoing.
Without limiting the foregoing, from the date hereof until the Closing, the
Company shall not, and the Interest Holders agree that they will not permit the
Company to, without first promptly notifying Acquiror and obtaining the prior
written consent of Acquiror, take any action or permit or suffer to be taken any
action, which is represented in Section 5.16 not to have been taken since the
date of the Balance Sheet.
(b) From the date hereof until the Closing, Acquiror shall not, without
first promptly notifying the Interest Holders and providing the Interest Holders
an opportunity to express their views, take any action or permit or suffer to be
taken any action, which is represented in Section 3.8 not to have been taken
since March 31, 1996.
6.2. Consents and Approvals. (a) Subject to the terms and conditions
herein provided, each of the parties hereto agrees to cooperate with the other
and use all reasonable best efforts to satisfy the conditions set forth in
Article VIII to be satisfied and to take, or cause to be taken, all action, and
to do, or cause to be done,
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all things necessary, proper or advisable under applicable laws, regulations and
contractual arrangements to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, using reasonable
efforts to lift or rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the transactions
contemplated hereby. Each of the parties hereto hereby covenants and agrees
subject, in the case of Acquiror, to the fiduciary obligations of Acquiror's
Board of Directors, to take no action (a) which would render any of its or his
representations and warranties contained herein untrue at and as of the Closing
except as otherwise contemplated herein or (b) which would adversely affect its
or his ability to satisfy any of the conditions set forth in Article VIII,
including, without limitation, the ability to obtain any necessary Governmental
Authorizations required for the transactions contemplated hereby or materially
increase the period of time necessary to obtain such authorizations.
(b) To the extent that the rights of the Company under any agreement,
arrangement or understanding may not be assigned without the consent or approval
of another party thereto, the Company shall, and the Interest Holders shall
cause the Company to, use all reasonable efforts to obtain any such consent or
to amend the agreement, arrangement or understanding such that no consent is
required.
6.3. Bookkeeping, Accounting and Financial Reporting Capabilities. (a) The
Company and the Interest Holders hereby covenant and agree with Acquiror, that
(i) prior to the Closing, the Company and the Interest Holders will deliver to
Acquiror: (A) an audited combined consolidated balance sheet of the Company and
the BioClin Affiliates as at December 31, 1994, and the related audited combined
consolidated statements of income, changes in stockholders' equity and cash
flows for the fiscal year then ended as well as the fiscal year ended December
31, 1993, together with the report thereon of KPMG Peat Marwick L.L.P., and (B)
an audited combined consolidated balance sheet of the Company and the BioClin
Affiliates as at December 31, 1995 and the related audited combined consolidated
statements of income, changes in stockholders' equity and cash flows for the
fiscal year then ended, together with the report thereon of KPMG Peat Marwick
L.L.P., including, in each case, the notes thereto, and (ii) (A) the financial
statements with respect to fiscal 1995 will be prepared in accordance with U.S.
GAAP (which except where noted therein, will be consistently applied), and will
fairly present the financial condition and results of operations, changes in
stockholders' equity and cash flow of the Company and the BioClin Affiliates as
at the respective dates and for the periods referred to in such financial
statements and (B) the financial statements with respect to fiscal 1993 and 1994
will be prepared in accordance with German GAAP (Grundsaetze ordnungsgemaesser
Buchfuehrung und Bilanzierung)including the principle of balance sheet
consistency (Bilanskontinuitast) and will be reconciled to U.S. GAAP.
(b) The Company and the Interest Holders hereby covenant and agree with
Acquiror, that, prior to the Closing, the Company shall, and the Interest
Holders shall cause the Company to, hire such number of bookkeepers and/or
accountants, or an accounting firm to provide such bookkeeping and accounting
services, reasonably acceptable to Acquiror, both in terms of number and
identity, such that the Company will, upon the Closing, have adequate financial
reporting capabilities to ensure that the reporting of consolidated financial
results by Acquiror on a post-Closing basis shall be made in a manner that will
enable Acquiror meet all reporting obligations applicable to it pursuant to the
Exchange Act.
(c) Notwithstanding any other provision hereof to the contrary (including,
without limitation, Section 10.2), to the extent Acquiror incurs any fees or
expenses in connection with the employment of Persons in connection with the
rendering of services contemplated by Section 6.3(b), the Company shall promptly
reimburse Acquiror for all such fees and expenses.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1. Current Information. During the period from the date of this
Agreement to the Closing, the Interest Holders, on the one hand, and Acquiror,
on the other hand, will cause one or more of their Representatives to confer on
a regular and frequent basis with Representatives of the other party with
respect to the status of the ongoing operations of the Company. Each party will
promptly notify the other party of any
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material change in the normal course of its business or in the operation of its
properties and, to the extent permitted by applicable law, of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the institution or the threat of material
Proceedings involving such party which would in any manner, challenge, prevent,
alter or materially delay any of the transactions contemplated by this
Agreement, and each party will keep the other party fully informed with respect
to such events. Each party will also notify the other party of the status of
regulatory applications and third party consents related to the transactions
contemplated hereby.
7.2. Access and Investigation. To the full extent permitted by applicable
law, between the date of this Agreement and the Closing Date, the Company shall,
and the Interest Holders shall and shall cause the Company and its
Representatives to, (a) afford Acquiror and its Representatives (collectively,
"Acquiror's Advisors") full and free access to the Company's personnel,
properties (including subsurface testing), contracts, books and records, and
other documents and data, (b) furnish Acquiror and Acquiror's Advisors with
copies of all such contracts, books and records, and other existing documents
and data as Acquiror may reasonably request, and (c) furnish Acquiror and
Acquiror's Advisors with such additional financial, operating, and other data
and information as Acquiror may reasonably request.
7.3. Effect of Investigations. Notwithstanding the notification and cure
provisions of Sections 7.6(c) and (d), but subject to the provisions of Section
8.2 and 8.3, no investigation by the parties hereto made heretofore or
hereafter, whether pursuant to this Agreement or otherwise (including without
limitation, any action taken by or information provided to Acquiror pursuant to
the provisions of Sections 7.1 and 7.2) shall affect the representations and
warranties of the parties which are contained herein and each such
representation and warranty shall survive such investigation.
7.4. Press Releases, Etc. Acquiror and the Interest Holders will consult
with each other as to the form, substance and timing of any press release or
other public disclosure of matters related to this Agreement or any of the
transactions contemplated hereby and no such press release or other public
disclosure shall be made without the consent of the other party, which shall not
be unreasonably withheld or delayed; provided, however, that either party may
make such disclosures as are required by law after making reasonable efforts in
the circumstances to consult in advance with the other party.
7.5. Acquisition Proposals. Until such time, if any, as this Agreement is
terminated pursuant to Article IX, the Company and the Interest Holders will
not, and the Interest Holders will cause the Company and its Representatives not
to, directly or indirectly solicit, initiate, or encourage or take any other
action to facilitate (including by way of providing information) any inquiries
or proposals from, discuss or negotiate with, provide any non-public information
to, or consider the merits of any unsolicited inquiries or proposals from, any
Person (other than Acquiror) relating to any transaction involving the sale of
the business or assets (other than in the ordinary course of business) of the
Company, or any of the equity interests of the Company, or any merger,
consolidation, business combination, or similar transaction involving the
Company. The Company and the Interest Holders shall promptly advise Acquiror
orally and in writing of any inquiry or proposal which relates to such a
transaction.
7.6. Notification of Certain Matters. (a) Between the date of this
Agreement and the Closing Date, each Interest Holder will promptly notify
Acquiror in writing if such Interest Holder or the Company has knowledge of any
fact or condition that causes or constitutes a breach of the Trustee's, the
Company's or any of the Interest Holders' representations and warranties as of
the date of this Agreement, or if such Interest Holder or the Company has
knowledge of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. Should any such fact or condition, or any fact or
condition disclosed to the Interest Holders by Acquiror pursuant to Section
7.6(d), require any change in the Disclosure Letter, if the Disclosure Letter
were dated the date of the occurrence or discovery of any such fact or
condition, the Interest Holders will promptly deliver to Acquiror a supplement
to the Disclosure Letter specifying such change. During the same period, each
Interest Holder will promptly notify Acquiror if such Interest Holder or the
Company has knowledge of the occurrence of any breach of any covenant of the
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Interest Holders or the Company in Article VI, this Article VII or of the
occurrence of any event that may make the satisfaction of the conditions in
Article VIII impossible or unlikely.
(b) Between the date of this Agreement and the Closing Date, Acquiror will
promptly notify the Interest Holders in writing if Acquiror has knowledge of any
fact or condition that causes or constitutes a breach of the Acquiror's
representations and warranties as of the date of this Agreement, or if Acquiror
has knowledge of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. Should any such fact or condition, or any fact or
condition disclosed to Acquiror by the Company or any Interest Holder pursuant
to Section 7.6(c), require any change in the Acquiror Letter, if the Acquiror
Letter were dated the date of the occurrence or discovery of any such act or
condition, Acquiror will promptly deliver to the Interest Holders a supplement
to the Acquiror Letter specifying such change. During the same period, Acquiror
will promptly notify the Interest Holders if Acquiror has knowledge of the
occurrence of any breach of any covenant of Acquiror in Article VI, this Article
VII or of the occurrence of any event that may make the satisfaction of the
conditions in Article VIII impossible or unlikely.
(c) Between the date of this Agreement and the Closing Date, each Interest
Holder will promptly notify Acquiror in writing if such Interest Holder or the
Company has knowledge of any fact or condition that causes or constitutes a
breach of Acquiror's representations and warranties as of the date of this
Agreement, or if such Interest Holder or the Company has knowledge of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. During the same period, each Interest Holder will promptly notify
Acquiror if such Interest Holder or the Company has knowledge of the occurrence
of any breach of any covenant of Acquiror in Article VI, this Article VII or of
the occurrence of any event that may make the satisfaction of the conditions in
Article VIII impossible or unlikely.
(d) Between the date of this Agreement and the Closing Date, Acquiror will
promptly notify the Interest Holders in writing if Acquiror has knowledge of any
fact or condition that causes or constitutes a breach of the Trustee's, the
Company's or any of the Interest Holders' representations and warranties as of
the date of this Agreement, or if Acquiror has knowledge of the occurrence after
the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a breach of any
such representation or warranty had such representation or warranty been made as
of the time of occurrence or discovery of such fact or condition. During the
same period, Acquiror will promptly notify the Interest Holders if Acquiror has
knowledge of the occurrence of any breach of any covenant of the Company or the
Interest Holders in Article VI, this Article VII or of the occurrence of any
event that may make the satisfaction of the conditions in Article VIII
impossible or unlikely.
(e) For purposes of this Agreement, "knowledge" on the part of Acquiror
means the actual knowledge of Mr. Paul J. Schmitt, Mr. John G. Cooper or Mr.
Lief Modeweg, and knowledge on the part of the Company means the actual
knowledge of Dr. Jack Barbut or Dr. J. Chris Jensen; provided, however, that all
such Persons shall be deemed to have actual knowledge of all matters disclosed
in the Acquiror Letter and the Disclosure Letter.
(f) Not later than ten Business Days prior to the scheduled Closing Date,
(i) Acquiror shall deliver to the Interest Holders a supplement to the Acquiror
Letter and (ii) the Interest Holders shall deliver to Acquiror a supplement to
the Disclosure Letter, in each case, that updates such disclosure from the date
of this Agreement to such date of delivery. Thereafter, until the Closing,
Acquiror and the Interest Holders shall notify each other in writing of any
changes or supplements to the updated information necessary, to the knowledge of
Acquiror or the Interest Holders, as the case may be, to make such information
correct and complete at all times up to and including the Closing.
(g) Notwithstanding the foregoing provisions of this Section 7.6, nothing
herein contained shall be construed to, in any manner, (i) modify the
representations and warranties of the parties contained herein as made as of the
date hereof or (ii) affect any right or remedy of any party granted hereunder or
under the
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Stockholders' Agreement (including, without limitation, the conditions to
Closing set forth in Article VIII herein and the indemnification provisions set
forth in Article IV of the Stockholders' Agreement).
7.7. Customers. After execution of this Agreement and prior to Closing,
the Interest Holders, the Company and Acquiror shall, either individually or
jointly, notify the customers of the Company of the transactions contemplated
hereby. As promptly as practicable following the Closing, the Interest Holders,
and Acquiror shall notify such customers thereof and shall provide, or join in
providing where appropriate, all notices to such customers and other persons
that the Interest Holders the Company, or Acquiror, as the case may be, are or
is required to give by any Governmental Body having jurisdiction over any such
Person or under applicable law or other terms of any other agreement between the
Company or its employees and any customer in connection with the transactions
contemplated hereby.
7.8. Preservation of Relationships. The Interest Holders (excluding, for
this purpose, Hackel) shall use their best efforts, and shall use their best
efforts to cause all their Affiliates including, without limitation, the Company
and its employees (in their capacity as employees) to use their best efforts, to
maintain in effect all material contractual and business relationships with the
Company or the employees (in their capacity as employees) and to waive any and
all rights to terminate any such relationship arising as a result of the
transactions contemplated by this Agreement, except as otherwise contemplated by
this Agreement.
7.9. Resale; Legends. (a) The Interest Holders shall not sell or otherwise
transfer any of their Acquiror Shares until (a) such Acquiror Shares shall have
been registered under the Securities Act, or (b) Acquiror shall have received an
opinion of legal counsel, satisfactory to Acquiror, that such Acquiror Shares
may be legally sold or otherwise transferred without such registration.
(b) The Acquiror Shares shall be imprinted with a legend in substantially
the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"), and may
not be sold or transferred in the absence of an effective
registration statement under the Act or an exemption from
registration thereunder. Prior to any sale or transfer of the
securities represented by this certificate, except pursuant to
an effective registration statement under the Act covering such
sale or transfer, the holder hereof shall have delivered to the
issuer hereof (the "Company") an opinion of counsel reasonably
satisfactory to the Company to the effect that such sale or
transfer is exempt from registration under the Act."
7.10. Pooling Treatment. None of Acquiror, the Company nor any of the
Interest Holders shall intentionally take, fail to take or cause to be taken or
not taken any action within its control, whether before or after the Closing,
which would disqualify the transactions consummated under this Agreement as a
"pooling of interests" for accounting purposes.
7.11. Shareholder Approval; Proxy Statement. (a) As soon as practicable
after the date hereof, Acquiror shall prepare a proxy statement (the "Proxy
Statement"), file it with the SEC, respond to comments of the Staff of the SEC,
clear the Proxy Statement with the Staff of the SEC and promptly thereafter mail
the Proxy Statement to all holders of Acquiror Common Stock. The Interest
Holders shall, and shall cause the Company to, cooperate with Acquiror in the
preparation of the Proxy Statement.
(b) Acquiror shall take all action necessary, in accordance with applicable
law and its certificate of incorporation and by-laws, to convene a meeting of
the holders of Acquiror Common Stock (the "Stockholders Meeting") for the
purpose of considering and taking action with respect to the approval of the
issuance of the Acquiror Shares as required by the rules of the National
Association of Securities Dealers, Inc. in connection with the transactions
contemplated by this Agreement and any of the other transactions pursuant to
which Acquiror shall acquire all of the outstanding capital stock or equity
interests in each of the BioClin Affiliates.
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ARTICLE VIII
CONDITIONS
8.1. Conditions to Each Party's Obligation to Consummate the Closing. The
respective obligations of each party to consummate the Closing shall be subject
to the fulfillment or waiver at or prior to the Closing of the following
conditions:
(a) The issuance of the Acquiror Shares shall have been approved by the
requisite vote of the holders of Acquiror Common Stock.
(b) The sale, transfer and assignment of Company Shares and the transfer
and delivery of the Acquiror Shares in consideration therefor as contemplated by
this Agreement and the transactions contemplated hereby shall have been approved
by the Governmental Bodies whose approval is required to consummate the
transactions contemplated hereby without any condition which is reasonably
likely to have a material adverse effect on the financial condition, business or
results of operations of the Company or Acquiror taken as a whole; all
conditions required to be satisfied prior to the Closing imposed by the terms of
such approvals shall have been satisfied; and all notifications to any
Governmental Bodies that are required shall have been made.
(c) None of Acquiror, the Trustee, the Interest Holders nor the Company
shall be subject to any order, decree or injunction of any Governmental Body
which enjoins or prohibits the consummation of the transactions contemplated by
this Agreement.
(d) Acquiror, the Company and the Interest Holders shall have received a
letter, dated the Closing Date, from KPMG Peat Marwick L.L.P. to the effect
that, for financial reporting purposes, the transactions contemplated hereby
qualify for pooling-of-interests accounting treatment under U.S. GAAP if
consummated in accordance with this Agreement.
(e) The Stockholders' Agreement and the Employment Agreements shall have
been entered into by the parties thereto.
8.2. Conditions to Obligation of Acquiror to Consummate the Closing. The
obligations of Acquiror to consummate the Closing shall be subject to the
fulfillment or waiver at or prior to the Closing of the following additional
conditions:
(a) (i) The representations and warranties of the Company, the Trustee and
the Interest Holders set forth in Articles IV and V hereof (A) that contain a
materiality qualification shall be true and correct and (B) that do not contain
a materiality qualification shall be true and correct in all material respects,
as of the Closing as though made at and as of the Closing (it being understood
that representations and warranties that speak as of a specified date shall
continue to speak only as of the date so specified) without giving effect to any
supplement to the Disclosure Letter, except for such changes occurring after the
date hereof in the ordinary course of business of the Company and in accordance
with the terms and provisions of this Agreement (including, without limitation,
Section 6.1(a)), which, in the aggregate, would not have a material adverse
effect on the financial condition, operations or prospects of the Company and
the BioClin Affiliates taken as a whole, and (ii) Acquiror shall have received a
signed certificate of each of the Company (which is to the knowledge of a
principal executive officer), the Trustee and the Interest Holders to that
effect. Acquiror's closing of the transactions contemplated by this Agreement
and the agreements with the BioClin Affiliates with respect to Acquiror's
acquisition of all of the outstanding capital stock or equity interests of the
BioClin Affiliates shall constitute acceptance of the disclosures made by the
Company and/or the Interest Holders prior to Closing in the Disclosure Letter
and waiver of any purported misrepresentation or breach of any representation or
warranty made by such Persons in Article V or any covenant of such Persons
contained in Article VI or VII to the extent the Disclosure Letter, as
supplemented pursuant to Section 7.6(a) and (f), discloses information
pertaining thereto.
(b) The Company, the Trustee and the Interest Holders shall have in all
material respects performed all obligations required to be performed by them
under this Agreement prior to the Closing, and Acquiror shall have received a
signed certificate of each of the Company (which is to the knowledge of a
principal executive officer), the Trustee and the Interest Holders to that
effect.
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(c) Acquiror shall have received a legal opinion dated the Closing, from
Piper & Marbury, L.L.P., counsel of the Interest Holders, with respect to the
transactions contemplated herein in form mutually agreed upon by Acquiror and
the Interest Holders.
(d) The Board of Directors of Acquiror shall have received an opinion from
Vector Securities International, Inc., dated not later than the date of
Acquiror's Proxy Statement (and such opinion shall not have been withdrawn on or
before the Closing Date) to the effect that as of the date thereof, the number
of Acquiror Shares to be delivered in consideration for the transfer of the
Company Shares and the capital stock or equity interests in each of the BioClin
Affiliates is fair to Acquiror and Acquiror's stockholders from a financial
point of view.
(e) Acquiror shall have acquired all of the outstanding capital stock or
equity interests in each of the BioClin Affiliates.
(f) The Company shall have obtained the written consent(s) of the Person(s)
specified in Part 8.2 of the Acquiror Letter.
8.3. Conditions to Obligation of Interest Holders Owner to Consummate the
Closing. The obligations of the Company, the Trustee and Interest Holders to
consummate the Closing shall be subject to the fulfillment or waiver at or prior
to the Closing of the following additional conditions:
(a)(i) The representations and warranties of Acquiror set forth in Article
III hereof (A) that contain a materiality qualification shall be true and
correct, and (B) that do not contain a materiality qualification shall be true
and correct in all material respects, as of the Closing as though made at and as
of the Closing (it being understood that representations and warranties that
speak as of a specified date shall continue to speak only as of the date so
specified) without giving effect to any supplement to the Acquiror Letter,
except for such changes occurring after the date hereof in the ordinary course
of business of Acquiror and in accordance with the terms and provisions of this
Agreement (including, without limitation, Section 6.1(b)), which, in the
aggregate, would not have a material adverse effect on the financial condition,
operations or prospects of Acquiror and its Subsidiaries taken as a whole, and
(ii) each of the Company, the Trustee and the Interest Holders shall have
received a signed certificate which is to the knowledge of a principal executive
officer of Acquiror to that effect. The closing of the transactions contemplated
by this Agreement and the agreements with the BioClin Affiliates with respect to
Acquiror's acquisition of all of the outstanding capital stock or equity
interests of the BioClin Affiliates shall constitute acceptance by the Company
and the Interest Holders of the disclosures made by Acquiror prior to the
Closing in the Acquiror Letter and waiver of any purported misrepresentation or
breach of any representation or warranty made by Acquiror in Article III or any
covenant of Acquiror contained in Article VI or VII to the extent the Acquiror
Letter, as supplemented pursuant to Section 7.6(b) and (f), discloses
information pertaining thereto.
(b) Acquiror shall have in all material respects performed all obligations
required to be performed by it under this Agreement prior to the Closing, and
each of the Company, the Trustee and the Interest Holders shall have received a
signed certificate which is to the knowledge of a principal executive officer of
Acquiror to that effect.
(c) The Interest Holders shall have received a legal opinion dated the
Closing from Jones, Day, Reavis & Pogue, counsel of Acquiror, with respect to
the transactions contemplated herein in form mutually agreed upon by Acquiror
and the Interest Holders.
(d) All liabilities and obligations of Hackel (direct or indirect) and
Barbut pursuant to any guarantees of the indebtedness of the Company and the
BioClin Affiliates shall have been terminated.
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ARTICLE IX
TERMINATION
9.1. Termination. This Agreement may, by notice given prior to or at the
Closing, be terminated:
(a) by either Acquiror or the Interest Holders if a material breach of any
provision of this Agreement has been committed by the other party and such
breach has not been waived;
(b) (i) by Acquiror, if any of the conditions in Section 8.1 or 8.2 has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Acquiror to comply with
its obligations under this Agreement) and Acquiror has not waived such condition
on or before the Closing Date; or (ii) by the Interest Holders, if any of the
conditions in Section 8.1 or 8.3 has not been satisfied as of the Closing Date
or if satisfaction of such a condition is or becomes impossible (other than
through the failure of the Trustee or the Interest Holders to comply with their
obligations under this Agreement) and the Interest Holders have not waived such
condition on or before the Closing Date;
(c) by mutual consent of Acquiror and the Interest Holders;
(d) by either Acquiror or the Interest Holders if any of the agreements
relating to the transfer and delivery of the Acquiror Common Stock in
consideration and exchange for the transfer of the outstanding capital stock or
equity interests in each of the BioClin Affiliates is terminated; or
(e) by either Acquiror or the Interest Holders if the Closing has not
occurred (other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before December 31, 1996, or such later date as the parties may agree upon.
9.2. Effect of Termination. If this Agreement is terminated pursuant to
Section 9.1, all further obligations of the parties under this Agreement will
terminate, except that the obligations set forth in Sections 6.3(c), 10.2 and
10.3 will survive; provided, however, that if this Agreement is terminated by
Acquiror or the Interest Holders because of the intentional breach of this
Agreement (including, without limitation, the making by any party hereto of any
representation or warranty hereunder that is known by such party not to be true
and correct in all material respects at the time such representation or warranty
is made) by the Interest Holders or Acquiror, as the case may be, or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's intentional failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
ARTICLE X
GENERAL PROVISIONS
10.1. Survival of Representations, Warranties and Agreements. Except as
specifically provided in this Agreement and the Stockholders' Agreement, all
representations, warranties and agreements of the parties hereto in this
Agreement or in any instrument delivered by the parties hereto pursuant to this
Agreement shall expire on the Report Date or upon termination of this Agreement
in accordance with its terms.
10.2. Expenses. Except as otherwise expressly provided in this Agreement
(including, without limitation, in Section 6.3(b)) and the Letter Agreement,
dated May 16, 1996, by and among Acquiror, the Company and the BioClin
Affiliates, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the transactions contemplated hereby, including all fees and
expenses of agents, representatives, counsel, and accountants. Acquiror will pay
all amounts payable to Vector Securities International, Inc. in connection with
this Agreement and the transactions contemplated hereby. In the event of
termination of this Agreement pursuant Article IX, the obligation of each party
to pay its own expenses shall be subject to the right of such party to pursue
any legal remedies arising from the intentional breach of this Agreement by the
other party or the other party's intentional failure to comply with its
obligations under this Agreement as provided in Section 9.2.
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10.3. Confidentiality. Between the date of this Agreement and the Closing
Date, Acquiror and the Interest Holders will maintain in confidence, and will
cause the directors, managing director, Prokurist, officers, employees, agents,
and advisors of Acquiror and the Company to maintain in confidence, and not use
to the detriment of another party hereto any written, oral, or other information
obtained in confidence from another party or the Company in connection with this
Agreement or the transactions contemplated hereby, unless (a) such information
is already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available through no fault
of such party, (b) the use of such information is necessary or appropriate in
making any filing or obtaining any consent or approval required for the
consummation of the transactions contemplated hereby, or (c) the furnishing or
use of such information is required by or necessary or appropriate in connection
with legal proceedings. If any party hereto or its Representatives are requested
or become legally compelled (by oral questions, interrogatories, requests for
information or documents, subpoena, civil or criminal investigative demand, or
similar process) or is required by a regulatory body to make any disclosure that
is prohibited or otherwise constrained by this Agreement, such party or its
Representative, as the case may be, will provide the party providing the
confidential information with prompt notice of such request so that an
appropriate protective order or other appropriate remedy may be sought. Subject
to the foregoing, such party or its Representative may furnish that portion (and
only that portion) of the confidential information that, in the written opinion
of its counsel reasonably acceptable to the party providing such information,
such party is legally compelled or is otherwise required to disclose the
information at issue or else stand liable for contempt or suffer other material
censure or material penalty. If the transactions contemplated hereby are not
consummated, each party hereto will return or destroy as much of such written
information as the other party may reasonably request. Whether or not the
Closing takes place, the Interest Holders waive, and will upon Acquiror's
request cause the Company to waive, any cause of action, right, or claim arising
out of the access of Acquiror or its Representatives to any trade secrets or
other confidential information of the Company except for the intentional
competitive misuse by Acquiror of such trade secrets or confidential
information. The Trustee and the Interest Holders acknowledge that, and agree
that they will advise their respective Representatives and Affiliates, that any
non-public information provided by or relating to Acquiror may constitute
material non-public information for purposes of the Exchange Act, and agrees
that it will not engage in any transaction in violation of the restrictions on
trading while in possession of material non-public information under applicable
securities laws or regulations while in possession of such information.
10.4. Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), or (c) when received
by the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
(a) if to Acquiror:
DNX Corporation
303B College Road East
Princeton, New Jersey 08540
Attention: President
Telecopier No.: (908) 722-6677
with copies to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Thomas C. Daniels, Esq.
Telecopier No.: (216) 579-0212
(b) if to the Trustee:
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Dr. Gerald Rittershaus
Theodor-Heuss-Anlage 2
68165 Mannheim
Germany
Telecopier No.: 011-49-621-42-56-250
(c) if to the Interest Holders:
Jack Barbut
c/o Piper & Marbury, L.L.P.
1251 Avenue of the Americas
New York, New York 10020-1104
Telecopier No.: (212) 835-6001
Alec Hackel
Flueliweg 3
6045 Meggen
Switzerland
Telecopier No.: 011-41-41-377-3053
Dr. John Christian Jensen
Bohlstrasse 9a
6300 Zug
Switzerland
Telecopier No.: 011-41-41-71-2341
with copies to:
Piper & Marbury L.L.P.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ray A. Mantle, Esq.
Telecopier No.: (212) 835-6001
(d) if to the Company:
c/o BioClin, Inc.
1001 East Main Street
Suite 808
Richmond, Virginia 23219
Attention: Chief Executive Officer
Telecopier No.: (804) 788-0040
with copies to:
Piper & Marbury L.L.P.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ray A. Mantle, Esq.
Telecopier No.: (212) 835-6001
10.5. Jurisdiction; Service of Process. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of New York, County of New York, or, if it has or can acquire jurisdiction, in
the United States District Court for the Southern District of New York, and each
of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any party anywhere in the world.
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<PAGE> 301
10.6 Further Assurances. The parties agree (a) to furnish upon request to
each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
10.7. Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Except as otherwise specifically provided by
Sections 8.2 and 8.3 of this Agreement, neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law and except as otherwise specifically
provided by Sections 8.2 and 8.3 of this Agreement, (a) no claim or right
arising out of this Agreement or the documents referred to in this Agreement can
be discharged by one party, in whole or in part, by a waiver or renunciation of
the claim or right unless in writing signed by the other party; (b) no waiver
that may be given by a party will be applicable except in the specific instance
for which it is given; and (c) no notice to or demand on one party will be
deemed to be a waiver of any obligation of such party or of the right of the
party giving such notice or demand to take further action without notice or
demand as provided in this Agreement or the documents referred to in this
Agreement.
10.8. Entire Agreement and Modification. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes (along with the Stockholders' Agreement and the other documents
referred to in this Agreement and the documents executed in connection with
Acquiror's acquisition of the equity interests of the BioClin Affiliates) a
complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter. This Agreement may not be amended
except by a written agreement executed by each of the parties hereto.
10.9. Assignments, Successors, and No Third-Party Rights. No party hereto
may assign any of its rights under this Agreement without the prior consent of
the other parties, except that Acquiror may assign any of its rights under this
Agreement to any Subsidiary of Acquiror. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the parties to this Agreement and their successors and assigns any
legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.
10.10. Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable. The
invalid or unenforceable provision shall be replaced by a provision which
ensures the economic purpose of the invalid or unenforceable provision as far as
possible.
10.11. Foreign Currencies. For purposes of the representations and
warranties set forth in this Agreement, any reference to "U.S. $" shall be
construed to include the U.S. dollar equivalent of any foreign currency (other
than DM) computed using the noon buying rate in New York City for cable
transfers of such foreign currency as announced for customs purposes by the
Federal Reserve Bank of New York prevailing on the date of this Agreement.
10.12. Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
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<PAGE> 302
10.13. Governing Law. This Agreement will be governed by the laws of the
State of New York without regard to conflicts of laws principles.
10.14. Specific Performance. Each of the Company, the Interest Holders,
the Trustee and Acquiror acknowledges and agrees that the other parties would be
damaged irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or are otherwise breached.
Accordingly, each of the Company, the Interest Holders, the Trustee and Acquiror
agrees that the other parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court in the United States or in any state having jurisdiction
over the parties and the matter in addition to any other remedy to which they
may be entitled pursuant hereto.
10.15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
DNX CORPORATION
By: /s/ PAUL J. SCHMITT
Name: Paul J. Schmitt
Title: President and Chief
Executive Officer
DR. GERALD RITTERSHAUS
Dr. Gerald Rittershaus, as
Trustee
DR. JACK BARBUT
Dr. Jack Barbut
/s/ ALEC HACKEL
Alec Hackel
/s/ DR. JOHN CHRISTIAN JENSEN
Dr. John Christian Jensen
BIOCLIN INSTITUTE OF CLINICAL
PHARMACOLOGY GMBH
By: /s/ DR. JOHN CHRISTIAN JENSEN
Name: Dr. John Christian Jensen
Title: Authorized Signatory
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<PAGE> 303
EXHIBIT A
SEE EXHIBIT A TO APPENDIX B
<PAGE> 304
EXHIBIT B
SEE APPENDIX E
<PAGE> 305
APPENDIX E
FORM OF STOCKHOLDERS' AGREEMENT
This STOCKHOLDERS' AGREEMENT (the "Agreement") is being entered into this
day of December , 1996, by and between DNX Corporation, a Delaware
corporation (together with its successors and permitted assigns, the "Issuer"),
Sherby N.V., a Netherlands Antilles corporation ("Sherby"), Dr. Gerald
Rittershaus, acting solely in his capacity as trustee ("Rittershaus") pursuant
to an Agreement among Rittershaus, Dr. Jack Barbut and Alec Hackel, dated August
29, 1991 (the "Rittershaus Trust Agreement"), Manfred Wissmann, acting solely in
his capacity as trustee ("Wissmann" and, together with Rittershaus, the
"Trustees") pursuant to an Agreement among Wissmann, Dr. Jack Barbut and Alec
Hackel, dated March 22, 1990 (the "Wissmann Trust Agreement" and, together with
the Rittershaus Trust Agreement, the "Trust Agreements"), Dr. Jack Barbut
("Barbut"), Alec Hackel ("Hackel"), Dr. John Christian Jensen ("Jensen",
collectively with Sherby, Barbut and Hackel, the "Stockholders") and Ms. Martha
Lee Reynolds ("Reynolds"), Mr. Barry Dvorchik ("Dvorchik"), Ms. Christine
Dune-Kraatz ("Kraatz"), Dr. Gerald Rittershaus, acting solely in his capacity as
trustee (the "Employee Trustee") pursuant to a Trust Agreement between the
Employee Trustee and Kraatz dated December 12, 1989 (the "Employee Trust
Agreement"), and Ms. Bettina Donhardt ("Donhardt" and, together with Reynolds,
Dvorchik and Kraatz, collectively, the "Employee Stockholders").
RECITALS
A. The Issuer, the Trustees and the Stockholders, among others, are parties
to each of (i) a Share Exchange Agreement (the "Exchange Agreement") with
respect to BioClin Europe AG, a Swiss corporation ("BioClin Europe"), Kilmer
N.V., a Netherlands Antilles corporation ("Kilmer"), and BioClin GmbH, a German
corporation ("BioClin Germany"), (ii) a Share Acquisition Agreement (the
"Acquisition Agreement") with respect to BioClin Institute of Clinical
Pharmacology GmbH, a German corporation ("BioClin Institute"), and (iii) a
Merger Agreement (the "Merger Agreement") with respect to BioClin, Inc., a
Delaware corporation ("BioClin/U.S." and, together with BioClin Europe, Kilmer,
BioClin Germany and BioClin Institute, collectively, the "BioClin Affiliates"),
each dated August 19, 1996 (the Exchange Agreement, the Acquisition Agreement
and the Merger Agreement collectively, the "Securities Exchange Agreements"),
pursuant to which the Issuer will, among other things, directly, or indirectly,
issue to the Stockholders (or to the Trustees on behalf of Barbut and Hackel)
and the Employee Stockholders (or to the Employee Trustee on behalf of Kraatz)
shares (the "Acquiror Shares") of its Common Stock, par value $0.01 per share
(the "Common Stock").
B. The Issuer has agreed to provide the Stockholders with the right to
designate one, or upon the earlier of March 31, 1997 or the next vacancy, two,
directors, for election to the Board of Directors of the Issuer (the "Board").
C. The Issuer has agreed to provide to the Stockholders and the Employee
Stockholders certain registration rights with respect to the Common Stock.
D. The Issuer, the Trustees, the Stockholders and the Employee Stockholders
are entering into this Agreement to set forth the terms and conditions
applicable to such designation of directors to the Board, the grant and exercise
of such registration rights and certain indemnification arrangements.
E. Capitalized terms used herein, unless otherwise defined herein, shall
have the meaning given to such terms in the Securities Exchange Agreements.
NOW THEREFORE, for the consideration set forth in the Securities Exchange
Agreements and other good and valuable consideration, the sufficiency and
receipt of which is hereby acknowledged, the Issuer agrees with the Trustees and
the Stockholders as follows:
<PAGE> 306
ARTICLE I
DEFINITIONS
1.1 As used in this Agreement, the following terms have the following
meanings:
(i) "Affiliate" means, as to any Person, another Person which
controls, is controlled by or is under common control with, such Person;
(ii) "Commission" means the Securities and Exchange Commission.
(iii) "Cutback Registration" means any registration in which the
managing underwriter advises the Issuer that marketing factors require a
limitation of the number of shares of Common Stock to be underwritten in
such registration;
(iv) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, including the rules and regulations promulgated thereunder;
(v) "Person" means a corporation, association, joint venture,
partnership, limited liability company, trust, business, individual,
government or political subdivision thereof, or any governmental agency;
(vi) "Permitted Interruption" has the meaning set forth in Section
3.8.
(vii) "Piggyback Registration" means any registration which is not a
First Tranche Requested Registration (other than a registration on Form S-4
or Form S-8 promulgated pursuant to the Securities Act);
(viii) "register", "registered" and "registration" refer to a
registration of Common Stock effected by preparing and filing with the
Commission a registration statement in compliance with the Securities Act
and the declaration or ordering of the effectiveness of such registration
statement by the Commission;
(ix) "Registrable Securities" means the Common Stock issued or
issuable to any Stockholder (or to the Trustees on behalf of any
Stockholder) or any Employee Stockholder (or the Employee Trustee on behalf
of any Employee Stockholder) pursuant to the Securities Exchange
Agreements; provided that, as to any particular securities, such securities
will cease to be Registrable Securities upon the first to occur of the
following: (i) such securities have been sold to the public pursuant to a
registration or pursuant to Rule 144 promulgated by the Commission pursuant
to the Securities Act (or any similar rule then in force); or (ii) such
securities have been exchanged, substituted or replaced by securities that
have been registered under the Securities Act.
(x) "Requested Registration" means a registration requested under
Section 3.2 by the Stockholders.
(xi) "Securities Act" means the Securities Act of 1933, as amended,
including the rules and regulations promulgated thereunder.
ARTICLE II
DESIGNATION OF DIRECTORS
2.1 Right to Nominate a Director of Issuer. (a) The Issuer shall take all
actions reasonably within its power on or prior to the fifth (5th) business day
after the closing of the transactions contemplated by the Securities Exchange
Agreements (the "Closing") to elect to the Board one (1) member who is
designated by the Stockholders, and upon the earlier to occur of March 31, 1997
or the next vacancy on the Board, one (1) additional member who is designated by
the Stockholders (each person so designated, a "Stockholder Nominee").
(b) Each Stockholder Nominee, regardless of whether to be appointed or
elected, shall be reasonably acceptable to the Issuer, except that the Issuer
hereby agrees that Barbut and Jensen are acceptable Stockholder Nominees.
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(c) Notwithstanding any provision contained herein to the contrary, at any
time prior to the election of the second Stockholder Nominee to the Board, in
accordance with Section 2.1(a), one other person (the "Auditing Nominee") shall
have the right to attend and speak (but not vote) at all regular and special
meetings of the Board and, upon notice from the Stockholders of the identity and
address of such Auditing Nominee, the Issuer will cause all notices of such
meetings and all written materials prepared for such meetings to be sent to such
Auditing Nominee at the same time that such notices and materials are sent to
the members of the Board. Any Auditing Nominee shall be reasonably acceptable to
the Issuer, except that the Issuer hereby agrees that each of Barbut and Jensen
is an acceptable Auditing Nominee. Any Auditing Nominee shall become a party
hereto unless already a party hereto. Such Auditing Nominee hereby acknowledges
its obligations under the federal securities laws to not trade in the Common
Stock while in possession of material non-public information relating to the
Issuer and hereby agrees to not so trade.
ARTICLE III
REGISTRATION PROVISIONS
3.1 Piggyback Registration. Subject to Permitted Interruptions as provided
for in Section 3.8, if at any time after the Closing, and from time to time
thereafter, the Issuer proposes to effect a Piggyback Registration for its
account or for the account of a security holder or holders, the Issuer shall:
(a) promptly give to each Stockholder and Employee Stockholder written
notice thereof (which written notice shall include a list of the jurisdictions
in which the Issuer intends to attempt to qualify such securities under or
otherwise comply with the applicable blue sky or other state securities laws);
and
(b) include in such registration (and any related qualification under or
other compliance with blue sky or other state securities laws), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request, made within fifteen (15) days after receipt of such written
notice from the Issuer, by any Stockholder (or the Trustees on behalf of any
Stockholder) or any Employee Stockholder (or the Employee Trustee on behalf of
any Employee Stockholder); provided, however, that if such registration is a
Cutback Registration, then (i) if such registration is a registration on behalf
of the Issuer for its own account, the Issuer shall register in such
registration (A) first, the shares of Common Stock the Issuer proposes to sell
in such registration, and (B) second, the shares of Common Stock that are
Registrable Securities held by the Stockholders, the Employee Stockholders and
any other shares of Common Stock requested to be included therein by persons
entitled to piggyback registration rights (the "Other Holders"), on a pro rata
basis, based upon the number of shares of Common Stock each Stockholder,
Employee Stockholder and each Other Holder originally sought to include in such
registration; and (ii) if such registration is a Piggyback Registration that is
solely a secondary registration requested by, and being made on behalf of,
holders of Common Stock other than the Stockholders or the Employee Stockholders
(the "Demanding Holders"), the Issuer shall register in such registration (A)
first, the shares of Common Stock proposed to be sold by the Demanding Holders,
and (B) second, the shares of Common Stock that are Registrable Securities held
by the Stockholders, the Employee Stockholders and any other shares of Common
Stock requested to be included therein by the Other Holders, on a pro rata
basis, based upon the number of shares of Common Stock each Stockholder,
Employee Stockholder and each Other Holder originally sought to include in such
registration.
3.2 Requested Registration. Subject to Permitted Interruptions as provided
for in Section 3.8:
(a) First Tranche Requested Registration. At any time following the second
anniversary of the Closing, the Stockholders, acting together, may make a
written request to the Issuer for one (1) registration (including any related
qualification under or compliance with blue sky or other state securities laws)
of up to thirty-eight percent (38%) of the Registrable Securities owned by them
(or by the Trustees on their behalf) to be allocated among the Stockholders as
agreed by them ("First Tranche Requested Registration").
(b) Second Tranche Requested Registration. At any time following the fifth
anniversary of the Closing, the Stockholders, acting together, may make a
written request to the Issuer for one (1) registration (including any related
qualification under or compliance with blue sky or other state securities laws)
of all or part of the
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Registrable Securities owned by them (or by the Trustees on their behalf) to be
allocated among the Stockholders as agreed by them ("Second Tranche Requested
Registration").
(c) Request and Registration Procedures. The offering of such Registrable
Securities pursuant to such Requested Registration shall be in the form of an
underwritten public offering. Each request to the Issuer for registration shall
specify whether the registration is a First Tranche Requested Registration or a
Second Tranche Requested Registration and the number of shares of Common Stock
that are Registrable Securities proposed to be registered and the allocation of
such Registrable Securities among the Stockholders. After receipt of such
request, the Issuer shall, subject to Permitted Interruptions, use its best
efforts diligently to effect such Requested Registration (and related
qualifications and compliances (including, without limitation, the execution of
an undertaking to file post-effective amendments and appropriate qualifications
under or other compliance with the applicable blue sky or other state securities
laws)) of the Registrable Securities which the Issuer has been so requested to
register by the Stockholders exercising the Requested Registration rights
("Requesting Holders").
(d) Priority on Requested Registrations. If any Requested Registration is
a Cutback Registration, the Issuer shall register in such registration (i)
first, the Registrable Securities which any Requesting Holder seeks to include
in such registration, on a pro rata basis based upon the number of shares of
Common Stock each such Requesting Holder seeks to include in such registration
and (ii) second, the Registrable Securities held by the Employee Stockholders
that have exercised their Piggyback Registration rights in accordance with
Section 3.1 (the "Piggyback Holders") (with respect to a Second Tranche
Requested Registration) and any other shares of Common Stock requested to be
included in such registration by the Other Holders, on a pro rata basis, based
upon the number of shares of Common Stock each Piggyback Holder and each Other
Holder, as applicable, seeks to include in such registration.
(e) Underwriting. Any Requesting Holder shall so advise the Issuer as a
part of the request made pursuant to this Section 3.2 of such Requesting
Holder's selection of an underwriter for the offering; provided that such
underwriter must be reasonably satisfactory to the Issuer. If another
Stockholder disapproves of the terms of the underwriting, such Stockholder may
elect to withdraw therefrom by written notice to the Issuer and the managing
underwriter, and each of the remaining Stockholders shall be entitled to
increase the number of shares being registered, to the extent permitted by the
managing underwriter, in the proportion which the number of shares of
Registrable Securities being registered by such Stockholder bears to the total
number of shares being registered by all such remaining Stockholders.
3.3 Expenses of Registration.
(a) Piggyback Registration. All expenses incurred in connection with a
Piggyback Registration which, but for such Piggyback Registration, would not
have been incurred by the Issuer (including, without limitation, fees and
disbursements of counsel or independent certified public accountants for any
Stockholder or Employee Stockholder, additional filing and/or listing fees,
additional expenses to secure qualification of such securities under state
securities laws, additional reasonable fees and disbursements of counsel or
independent certified public accountants for the Issuer) shall be for the
account of, and shall be paid by the Stockholders and the Employee Stockholders
participating in such Piggyback Registration or, to the extent such expenses
have already been paid by the Issuer, shall be promptly reimbursed to the Issuer
by the Stockholders and the Employee Stockholders participating in such
Piggyback Registration within ten (10) business days after written request
therefor by the Issuer. The Stockholders and the Employee Stockholders shall pay
all underwriters' fees, discounts or commissions relating to any Registrable
Securities included in any Piggyback Registration.
(b) Requested Registration. All expenses incurred by the Issuer or the
Stockholders in connection with a Requested Registration (including, without
limitation, all registration, filing and qualification fees, printing expenses,
fees and disbursements of counsel for the Issuer and the Issuer's independent
certified public accountants (subject to the exceptions described herein) and
all underwriters' fees, discounts or commissions relating to any Registrable
Securities included in any such registration) shall be for the account of and
paid by the Stockholders whose Registrable Securities are included in the
Requested Registration, except that the
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Issuer shall pay up to $75,000 of the fees and disbursements of the Issuer's
counsel and independent certified public accountants in connection with any
Requested Registration.
(c) Notwithstanding any provision of this Section 3.3 to the contrary, in
no event shall the Issuer be required to pay underwriters' fees, discounts or
commissions relating to any Registrable Securities.
(d) In the event that a Requested Registration is withdrawn prior to the
effective disposition under a registration statement of the Registerable
Securities thereby registered, the request relating to such Requested
Registration shall be deemed not to have been made and registration shall be
deemed not to have been effected under this Article III if the Issuer is
reimbursed by the relevant Stockholders for the expenses incurred by it in
connection with the withdrawn Requested Registration.
3.4 Registration Procedures.
(a) In the case of each registration, qualification or compliance effected
by the Issuer pursuant to this Article III, the Issuer shall keep each
Stockholder and Employee Stockholder included in such registration advised in
writing as to the initiation, progress, and effective date of each registration,
qualification and compliance, and, at its or such Stockholder's or Employee
Stockholder's expense to the extent provided in Section 3.3, the Issuer shall:
(i) before filing a registration statement or prospectus or any
amendment or supplements thereto subject to this Article III, the Issuer
shall furnish to counsel selected by any Stockholder or Employee
Stockholder such copies of all such documents proposed to be filed and the
portions of such documents provided in writing by such Stockholder or
Employee Stockholder for use therein and for which such Stockholder or
Employee Stockholder shall indemnify the Issuer pursuant to Section 4.1(b)
of this Agreement, as such counsel shall reasonably request;
(ii) subject to Section 3.4(b) below, keep each registration,
qualification or compliance effective for (A) the period required by the
managing underwriter in the case of an underwritten offering of
Registerable Securities, but in no event for more than ninety (90) days, or
(B) a period of ninety (90) days in the case of a non-underwritten offering
of Registerable Securities, in either case, plus any number of days that
the Stockholders are unable to use a prospectus pursuant to Section 3.4(b)
below (the "Registration Period"); and
(iii) furnish such number of prospectuses (including preliminary
prospectuses) and other documents filed with the Commission as part of the
registration statement as such Stockholders or Employee Stockholders from
time to time may reasonably request.
(b) If, within the Registration Period, there occurs any development or any
event which makes any statement in the registration statement or any
post-effective amendment thereto, or any document incorporated therein by
reference, untrue in any material respect or which requires the making of any
changes in the registration statement or post-effective amendment thereto or
prospectus or amendment or supplement thereto, so that they will not 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 (in the case of
any prospectus, in the light of the circumstances under which they were made)
not misleading, the Issuer shall immediately notify each Stockholder and
Employee Stockholder whose Registrable Securities are included in such
registration of the occurrence thereof and, as soon as reasonably practicable,
prepare and furnish to each such Stockholder and Employee Stockholder, a
reasonable number of copies of an amended or supplemented prospectus so that, as
thereafter delivered to purchasers of Registrable Securities, such prospectus
shall 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, in the light of the circumstances under which they were made, not
misleading. Each Stockholder and Employee Stockholder agrees that, upon receipt
of any notice from the Issuer pursuant to this Section 3.4(b), such Stockholder
or Employee Stockholder shall forthwith discontinue disposition of Registrable
Securities until it shall have received copies of such amended or supplemented
prospectus, and, if so directed by the Issuer, shall deliver to the Issuer all
copies, other than permanent file copies, then in its possession of the
prospectus covering Registrable Securities at the time of receipt of such
notice.
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(c) If requested by the underwriters for any underwritten offering of
Registrable Securities pursuant to a registration requested under this
Agreement, the Issuer shall enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Issuer and such other terms and provisions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, indemnities and contribution to
the effect and to the extent provided in Section 4.1 and an opinion of counsel
for the Issuer dated the date of the closing under the underwriting agreement,
and providing that the Issuer shall use its best efforts to furnish a "comfort"
letter signed by the independent public accountants who have audited the
Issuer's financial statements included in such registration statement, in each
such case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) as are customarily
covered in opinions of Issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements. The Stockholders and the Employee Stockholders on whose
behalf the Registrable Securities are to be distributed by such underwriters
shall be parties to any such underwriting agreement.
(d) In connection with the preparation and filing of each registration
statement registering Registrable Securities under the Securities Act, the
Issuer shall give the underwriters, and their counsel and accountants, such
reasonable and customary access to its books and records and such opportunities
to discuss the business of the Issuer with its officers and the independent
public accountants who have certified the Issuer's financial statements as shall
be necessary, in the opinion of such underwriters or their respective counsel,
to conduct a reasonable investigation within the meaning of the Securities Act.
(e) If at any time the Commission should institute or threaten to institute
any proceeding for the purposes of issuing, or should issue, a stop order
suspending the effectiveness of a registration statement which registered
Registrable Securities under the Securities Act, the Issuer will promptly notify
each Stockholder and Employee Stockholder whose Registerable Securities are
registered thereunder and will use its best efforts to prevent the issuance of
any such stop order or to obtain the withdrawal thereof as soon as possible. The
Issuer will advise each Stockholder and Employee Stockholder whose Registerable
Securities are registered promptly of any order or communication of any public
board or body addressed to the Issuer suspending or threatening to suspend the
qualification of any Registerable Securities for sale in any jurisdiction.
3.5 Information by Stockholders. If Registrable Securities owned by any
Stockholder or any Employee Stockholder are included in any registration, such
Stockholder or Employee Stockholder shall furnish to the Issuer such information
regarding itself and the distribution proposed by such Stockholder or Employee
Stockholder as the Issuer may reasonably request and as shall be required in
connection with any registration, qualification or compliance referred to in
this Article III.
3.6 Holdback Agreements.
(a) In connection with the registration of Registrable Securities on behalf
of any Stockholder or any Employee Stockholder, or in the event that any
Stockholder or any Employee Stockholder was offered an opportunity to
participate in a Piggyback Registration pursuant to Section 3.1 but declined to
so participate, such Stockholder or Employee Stockholder will agree not to
effect any public sale or distribution of the issue of securities being
registered or a similar security of the Issuer or any securities convertible
into or exchangeable or exercisable for such securities, including a sale
pursuant to Rule 144 under the Securities Act, during the fourteen (14) days
prior to, and during the ninety (90) day period beginning on, the effective date
of such registration statement (except as part of such registration), if and to
the extent requested by the Issuer or the managing underwriter or underwriters
in the case of an underwritten public offering.
(b) The Issuer on its own behalf and on behalf of affiliates controlled by
the Issuer agrees not to effect any public sale or distribution of any
securities similar to those being registered in accordance with Sections 3.1 and
3.2 (other than similar securities registered on Form S-4 or Form S-8 or any
successor forms) or any securities convertible into or exchangeable or
exercisable for such securities, during the fourteen (14) days prior to, and
during the ninety (90) day period beginning on, the effective date of any
registration statement (except as part of such registration).
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3.7 Future Registration Rights.
(a) The Issuer shall not hereafter agree with the holders of any securities
issued or to be issued by the Issuer to register such securities under the
Securities Act unless such agreement specifically provides that (a) such holder
of securities may not participate in any Piggyback Registration except as
provided in Section 3.1, (b) such holder of such securities may not participate
in any Requested Registration except as provided in Section 3.2, and (c) such
securities may not be publicly offered or sold for a period beginning at least
fourteen (14) days before and ending at least ninety (90) days after the date
upon which such registration statement becomes effective. No provision of this
Section 3.7 shall be deemed violated by the future grants of registration rights
provided that such rights are subject to the foregoing restrictions and are
exercisable on a pro rata basis with all other holders of such rights and the
Issuer will not be required to obtain the consent of any party hereto with
respect to such future grants.
(b) From and after the date hereof, the Issuer shall not enter into any
agreement with any holder or prospective holder of any securities of the Issuer
providing for the granting to such holder of registration rights (including
demand registration rights which, by their terms, do not permit the inclusion of
shares of parties other than the holders of such demand registration rights)
that entitle such holder to priority over the Stockholders or the Employee
Stockholders with respect to registration of the securities of the Issuer.
3.8 Permitted Interruption. Notwithstanding any provision of this Article
III to the contrary, the Issuer shall not be required to prepare or file a
registration statement, amendment or post-effective amendment thereto or
prospectus supplement or to supplement or amend any registration statement or
otherwise facilitate the offering and sale of Registrable Securities, and the
Issuer shall be free to take or omit to take any other action that would result
in the impracticality of such filing, supplement or amendment, if (a) financial
statements satisfying the requirements of the Securities Act and Regulation S-X
promulgated by the Commission cannot with reasonable efforts be obtained, (b)
the Issuer is in possession of material non-public information, which, in the
exercise of reasonable judgment by the Issuer's Board, the Issuer deems
advisable not to disclose in a registration statement at that time or (c) such
filing, supplement or amendment (and any required disclosure therein), in the
good faith and reasonable judgment of the Issuer's Board, would jeopardize the
completion of an acquisition, divestiture or other similar transaction that the
Issuer is in at such time negotiations therefor (any period described in this
Section 3.8 during which the Issuer is not required to make such filing,
supplement or amendment being herein a "Permitted Interruption"). The Issuer
agrees to notify each Stockholder and Employee Stockholder upon each of the
commencement and termination of each Permitted Interruption. The Issuer shall
state in the notice to the Stockholders and the Employee Stockholders of the
commencement of a Permitted Interruption the general nature of the cause for
such Permitted Interruption, subject to any restrictions against such disclosure
imposed by applicable confidentiality arrangements. Each Stockholder and
Employee Stockholder hereby acknowledges its obligations under the federal
securities laws to not trade in the Common Stock while in possession of material
non-public information relating to the Issuer and hereby agrees to not so trade.
3.9 Delivery of Transferable Certificates. Upon a registration statement
applicable thereto becoming effective, the Issuer shall issue to each
Stockholder and Employee Stockholder whose Registerable Securities are
registered thereunder certificates representing the Registerable Securities
whose sale has been so registered in exchange for certificates bearing a
restrictive legend. Each such Stockholder and Employee Stockholder hereby agrees
that in the event of a stop order being issued in respect of the registration
statement relating to the sale of Registerable Securities registered on its or
his behalf, such Stockholder or Employee Stockholder will, without prejudice to
any rights hereunder, surrender or cause to be surrendered to the Issuer those
certificates delivered pursuant to this Section 3.9 without legend and will
accept, in exchange therefor, substitute certificates or instruments bearing an
appropriate legend.
3.10 Transferability of Rights. Each Stockholder and Employee Stockholder,
and any permitted transferee of such Stockholder or Employee Stockholder, may
transfer to one (but only one) person all (but not less than all) of his rights
under this Article III in connection with the transfer of Registrable Securities
to such person; provided, however, that such transferee shall become a party to
this Agreement and such transferee's rights shall be subject to the provisions
and limitations of this Agreement.
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ARTICLE IV
INDEMNIFICATION AND REMEDIES
4.1 Indemnification Relating to Registration Rights.
(a) With respect to any registration, qualification or compliance effected
or to be effected pursuant to Article III of this Agreement, the Issuer shall
indemnify each Stockholder and Employee Stockholder whose securities are
included or are to be included therein, each underwriter (as defined in the
Securities Act) of the securities sold by such Stockholder or Employee
Stockholder, and each Person who controls (within the meaning of the Securities
Act) any such Stockholder, Employee Stockholder or underwriter (a "Controlling
Person") from and against all losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any claim, cause of action,
proceeding or litigation asserted or commenced or threatened against any such
Stockholder, Employee Stockholder or any such underwriter or Controlling Person
concerning:
(i) any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus or any related registration statement
incident to any such registration, qualification or compliance;
(ii) any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make any statement
therein, in the light of the circumstances under which it was made, not
misleading; or
(iii) any violation by the Issuer of the Securities Act or any rule or
regulation promulgated thereunder applicable to the Issuer, or of any blue
sky or other state securities laws or any rule or regulation promulgated
thereunder applicable to the Issuer;
in each case, relating to action or inaction required of the Issuer in
connection with any such registration, qualification or compliance, and subject
to Section 4.6 below, shall reimburse each such Person entitled to indemnity
under this Section 4.1(a) for all legal and other expenses incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that, the foregoing indemnity and
reimbursement obligation shall not be applicable to the extent that any such
claim, loss, damage or liability arises out of or is based on (i) any untrue
statement (or alleged untrue statement) or omission (or alleged omission) made
in reliance upon and in conformity with written information furnished to the
Issuer by or on behalf of such Stockholder, Employee Stockholder or by or on
behalf of such an underwriter specifically for use in such prospectus or
registration statement; or (ii) any untrue statement (or alleged untrue
statement) or omission (or alleged omission) contained in a prospectus delivered
prior to the delivery by the Issuer to the Stockholders and the Employee
Stockholders of a notice pursuant to Section 3.4(b); provided that the Issuer
made available to the Stockholders and the Employee Stockholders a corrected
prospectus which the Stockholders and the Employee Stockholders failed to
deliver to holders who had received the prior inaccurate prospectus.
(b) With respect to any registration, qualification or compliance effected
or to be effected pursuant to this Agreement, each Stockholder and Employee
Stockholder whose securities are included or are to be included therein, shall
indemnify the Issuer, its directors and officers, and, if and to the extent
required by the underwriters of an underwritten offering in which such
Stockholder or Employee Stockholder will be selling Registrable Securities, each
underwriter (as defined in the Securities Act) of the securities sold by such
Stockholder or Employee Stockholder and each Person who controls (within the
meaning of the Securities Act) the Issuer or any such underwriter (a
"Controller") from and against all losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any claim, cause of action,
proceeding or litigation asserted or commenced against the Issuer or any of its
directors and officers or any such underwriter or Controller concerning:
(i) any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus or related registration statement incident
to any such registration, qualification or compliance;
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(ii) any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make any statement
therein, in the light of the circumstances under which it was made, not
misleading; or
(iii) any violation by such Stockholder of the Securities Act or any
rule or regulation promulgated thereunder applicable to the Issuer or such
Stockholder or of any blue sky or other state securities laws or any rule
or regulation promulgated thereunder applicable to the Issuer or such
Stockholder;
in each case, relating to action or inaction required of such Stockholder or
Employee Stockholder in connection with any such registration, qualification or
compliance, and subject to Section 4.6 below, shall reimburse each such Person
entitled to indemnity under this Section 4.1(b) for all legal and other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, however, that, the foregoing
indemnity and reimbursement obligation shall only be applicable to the extent
that any such claim, loss, damage or liability arises out of or is based on any
untrue statement (or alleged untrue statement) or omission (or alleged omission)
made in reliance upon and in conformity with written information furnished to
the Issuer by or on behalf of such Stockholder or Employee Stockholder
specifically for use in such prospectus or other document.
4.2 Indemnification by the Stockholders. (a) Subject to the limitations
set forth in this Article IV, the Stockholders, jointly and severally, shall
indemnify and hold harmless the Issuer and its Representatives, stockholders,
controlling persons and Affiliates (collectively, the "Issuer Indemnified
Persons") for, and shall pay (in the manner provided in Section 4.7(b)) to the
Issuer Indemnified Persons the amount of, any loss, liability, claim, damage
(including, with respect to matters unrelated to the Identified Liabilities (as
defined in Section 4.5), incidental and consequential damages), expense
(including, without limitation, defense costs in connection with third-party
claims) or deficiency (including interest, penalties and reasonable attorneys'
fees), whether or not involving a third-party claim (collectively, "Damages"),
that any Issuer Indemnified Person may suffer, sustain, incur or become subject
to arising out of or due to any Identified Liability (as defined in Section 4.5)
or any inaccuracy of any representation or the breach of any warranty, covenant,
undertaking or other agreement of the Trustees, the BioClin Affiliates or the
Stockholders contained in this Agreement, any Securities Exchange Agreement or
in any other document or instrument delivered pursuant hereto or thereto.
(b) The indemnity by the Stockholders set forth in Section 4.2(a) with
respect to Damages arising out of any Identified Liability shall continue until
the earlier of December 31, 1999 and the date on which the amount, if any, of
all such Damages is finally determined, and the indemnity by the Stockholders
set forth in Section 4.2(a) with respect to all other Damages shall continue
until the date of the independent auditor's report with respect to the audited
consolidated financial statements of the Issuer for fiscal 1996 (the "Report
Date"); provided, however, that in the event that as of December 31, 1999 with
respect to any Identified Liability or as of the Report Date with respect to all
other Damages any Issuer Indemnified Person can establish the existence but not
the amount of any such Damages, and shall have given written notice thereof to
the Stockholders on or prior to December 31, 1999 or the Report Date, as
applicable, depending upon the facts and circumstances existing at such time,
the Stockholders and the Issuer may agree to extend the indemnity with respect
to any such Damages until the date on which the amount, if any, of all such
Damages is finally determined.
4.3 Indemnification by Issuer. (a) Subject to the limitations set forth in
this Article IV, the Issuer shall indemnify and hold harmless the Trustees and
the Stockholders and their Representatives, shareholders, controlling persons
and Affiliates (collectively, the "Stockholders' Indemnified Persons") for, and
shall pay (in the manner provided in Section 4.7(a)) to the Stockholders'
Indemnified Persons the amount of, any Damages that any Stockholders'
Indemnified Person may suffer, sustain, incur or become subject to arising out
of or due to any inaccuracy of any representation or the breach of any warranty,
covenant, undertaking or other agreement of the Issuer contained in this
Agreement, any Securities Exchange Agreement or in any other document or
instrument delivered pursuant hereto or thereto.
(b) The indemnity by the Issuer set forth in Section 4.3(a) shall continue
until the Report Date; provided, however, that in the event that as of the
Report Date any Stockholders' Indemnified Person can
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establish the existence but not the amount of any such Damages, and shall have
given written notice thereof to the Issuer on or prior to the Report Date,
depending upon the facts and circumstances existing at such time, the
Stockholders and the Issuer may agree to extend the indemnity with respect to
any such Damages until the date on which the amount, if any, of all such Damages
is finally determined.
4.4 Threshold and Cap. Notwithstanding any provision contained herein or
in any Securities Exchange Agreement to the contrary, with respect to Damages
contemplated by Sections 4.2 and 4.3 other than those arising, directly or
indirectly, from or in connection with any Identified Liability, (i) no party
shall be entitled to any recovery from any other party with respect to any such
inaccuracy or breach which, pursuant to any Securities Exchange Agreement, would
have entitled such party not to perform its obligations thereunder, if such
party is informed in writing pursuant to Section 7.6 of any Securities Exchange
Agreement or otherwise has knowledge of such inaccuracy or breach prior to
Closing and such party nonetheless consummates the Closing, and (ii) no party
shall be entitled to recover Damages from any other party until the Damages
sustained by such party under this Agreement and the Securities Exchange
Agreements exceed, in the aggregate, U.S. $100,000 (the "Threshold"), and then
only amounts over and above such Threshold, and in no event shall the amount of
all such Damages to be recovered by the Issuer Indemnified Persons and the
Stockholders' Indemnified Persons exceed an aggregate amount of U.S. $
(the "Cap") [10% OF THE CLOSING VALUE OF THE ACQUIROR SHARES.] Neither the
Threshold nor the Cap shall apply to any Damages arising, directly or
indirectly, from or in connection with any Identified Liability.
4.5 Identified Liabilities. For purposes of this Agreement, "Identified
Liabilities" means any and all liabilities or Damages (including, without
limitation, defense costs in connection with any third-party claim) that any
Issuer Indemnified Person may suffer, sustain, incur or become subject to
arising out of or due to (i) the pending or threatened litigation involving,
among others, BioClin, Inc. and Dr. William H. Barr and/or any recovery by Dr.
Barr, pursuant to any statutory dissenter's rights to which Dr. Barr may be
entitled with respect to the common stock of BioClin, Inc. that he owns, of any
amounts that exceed the market value on the Closing Date of the Acquiror Shares
issuable to Dr. Barr pursuant to the Merger Agreement (collectively, the "Barr
Liability"); (ii) the pending litigation between BioClin, Inc. and Virginia
Commonwealth University, but only to the extent the aggregate amount of such
liability or Damages (including for this purpose the amount of such liability
previously satisfied by BioClin through the payment of amounts due to employees
and contractors ($ in the aggregate), cash payments ($ through June
30, 1996), the transfer of non-cash assets to VCU ($107,000 in aggregate value),
all payments received by VCU with respect to analytical contracts assigned to
VCU and the value of services provided by BioClin, Inc. which are applied to
reduce such liability) exceed $1,080,000 (the "VCU Liability"); and (iii) the
pending litigation filed in Texas titled Linda Gail Frase v. BioClin, Inc. and
Jack Barbut, but only to the extent such liability or Damages exceed $25,000
(the "Barbut Liability").
4.6 Procedure. (a) Any party seeking indemnification pursuant to this
Article IV (the "Indemnified Person") from another party (the "Indemnifying
Person") may proceed directly against such Indemnifying Person under this
Section 4.6 without first resorting to any other rights of indemnification;
provided, however, that no Indemnifying Person shall be obligated hereunder to
the extent an Indemnified Person has already received, or shall receive, full
indemnification or reimbursement from another source.
(b) In the event any action, suit or proceeding shall be brought against
any Indemnified Person in connection with any matter for which indemnification
may be sought by such Indemnified Person pursuant to this Article IV, the
Indemnifying Person may, and upon the request of such Indemnified Person shall,
at the Indemnifying Person's expense, resist and defend such action, suit or
proceeding, or cause the same to be resisted or defended, by counsel selected by
the Indemnifying Person, subject to the approval, which shall not be
unreasonably withheld, of such Indemnified Person and, in the event of any
failure by the Indemnifying Person to do so, the Indemnifying Person shall pay
all reasonable costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) incurred by such Indemnified Person in connection
with such action, suit or proceeding.
(c) In case any claim is made, or any suit or action is commenced, against
an Indemnified Person in respect of which indemnification may be sought by such
Indemnified Person pursuant to this Article IV, such
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Indemnified Person shall promptly give the Indemnifying Person notice thereof.
If any Indemnified Person fails to give prompt notice of any claim being made or
any suit or action being commenced in respect of which indemnification under
this Article IV may be sought, such failure shall not limit the liability of the
Indemnifying Person; provided, however, that this provision shall not be deemed
to limit the Indemnifying Person's rights to recover for any loss, cost or
expense which such Indemnifying Person can establish resulted from such failure
to give prompt notice.
4.7 Payment of Indemnity. (a) The Issuer shall pay all amounts in
satisfaction of its indemnification obligations under Section 4.3 by delivering
to such Stockholders' Indemnified Persons such number of shares of Common Stock
computed by dividing the aggregate dollar amount of such Damages subject to
indemnification thereunder by the closing sales price of the Common Stock as
reported on the NASDAQ National Market for the Business Day immediately
preceding the Closing Date (the "Closing Price").
(b) Except as provided in Section 4.7(f), the Stockholders shall pay all
amounts in satisfaction of their respective indemnification obligations under
Section 4.2 by delivering to such Issuer Indemnified Persons such number of
Acquiror Shares computed by dividing the dollar amount of such Damages subject
to indemnification thereunder by the Closing Price.
(c) In order to secure the payment by the Stockholders to the Issuer
Indemnified Persons of any Damages relating to Identified Liabilities and the
inaccuracy of the representations or breach of the warranties, covenants,
undertakings or other agreements of the Trustees, the BioClin Affiliates and the
Stockholders made hereunder or pursuant to any Securities Exchange Agreement
(collectively, the "General Liabilities"), a total of 599,260 shares (the
"Recovery Shares") of the Acquiror Shares delivered to the Stockholders pursuant
to the Securities Exchange Agreements shall be subject to the escrow provisions
set forth in paragraph (d) of this Section 4.7. Such aggregate number of
Recovery Shares shall be allocated as follows: with respect to (i) the General
Liabilities, 263,260 Recovery Shares (the "General Recovery Shares"); (ii) the
Barr Liability, 200,000 Recovery Shares; (iii) the VCU Liability, 112,000
Recovery Shares; and (iv) the Barbut Liability, 24,000 Recovery Shares (items
(ii) through (iv) above being hereinafter referred to collectively as the
"Identified Recovery Shares"). The aggregate number of Recovery Shares has been
determined, and the Recovery Shares have been allocated as set forth above, in
reasonable relation to the dollar value reasonably estimated to be attributable
to the respective contingencies existing as of the date of this Agreement
against which such Recovery Shares secure payment of indemnity. The Recovery
Shares shall be allocated among the Stockholders in proportion to their
respective ownership of the Acquiror Shares.
(d) If at any time prior to, with respect to (i) the General Recovery
Shares, the date on which the indemnity by the Stockholders with respect to
General Liabilities terminates as provided in Section 4.2(b) of this Agreement
and (ii) each group of Identified Recovery Shares, the date on which the
indemnity with respect to Damages relating to such corresponding Identified
Liability terminates pursuant to Section 4.2(b), the Stockholders shall sell,
assign, hypothecate, pledge or otherwise transfer any Acquiror Shares such that
thereafter the aggregate number of Acquiror Shares held by the Stockholders free
and clear of all such liens and encumbrances is less than the aggregate number
of Recovery Shares contemplated by this Section 4.7 (an "Early Transfer"), then
the Stockholders shall deposit the portion of the cash proceeds from such Early
Transfer as computed in accordance with Section 4.7(e) into an escrow account
(the "Escrow Account") with a national bank or other financial institution (the
"Escrow Agent") agreed to by the Trustees, the Stockholders and the Issuer
pursuant to an escrow agreement, in form and substance reasonably satisfactory
to the Trustees, the Stockholders and the Issuer to be held and dispersed
subject to the provisions of Section 4.7(f).
(e) The cash proceeds from an Early Transfer to be deposited into the
Escrow Account pursuant to Section 4.7(d) shall be computed as follows: (i) the
aggregate number of Recovery Shares contemplated by Section 4.7 less (ii) the
aggregate number of Acquiror Shares held by the Stockholders free and clear of
all such liens and encumbrances following such Early Transfer multiplied by
(iii) the Closing Price.
(f) In the event an Early Transfer has occurred, to the extent that a
sufficient number of Acquiror Shares are not then held by the Stockholders in
order to enable the Stockholders to satisfy their respective indemnification
obligations as contemplated by Section 4.7(b), the Stockholders and the Escrow
Agent shall
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deliver to the Issuer Indemnified Persons (i) all Acquiror Shares then held by
the Stockholders free and clear of all such liens and encumbrances (the
"Delivered Shares") and (ii) that portion of the cash proceeds deposited in the
Escrow Account computed by subtracting from (A) the aggregate dollar amount of
Damages subject to indemnification pursuant to Section 4.2, (B) the product of
the Delivered Shares and the Closing Price. The Issuer and the Stockholders
hereby agree to cause the Escrow Agent to promptly release all remaining cash
proceeds from the Escrow Account upon expiration of the Stockholders'
indemnification obligations or confirmation that the Stockholders then hold the
aggregate number of Recovery Shares contemplated by this Section 4.7.
4.8 Exclusivity. The rights and remedies of the parties hereto under this
Article IV shall be the exclusive rights and remedies with respect to the
matters set forth herein, except for (i) the rights of any party to seek
equitable relief and (ii) any other rights and remedies provided by this
Agreement or any Securities Exchange Agreement.
ARTICLE V
MISCELLANEOUS
5.1 Amendments. The parties may, from time to time, enter into written
amendments, supplements, or modifications hereto for the purpose of adding any
provisions to this Agreement or changing in any manner the rights of either of
the parties hereunder. No amendment, supplement, or modification shall be
binding on any party unless made in writing and signed by a duly authorized
representative of such party.
5.2 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage pre-paid), guaranteed overnight
delivery, or facsimile transmission, which transmission is confirmed by first
class mail (postage pre-paid) or guaranteed overnight delivery:
(a) if to the Issuer to:
DNX Corporation
575 Route 28
Raritan, NJ 08869
Attention: John G. Cooper
Chief Financial Officer
Telephone: (908) 722-7900
Facsimile: (908) 722-6677
with copies to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Thomas C. Daniels, Esq.
Telephone: (216) 586-3939
Facsimile: (216) 579-0212
(b) if to Hackel to:
Alec Hackel
Flueliweg 3
6045 Meggen
Switzerland
Telephone: 011-41-41-377-3961
Facsimile: 011-41-41-377-3053
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<PAGE> 317
with copies to:
Piper & Marbury L.L.P.
1251 Avenue of the Americas
New York, New York 10020-1104
Attention: Ray A. Mantle, Esq.
Telephone: (212) 835-6000
Facsimile: (212) 835-6001
(c) if to Barbut to:
Dr. Jack Barbut
c/o Piper & Marbury L.L.P.
1251 Avenue of the Americas
New York, New York 10020-1104
Telephone: (212) 835-6000
Facsimile: (212) 835-6001
with copies to:
Piper & Marbury L.L.P.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ray A. Mantle, Esq.
Telephone: (212) 835-6000
Facsimile: (212) 835-6001
(d) if to Jensen to:
Dr. John Christian Jensen
Bohlstiasse 9a
6300 Zug
Switzerland
Telephone: 011-41-41-710-2309
Facsimile: 011-41-41-710-2341
with copies to:
Piper & Marbury L.L.P.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ray A. Mantle, Esq.
Telephone: (212) 835-6000
Facsimile: (212) 835-6001
(e) if to Sherby to:
c/o CITCO
De Ruyterkade 62
P.O. Box 812
Curacao, Netherlands Antilles
Telephone: 599-9-322555
Facsimile: 599-9-325000
with copies to:
Piper & Marbury L.L.P.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ray A. Mantle, Esq.
Telephone: (212) 835-6000
Facsimile: (212) 835-6001
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<PAGE> 318
(f) if to the Trustees/Employee Trustee:
Dr. Gerald Rittershaus
c/o Rittershaus, Wissmann & von Rosenstiel
Theodor-Heuss-Anlage 2
68165 Mannheim
Germany
Telephone: 011-49-621-42-560
Facsimile: 011-49-621-42-56-250
(g) if to Reynolds:
Ms. Martha Lee Reynolds
5105 King William Road
Richmond, VA 23225
(h) if to Dvorchik:
Mr. Barry Dvorchik
1400 Worcester Road
Apt. 405
Framingham, MA 01701
(i) if to Kraatz:
Ms. Christine Dune-Kraatz
c/o BioClin GmbH
Klinische Forschung
Augusta-aulage 21-23
68165 Mannheim, Germany
(j) if to Donhardt:
Ms. Bettina Donhardt
c/o BioClin GmbH
Klinische Forschung
Augusta-aulage 21-23
68165 Mannheim, Germany
(k) or, in each case, at such other address or to such other person as may
be specified in writing to the other parties.
5.3 Waiver by Consent. Any party hereto may execute and deliver to the
other parties hereto a written instrument waiving, on such terms and conditions
as such party may specify in such instrument, any of the requirements of this
Agreement.
5.4 No Implied Waiver; Rights are Cumulative. The failure to exercise or
the delay in exercising by any party of any right, remedy, power, or privilege
under this Agreement, shall not operate as a waiver thereof. The single or
partial exercise of any right, remedy, or privilege under this Agreement shall
not preclude any other or further exercise thereof or the exercise of any other
right, remedy, power, or privilege. The rights, remedies, powers, and privileges
herein provided are cumulative and not exclusive of any rights, remedies,
powers, and privileges provided by law.
5.5 Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be governed by, construed and interpreted in accordance
with the laws of the State of New York (except, to the extent the General
Corporation Law of the State of Delaware (the "DGCL") applies to the matters set
forth in Article II, the DGCL shall govern) applicable to agreements executed by
residents of that state, and fully to be performed in that state.
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<PAGE> 319
5.6 Severability. If any provision of this Agreement is found to be
unenforceable for any reason whatsoever, such provision shall be deemed null and
void to the extent of such unenforceability but shall be deemed separable from
and shall not invalidate any other provision of this Agreement.
5.7 Captions. Captions to the various paragraphs of this Agreement are
provided for convenience only and shall not be used to construe the provisions
of this Agreement.
5.8 Entire Agreement. This Agreement, the Securities Exchange Agreements
and the other agreements contemplated hereby and thereby, constitute the entire
understanding of the parties hereto with respect to the subject matter of this
Agreement and supersedes all prior discussions, agreements, and representations,
whether oral or written, concerning the subject matter hereof and whether or not
executed by the parties hereto.
5.9 Further Assurances. From and after the Closing, upon the reasonable
request of any of the parties hereto, each of the other parties hereto shall
execute, acknowledge, and deliver all such further acts, deeds, bills of sale,
certificates, assignments, transfers, conveyances, sales, use or other transfer
tax documentation, powers of attorney, and assurances as may be required to
evidence the consummation of the transactions contemplated hereby and as may be
appropriate to carry out the transactions contemplated by this Agreement.
5.10 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns, heirs
and legal representatives. Except as specifically provided herein, no party
hereto may assign its rights or delegate its duties hereunder without the prior
written consent of the other parties hereto.
5.11 Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered or
caused this Agreement to be duly executed and delivered by the proper and duly
authorized officers, as the case may be, as of the day and year first above
written.
ISSUER:
DNX CORPORATION
By:
Name:
Title:
TRUSTEES:
By:
Dr. Gerald Rittershaus, as
Trustee
under the Rittershaus Trust
Agreement
By:
Manfred Wissmann, as Trustee
under the Wissmann Trust
Agreement
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<PAGE> 320
STOCKHOLDERS:
- ------------------------------------
Alec Hackel
- ------------------------------------
Dr. Jack Barbut
- ------------------------------------
Dr. John Christian Jensen
SHERBY N.V.
By:
Name:
Title:
EMPLOYEE STOCKHOLDERS:
- ------------------------------------
Martha Lee Reynolds
- ------------------------------------
Barry Dvorchik
- ------------------------------------
Christine Dune-Kraatz
- ------------------------------------
Bettina Donhardt
EMPLOYEE TRUSTEE:
- ------------------------------------
Dr. Gerald Rittershaus, as Trustee
under the Employee Trust Agreement
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<PAGE> 321
APPENDIX F
DNX CORPORATION
1991 STOCK OPTION PLAN
(AS AMENDED THROUGH OCTOBER 1, 1996)
1. The total number of shares that may be issued an sold under options
granted pursuant to this Stock Option Plan shall not exceed 1,500,000 shares of
the Company's Common Stock, par value $.01 per share, except to the extent of
adjustments authorized by the last sentence of Paragraph 9 of this Stock Option
Plan. Such shares may be treasury shares or shares of original issue or a
combination of the foregoing.
2. The Board of Directors of the Company may, from time to time and upon
such terms and conditions as it may determine, authorize the granting to
officers (including officers who are members of the Board of Directors) and
other key employees of, and consultants whose services have been retained by,
the Company or any of its subsidiaries of options to buy from the Company shares
of its Common Stock and may fix the number of shares to be covered by each such
option. Successive options may be granted to the same person regardless whether
any options previously granted to such person remain unexercised.
3. Options granted under this Stock Option Plan may be (i) options that are
intended to qualify under particular provisions of the Internal Revenue Code, as
in effect from time to time (the "Code"), (ii) options that are not intended so
to qualify under the Code, or (iii) combinations of the foregoing; provided,
however, that options that are intended to qualify under particular provisions
of the Code may not be granted to consultants under this Stock Option Plan. No
option shall be exercisable more than 10 years from the date of grant. No option
shall be transferable by the optionee except by will or the laws of descent and
distribution. Options shall be exercisable during the optionee's lifetime only
by him or, in the event of his legal incapacity to do so, his guardian or legal
representative acting or' behalf of the optionee in a fiduciary capacity under
state law and court supervision.
4. The option price may be less than, equal to or greater than the fair
market value of the shares covered by the option, as determined by the Board of
Directors on the date that the grant of the option is authorized. The option
price shall be payable (a) in cash or by check acceptable to the Company, (b) at
the discretion of the Board of Directors, by the transfer to the Company by the
optionee of shares of the Company's Common Stock having a value at the time of
exercise equal to the total option price or (c) by a combination of such methods
of payment. Any option may provide for deferred payment of the option price from
the proceeds of the sale through a bank or broker on the date of exercise of
some or all of the shares of stock to which the exercise relates.
5. The form of each Stock Option Agreement shall be prescribed, and any
Stock Option Agreement evidencing an outstanding option may with the concurrence
of the affected optionee be amended, by the Board of Directors, provided that
the terms and conditions of each Stock Option Agreement and amendment are not
inconsistent with this Stock Option Plan.
6. The Board of Directors may, with the concurrence of the affected
optionee, cancel any option granted under this Stock Option Plan. In the event
of any such cancellation, the Board of Directors may authorize the granting of
new options (which may or may not cover the same number of shares that had been
the subject of any prior option) in such manner, at such option price and
subject to the same terms, conditions and discretion as would have been
applicable under this Stock Option Plan had the canceled options not been
granted.
7. This Stock Option Plan shall be administered by the Board of Directors,
which may from time to time delegate all or any part of its authority under this
Stock Option Plan to a committee of not less than three Directors appointed by
the Board of Directors. The members of the committee shall be "disinterested
persons" within the meaning of Rule 16b-3 of the Securities and Exchange
Commission or any successor rule to the same effect. To the extent of any such
delegation, references in the Stock Option Plan to the Board of Directors shall
also refer to the committee. A majority of the members of the committee shall
constitute a
<PAGE> 322
quorum, and any action taken by a majority of the members of the committee who
are present at any meeting of the committee at which a quorum is present, or any
actions of the committee that are unanimously approved by the members of the
committee in writing, shall be the acts of the committee.
8. (a) Members of the Board of Directors who are not employees of the
Company or any of its subsidiaries ("Nonemployee Directors") shall be
automatically granted nonqualified stock options under this Stock Option Plan as
follows:
(i) A nonqualified option to purchase 30,000 shares of the
Company's Common Stock shall be granted on August 18, 1995 to each
Nonemployee Director who is a member of the Board of Directors as of
that date.
(ii) A nonqualified option to purchase 30,000 shares of the
Company's Common Stock shall be granted to each Nonemployee Director on
the date he or she is first elected or appointed to the Board of
Directors on or after August 18, 1995.
(iii) A nonqualified option to purchase 30,000 shares of
Company's Stock shall be granted to each Nonemployee Director every
three years subsequent to the date of his or her initial grant of 30,000
shares in Paragraph 8(a)(i) or 8(a)(ii) on the anniversary date of such
initial grant.
(iv) Immediately following the fifth annual meeting of the
Company's stockholders that is held following the commencement of his
continuous service as a Nonemployee Director, a nonqualified option to
purchase 7,000 shares of the Company's Common Stock shall be granted to
each Nonemployee Director whose fifth anniversary of continuous service
as a Nonemployee Director occurs at any time following the annual
meeting of the Company's stockholders to be held on May 18, 1993.
If a Nonemployee Director becomes an employee of the Company or any of its
subsidiaries at any time prior to the fifth anniversary of his continuous
service as a Nonemployee Director and then resumes or continues his service as a
Nonemployee Director following the termination of such employment, his
continuous service as a Nonemployee Director shall be tolled during the period
of such employment for the purposes of subparagraphs (ii), (iii), and (iv) of
this Paragraph 8(a).
(b) Each grant of nonqualified stock options under this Paragraph 8 shall
be evidences by an agreement in the form attached to this Stock Option Plan as
Exhibit A, which shall be signed on behalf of the Company by an officer thereof
and accepted and agreed to by the Nonemployee-Director optionee.
(c) The option price per share of Common Stock payable upon the exercise of
any nonqualified stock option granted under this Paragraph 8 shall be the
closing price of the Company's Common Stock on the NASDAQ National Market System
on the date on which the option is granted.
(d) The provisions of Paragraphs 2, 3, 4, 5, 6 and 7 of this Stock Option
Plan do not apply to the grants of nonqualified stock options to be made to
Nonemployee Directors pursuant to this Paragraph 8.
(e) The provisions of this Section 8 shall apply to any Nonemployee
Director who is a member of the Board on August 18, 1995 or elected to the Board
during the five-year period from August 18, 1995 through August 17, 2000.
9. The Board of Directors may make or provide for such adjustments in the
option price and in the number or kind of shares of stock in the Company or
other securities covered by outstanding options as the Board of Directors in its
sole discretion may in good faith determine to be equitably required in order to
prevent dilution or enlargement of the rights of optionees that would otherwise
result from any (a) stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, (b)
merger, consolidation, separation, reorganization, partial or complete
liquidation, issuance of rights or warrants to purchase stock or (c) other
corporate transaction or event having an effect similar to any of the foregoing.
The Board of Directors may also make or provide for such adjustments in the
number or kind of shares granted automatically pursuant to Section 8 of this
Stock Option Plan as the Board of Directors in its
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<PAGE> 323
sole discretion may in good faith determine to be appropriate in order to
reflect any transaction or event described in this Section 9.
10. Notwithstanding anything to the contrary set forth in this Stock Option
Plan, under no circumstances may any one optionee be granted options hereunder
if such grant, when taken together with all grants to such optionee within the
preceding three year period, would result in such optionee having been granted
options during such three year period with respect to more than 500,000 shares
of Common Stock.
11. This Stock Option Plan may be amended from time to time by the Board of
Directors; provided, however, without the further approval of the stockholders
of the Company, no such amendment shall (a) increase the aggregate number of
shares of the Company's Common Stock that may be issued and sold under this
Stock Option Plan (except that adjustments authorized by the last sentence of
Paragraph 5 shall not be limited by this provision), (b) change the designation
in Paragraph 2 of the class of employees eligible to receive options or (c)
cause Rule 16b-3 of the Securities and Exchange Commission (or any successor
rule to the same effect) to cease to be applicable to this Stock Option Plan;
provided, further, that the provisions of Paragraph 8 relating to the amount,
price and timing of nonqualified stock options shall not be amended more than
once every six months except to comport with changes in the Code or regulations
thereunder.
3
<PAGE> 324
APPENDIX G
DNX CORPORATION
1996 STOCK OPTION PLAN
1. The total number of shares that may be issued and sold under options
granted pursuant to this Stock Option Plan shall not exceed 350,000 shares of
the Company's Common Stock, par value $.01 per share, except to the extent of
adjustments authorized by the last sentence of Paragraph 9 of this Stock Option
Plan. Such shares may be treasury shares or shares of original issue or a
combination of the foregoing.
2. The Board of Directors of the Company may, from time to time and upon
such terms and conditions as it may determine, authorize the granting to
officers (including officers who are members of the Board of Directors) and
other key employees of, and consultants whose services have been retained by,
the Company or any of its subsidiaries, of options to buy from the Company
shares of its Common Stock and may fix the number of shares to be covered by
each such option. Successive options may be granted to the same person
regardless whether any options previously granted to such person remain
unexercised.
3. Options granted under this Stock Option Plan may be (i) options that are
intended to qualify under particular provisions of the Internal Revenue Code, as
in effect from time to time (the "Code"), (ii) options that are not intended so
to qualify under the Code, or (iii) combinations of the foregoing; provided,
however, that options that are intended to qualify under particular provisions
of the Code may not be granted to consultants under this Stock Option Plan. No
option shall be exercisable more than 10 years from the date of grant. Except as
otherwise expressly determined by the Board of Directors, no option shall be
transferable by the optionee except by will or the laws of descent and
distribution. Options shall be exercisable during the optionee's lifetime (or
any permitted transferee's lifetime, as the case may be) only by him, such
permitted transferee or, in the event of the legal incapacity of any such
person, the guardian or legal representative acting on behalf of such person in
a fiduciary capacity under state law and court supervision.
4. The option price may be less than, equal to or greater than the fair
market value of the shares covered by the option, as determined by the Board of
Directors on the date that the grant of the option is authorized. The option
price shall be payable (a) in cash or by check acceptable to the Company, (b) at
the discretion of the Board of Directors, by the transfer to the Company by the
optionee of shares of the Company's Common Stock having a value at the time of
exercise equal to the total option price or (c) by a combination of such methods
of payment. Any option may provide for deferred payment of the option price from
the proceeds of the sale through a bank or broker of some or all of the shares
of stock to which the exercise relates.
5. The form of each Stock Option Agreement shall be prescribed, and any
Stock Option Agreement evidencing an outstanding option may with the concurrence
of the affected optionee be amended, by the Board of Directors, provided that
the terms and conditions of each Stock Option Agreement and amendment are not
inconsistent with this Stock Option Plan.
6. The Board of Directors may, with the concurrence of the affected
optionee, cancel any option granted under this Stock Option Plan. In the event
of any such cancellation, the Board of Directors may authorize the granting of
new options (which may or may not cover the same number of shares that had been
the subject of any prior option) in such manner, at such option price and
subject to the same terms, conditions and discretion as would have been
applicable under this Stock Option Plan had the canceled options not been
granted.
7. This Stock Option Plan shall be administered by the Board of Directors,
which may from time to time delegate all or any part of its authority under this
Stock Option Plan to a committee of not less than two Directors appointed by the
Board of Directors. The members of the committee shall be "Nonemployee
Directors" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934, or any successor rule to the same effect. To the extent of any such
delegation, references in the Stock Option Plan to the Board of Directors shall
also refer to the committee. A majority (or both in the case of a committee of
two) of the members of the committee shall constitute a quorum, and any action
taken by a majority (or both in the case of a committee of two) of the members
of the committee who are present at any meeting of the committee at
<PAGE> 325
which a quorum is present, or any actions of the committee that are unanimously
approved by the members of the committee in writing, shall be the acts of the
committee.
8. (a) Members of the Board of Directors who are not employees of the
Company or any of its subsidiaries ("Nonemployee Directors") shall be
automatically granted nonqualified stock options under this Stock Option Plan as
follows:
(i) A nonqualified option to purchase 30,000 shares of the
Company's Common Stock shall be granted to each Nonemployee Director on
the date he or she is first elected or appointed to the Board of
Directors on or after September 30, 1996.
(ii) A nonqualified option to purchase 30,000 shares of
Company's Stock shall be granted to each Nonemployee Director, in the
case of Nonemployee Directors who were members of the Board of Directors
prior to September 30, 1996, every three fiscal years subsequent to the
last grant to such Nonemployee Director pursuant to the Company's 1991
Stock Option Plan on the anniversary date of such grant, and in the case
of Nonemployee Directors who became members of the Board of Directors on
or after September 30, 1996, every three years subsequent to the date of
his or her initial grant of 30,000 shares pursuant to Paragraph 8(a)(i)
on the anniversary date of such initial grant.
(iii) Immediately following the fifth annual meeting of the
Company's stockholders that is held following the commencement of his or
her continuous service as a Nonemployee Director, a nonqualified option
to purchase 7,000 shares of the Company's Common Stock shall be granted
to each Nonemployee Director whose fifth anniversary of continuous
service as a Nonemployee Director occurs at any time following such
annual meeting.
If a Nonemployee Director becomes an employee of the Company or any of its
subsidiaries at any time prior to the fifth anniversary of his or her continuous
service as a Nonemployee Director and then resumes or continues his or her
service as a Nonemployee Director following the termination of such employment,
his or her continuous service as a Nonemployee Director shall be tolled during
the period of such employment for the purposes of subparagraphs (ii) and (iii)
of this Paragraph 8(a).
(b) Each grant of nonqualified stock options under this Paragraph 8 shall
be evidenced by an agreement in the form attached to this Stock Option Plan as
Exhibit A, which shall be signed on behalf of the Company by an officer thereof
and accepted and agreed to by the Nonemployee Director optionee.
(c) The option price per share of Common Stock payable upon the exercise of
any nonqualified stock option granted under this Paragraph 8 shall be the
closing price of the Company's Common Stock on the NASDAQ National Market System
on the date on which the option is granted.
(d) The provisions of Paragraphs 2, 3, 4, 5, 6 and 7 of this Stock Option
Plan do not apply to the grants of nonqualified stock options to be made to
Nonemployee Directors pursuant to this Paragraph 8.
(e) The provisions of this Section 8 shall apply to any Nonemployee
Director who is a member of the Board of Directors on September 30, 1996 or who
is elected to the Board during the five-year period from September 30, 1996
through September 30, 2001.
9. The Board of Directors may make or provide for such adjustments in the
option price and in the number or kind of shares of stock in the Company or
other securities covered by outstanding options as the Board of Directors in its
sole discretion may in good faith determine to be equitably required in order to
prevent dilution or enlargement of the rights of optionees that would otherwise
result from any (a) stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, (b)
merger, consolidation, separation, reorganization, partial or complete
liquidation, issuance of rights or warrants to purchase stock or (c) other
corporate transaction or event having an effect similar to any of the foregoing.
The Board of Directors may also make or provide for such adjustments in the
number or kind of shares granted automatically pursuant to Section 8 of this
Stock Option Plan as the Board of Directors in its sole discretion may in good
faith determine to be appropriate in order to reflect any transaction or event
described in this Section 9. In the event of any such transaction or event, the
Board of Directors may provide
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in substitution for any or all outstanding options under this Stock Option Plan
such alternative consideration as it may in good faith determine to be equitable
under the circumstances and may require in connection therewith the surrender of
all options so replaced.
10. Notwithstanding anything to the contrary set forth in this Stock Option
Plan, under no circumstances may any one optionee be granted options hereunder
if such grant, when taken together with all grants to such optionee within the
preceding three year period, would result in such optionee having been granted
options during such three year period with respect to more than 150,000 shares
of Common Stock.
11. This Stock Option Plan may be amended from time to time by the Board of
Directors; provided, however, without the further approval of the stockholders
of the Company, no such amendment shall (a) increase the aggregate number of
shares of the Company's Common Stock that may be issued and sold under this
Stock Option Plan (except that adjustments authorized by the last sentence of
Paragraph 6 shall not be limited by this provision) or (b) change the
designation in Paragraph 2 of the class of employees eligible to receive
options.
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EXHIBIT I
DNX CORPORATION
NONQUALIFIED STOCK OPTION
AGREEMENT FOR NONEMPLOYEE DIRECTORS
WHEREAS, (the "Optionee") is a member of the Board of
Directors (the "Board") of DNX Corporation (the "Company"); and
WHEREAS, the option granted hereby is intended as a nonqualified stock
option and shall not be treated as an "incentive stock option" within the
meaning of that term under Section 422 of the Internal Revenue Code of 1986;
NOW, THEREFORE, pursuant to Paragraph 8 of the Company's 1996 Stock Option
Plan, as amended (the "Plan"), the Company hereby grants to the Optionee an
option to purchase shares of Common Stock, par value $.01 per share, of the
Company at the exercise price of $ per share, and agrees to cause
certificates for any shares purchased hereunder to be delivered to the Optionee
upon full payment of the option exercise price, subject to the terms and
conditions of the Plan and the terms and conditions hereinafter set forth.
1. (a) This option (until terminated as hereinafter provided) shall
become exercisable to the extent of 1/1,095 of the shares of Common Stock
hereinabove specified each day after the date of the grant of this option
for so long as the Optionee continues to serve as a member of the Board or
continues to provide bona fide services to the Company or any of its
subsidiaries as an employee thereof or a consultant thereto following the
cessation of his or her membership on the Board. To the extent exercisable,
this option may be exercised in whole or in part from time to time.
(b) Upon a filing pursuant to any federal or state law in connection
with any tender offer for shares of the Company (other than a tender offer
by the Company or a subsidiary of the Company) or upon the execution of any
agreement for the merger or consolidation of the Company with another
corporation or for the sale of all or substantially all of the assets of
the Company or upon the adoption of any resolution of reorganization or
dissolution of the Company by the stockholders or upon the occurrence of
any other event or series of events, which tender offer, merger,
consolidation, sale, reorganization, dissolution or other event or series
of events, if consummated, will result in a change in control of the
Company, or if during any period of two consecutive years, individuals who
at the beginning of such period constituted the members of the Board cease
for any reason to constitute a majority thereof (unless the election, or
the nomination for election by the Company's stockholders, of each member
of the Board first elected during such period was approved by a vote of at
least two-thirds of the members of the Board then still in office who were
members of the Board at the beginning of any such period), the option
granted hereby shall, notwithstanding the provisions of paragraph 1(a)
above, become immediately exercisable in full.
(c) If the Optionee should die or become permanently disabled while he
or she is a member of the Board or while he or she is providing bona fide
services to the Company or any of its subsidiaries as an employee thereof
or a consultant thereto following the cessation of his or her membership on
the Board, this option shall, notwithstanding the provisions of paragraph
1(a) above, immediately become exercisable in full.
2. The option exercise price shall be payable (a) in cash or by check
acceptable to the Company, (b) by transfer to the Company of shares of Common
Stock having a fair market value on the date of exercise equal to the option
exercise price, or (c) by a combination of any of the foregoing methods of
payment. The requirement of payment in cash shall be deemed satisfied if the
Optionee shall have made arrangements satisfactory to the Company with a broker
who is a member of the National Association of Securities Dealers, Inc. to sell
a sufficient number of the shares being purchased so that the net proceeds of
the sale transaction will at least equal the option exercise price and pursuant
to which the broker undertakes to deliver the full
<PAGE> 328
option exercise price to the Company not later than the date on which the sale
transaction will settle in the ordinary course of business.
3. This option shall terminate on the earliest of the following dates:
(a) Thirty days after the Optionee ceases to be a member of the Board,
or ceases to provide bona fide services to the Company or any of its
subsidiaries as an employee thereof or a consultant thereto following the
cessation of his or her membership on the Board, for any reason other than
death or permanent disability;
(b) One year after the death or permanent disability of the Optionee
if the Optionee dies or becomes permanently disabled while he or she is a
member of the Board or while he or she is providing bona fide services to
the Company or any of its subsidiaries as an employee thereof or a
consultant thereto following the cessation of his or her membership on the
Board;
(c) Ten years from the date on which this option was granted.
Nothing contained in this option shall limit in any way whatsoever any right
that the Company may otherwise have to remove the Optionee from the Board at any
time or terminate at any time any employment or consulting agreement,
arrangement or relationship between the Company or any of its subsidiaries and
the Optionee that may continue following, or be entered into upon, the cessation
of the Optionee's membership on the Board.
4. This option is not transferable by the Optionee except by will or the
laws of descent and distribution and may be exercised during the lifetime of the
Optionee only by the Optionee or, in the event of his or her legal incapacity to
do so, by his or her guardian or legal representative acting on behalf of the
Optionee in a fiduciary capacity under state law and court supervision.
5. Notwithstanding any other provision of this agreement, this option shall
not be exercisable if the exercise would involve a violation of any applicable
federal or state securities law, and the Company hereby agrees to make
reasonable efforts to comply with all such laws.
6. The Board shall make such adjustments in the option price and in the
number or kind of shares of Common Stock or other securities covered by this
option as the Board may in good faith determine to be equitably required in
order to prevent dilution or expansion of the rights of the Optionee that
otherwise would result from (a) any stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of the
Company, (b) any merger, consolidation, separation, reorganization or partial or
complete liquidation involving the Company or (c) any other corporate
transaction or event having an effect similar to any of the foregoing. In the
event of any such transaction or event, the Board of Directors may provide in
substitution for this option such alternative consideration as it may in good
faith determine to be equitable under the circumstances and may require in
connection therewith the surrender of this option.
7. If the Company shall be required to withhold any federal, state, local
or foreign tax in connection with an exercise of this option, it shall be a
condition to the exercise that the Optionee pay or make provision satisfactory
to the Company for payment of any such taxes.
8. For the purposes of this agreement, "fair market value" shall be the
closing price of the Common Stock on the NASDAQ National Market System on the
applicable date.
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<PAGE> 329
EXECUTED at this ____ day of 199__.
DNX CORPORATION
By
Title:
The undersigned Optionee hereby acknowledges receipt of an executed
original of this Nonqualified Stock Option Agreement and accepts the option
granted hereunder.
----------------------------------------
Optionee
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<PAGE> 330
DNX CORPORATION
575 ROUTE 28, RARITAN, NEW JERSEY 08869
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Photios T. Paulson, Dr. W. Leigh
Thompson and Dr. Jesse I. Treu, and each of them, as the true and
lawful attorneys and proxies of the undersigned, with full power of
substitution in each, to vote and otherwise act on behalf of the
P undersigned at the Annual Meeting of Stockholders (the "Annual
R Meeting") of DNX Corporation (the "Company"), to be held at the
O Swissotel New York -- The Drake, 440 Park Avenue, New York, New
X York 10022, on December 18, 1996, at 10:00 A.M., local time, or at
Y any adjournments or postponements thereof, and with all powers the
undersigned would possess, if present, to vote on all the matters
presented on the other side of this proxy card and in accordance
with their judgment on all other matters properly coming before
such meeting.
<TABLE>
<S> <C>
Proposal 2: Election of two Class II Director nominees to serve (change of address)
until their successors are duly elected and qualified, as ___________________________________
described in the accompanying Proxy Statement. The nominees are: ___________________________________
John K. Clarke and Desmond H. O'Connell ___________________________________
___________________________________
(If you have written in the above
space, please mark the corresponding
box on the reverse side of this card.)
</TABLE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 THROUGH
6 AND IN THE DISCRETION OF THE PROXIES ON ALL OTHER MATTERS PROPERLY
COMING BEFORE THE MEETING.
PLEASE COMPLETE, DATE, SIGN AND RETURN THE PROXY PROMPTLY, USING THE
ENCLOSED ENVELOPE,
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING. YOU MAY
NEVERTHELESS VOTE IN PERSON IF YOU ATTEND.
SEE REVERSE
SIDE
<PAGE> 331
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. Issuance of 2,632,600 [ ] [ ] [ ] 3. Amendment to the [ ] [ ] [ ]
shares of Common Stock as Company's Second
more fully described in the Amended and Restated Certificate of
accompanying Proxy Incorporation to change the name of the Company
Statement (the "Proposed to "Chrysalis International Corporation" in the
Transaction.") event that the Proposed Transaction is
consummated.
FOR WITHHELD 4. Amendments to [ ] [ ] [ ]
2. Election of Directors (see reverse) [ ] [ ] the Company's 1991
Stock Option Plan
For, except vote withheld from the following nominee(s): and certain grants
of options
________________________________________________________ thereunder.
5. Adoption of [ ] [ ] [ ]
the Company's
1996 Stock
Option Plan.
6. Ratification of [ ] [ ] [ ]
KPMG Peat
Marwick LLP as
independent
certified
public
accountants for
fiscal 1996.
SIGNATURE(S) ______________________________________ DATE ________________
SIGNATURE(S) ______________________________________ DATE ________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
</TABLE>
