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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19635
GENTA INCORPORATED
(Exact name of Registrant as specified in its certificate of incorporation)
Delaware 33-0326866
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
99 Hayden Avenue, Suite 200
Lexington, Massachusetts 02421-7966
(Address of principal executive offices) (Zip Code)
(781) 860-5150
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
As of May 3, 1999, the registrant had 15,401,275 shares of common stock
outstanding.
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<PAGE>
Genta Incorporated
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at December 31, 1998
and March 31, 1999 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1998 and 1999 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
2
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Genta Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
------------------------------
ASSETS 1998 1999
------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................. $ 1,566,288 $ 638,990
Short term investments .................................................... 892,372 --
Other receivables ......................................................... -- 261,000
Prepaid expenses .......................................................... 405,700 177,515
Property held for sale .................................................... 290,000 --
Other current assets ...................................................... 176,700 437,492
Net current assets of discontinued operations ............................. 2,606,304 2,536,846
------------------------------
Total current assets ......................................................... 5,937,364 4,051,843
------------------------------
Property and equipment, net .................................................. 148,245 27,799
Intangibles, net ............................................................. 1,460,383 1,360,824
Deposits and other assets .................................................... 5,301 6,501
------------------------------
Total assets ................................................................. $ 7,551,293 $ 5,446,967
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................................... $ 432,116 $ 359,863
Payable to research institutions .......................................... 635,661 635,661
Accrued compensation ...................................................... 84,888 137,076
Other accrued expenses .................................................... 580,779 779,450
Net liabilities of liquidated foreign subsidiary .......................... 574,812 574,812
------------------------------
Total current liabilities .................................................... 2,308,256 2,486,862
------------------------------
Deficit in joint venture ..................................................... 2,284,018 --
Stockholders' equity:
Preferred stock; 5,000,000 shares authorized, convertible
preferred shares outstanding:
Series A convertible preferred stock, $.001 par value;
447,600 and 429,600 shares issued and outstanding at
December 31, 1998 and March 31, 1999, respectively, liquidation
value is $25,776,000 at March 31, 1999 ................................ 448 430
Series D convertible preferred stock, $.001 par value; 186,021 and 144,341
shares issued and outstanding at December 31, 1998 and March 31, 1999,
respectively; liquidation value is $20,207,740 at March 31, 1999 ...... 186 144
Common stock, $.001 par value; 70,000,000 shares authorized;
10,426,215 and 15,030,423 shares issued and outstanding at
December 31, 1998 and March 31, 1999, respectively ...................... 10,426 15,030
Additional paid-in capital ................................................ 130,627,251 131,594,944
Accumulated deficit ....................................................... (132,053,657) (132,258,847)
Accrued dividends payable ................................................. 5,108,790 5,271,199
Deferred compensation ..................................................... (734,425) (1,662,795)
------------------------------
Total stockholders' equity ................................................... 2,959,019 2,960,105
------------------------------
Total liabilities and stockholders' equity ................................... $ 7,551,293 $ 5,446,967
==============================
</TABLE>
See accompanying notes.
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Genta Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
-----------------------------
1998 1999
------------ ------------
(restated)
Revenues:
Collaborative research and development .... $ 17,396 $ --
------------ ------------
17,396 --
Cost and expenses:
Research and development .................. 813,691 1,089,966
General and administrative ................ 995,723 1,112,412
------------ ------------
1,809,414 2,202,378
------------ ------------
Loss from operations ......................... (1,792,018) (2,202,378)
Equity in net (loss) income of
joint venture .............................. (155,744) 2,284,018
Other income (expense):
Interest income ........................... 85,767 51,864
Interest expense .......................... (3,430) (173)
Other expense ............................. -- (149,114)
------------ ------------
Net loss from continuing operations .......... (1,865,425) (15,783)
Income (loss) from discontinued operations ... 103,060 (189,407)
------------ ------------
Net loss ..................................... (1,762,365) (205,190)
Dividends accrued on preferred stock ......... -- (342,409)
============ ============
Net loss applicable to common shares ......... $ (1,762,365) $ (547,599)
============ ============
Net (loss) income per share
Continuing operations ...................... $ (0.33) $ (0.03)
Discontinued operations .................... 0.02 (0.01)
------------ ------------
Net loss per common share .................... $ (0.31) $ (0.04)
============ ============
Shares used in computing net
loss per common share ...................... 5,727,035 12,902,237
============ ============
See accompanying notes.
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Genta Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
1998 1999
----------- -----------
(restated)
<S> <C> <C>
Operating activities
Net loss ..................................................... $(1,762,365) $ (205,190)
Items reflected in net loss not requiring cash:
Depreciation and amortization ............................. 289,782 259,862
Equity in net loss (gain) of joint venture ................ 155,744 (2,284,018)
Compensation expense related to stock options ............. -- 76,134
Loss on sale of fixed assets .............................. -- 149,026
Changes in operating assets and liabilities .................. (295,783) 218,286
----------- -----------
Net cash used in operating activities ........................ (1,612,622) (1,785,900)
Investing activities
Maturities of short-term investments ......................... 873,039 892,372
Purchase of property and equipment ........................... -- (24,551)
Sale of property and equipment ............................... -- 5,087
Purchase of intangibles ...................................... -- (99,635)
Investment in and advances to joint venture .................. (9,665) --
Deposits and other ........................................... -- (1,200)
----------- -----------
Net cash provided by investing activities .................... 863,374 772,073
Financing activities
Issuance of common stock upon exercise of warrants ........... -- 35,391
Proceeds from equipment conversion to lease .................. -- 60,085
Other ........................................................ -- --
----------- -----------
Net cash provided by financing activities .................... -- 95,476
----------- -----------
Increase/(Decrease) in cash and cash equivalents ............. (749,248) (918,351)
Less cash at liqidated foreign subsidiary .................... -- (8,947)
Cash and cash equivalents at beginning of period ............. 1,202,668 1,566,288
----------- -----------
Cash and cash equivalents at end of period ................... $ 453,420 $ 638,990
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid ................................................ $ 3,430 $ 173
Supplemental schedule of noncash investing and
financing activities:
Preferred stock dividends accrued ............................ -- 342,409
Common stock issued in payment of dividends on preferred stock -- 18,597
</TABLE>
See accompanying notes.
5
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Genta Incorporated
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
(1) Basis of Presentation
The unaudited condensed consolidated financial statements of Genta
Incorporated, a Delaware corporation (the "Company"), presented herein have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and note disclosures required to be
presented for complete financial statements. The accompanying financial
statements reflect all adjustments (consisting only of normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. Certain balances
in 1998 have been reclassified to conform with the presentation in 1999.
Research and development and general and administrative expenses were restated
for the three months ended March 31, 1998 to properly reflect amortization and
depreciation expense. Also, equity in net loss of joint venture was restated for
the three months ended March 31, 1998.
These unaudited condensed consolidated financial statements and related
disclosures have been prepared with the presumption that users of the interim
financial information have read or have access to the audited financial
statements for the preceding fiscal year. Accordingly, these financial
statements should be read in conjunction with the audited consolidated financial
statements and the related notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998, as amended (the "1998
Form 10-K").
The Company has experienced significant quarterly fluctuations in operating
results and it expects that these fluctuations in revenues, expenses and losses
will continue, although, as a result of the sale of the business of JBL
Scientific, Inc. ("JBL"), a subsidiary of the Company which was engaged in the
specialty chemicals business, revenues are expected to decrease.
(2) Discontinued Operations
On March 19, 1999, the Company entered into an Asset Purchase Agreement
with Promega Corporation ("Promega"), whereby a wholly owned subsidiary of
Promega acquired substantially all of the assets and assumed certain liabilities
of JBL for approximately $5.0 million in cash, including $250,000 that may be
withheld by Promega while the closing balance sheet of JBL is evaluated, a
promissory note for $1.2 millon maturing in June 2000, and certain
pharmaceutical development services in support of the Company's development
activities. The purchase price may be reduced as a result of a post-closing
audit of JBL's balance sheet as at the closing date (which would result in a
dollar-for-dollar reduction of the purchase price to the extent that the net
book value of the purchased assets is less than $1,768,000) adjustments and
indemnification obligations.
As a result of the sale of JBL's business, the Company's specialty
biochemical manufacturing segment (JBL) has been presented as discontinued
operations. The assets and liabilities relating to the discontinued operations
are included in net assets of discontinued operations in the consolidated
balance sheets at December 31, 1998 and March 31, 1999. The results of
operations for the discontinued segment are included in discontinued operations
in the consolidated statements of operations for the three months ended March
31, 1998 and 1999 (any loss incurred from March 19, 1999 was considered
immaterial). In connection with the sale of JBL's business and pursuant to a
lease termination agreement, the Company granted stock options to acquire
450,000 shares of the Company's common stock, par value $.001 per share ("Common
Stock"), to the owners of the building previously leased to JBL. Those options
will be accounted for pursuant to guidelines in Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," using the Black-Scholes method and have an approximate value of
$1.1 million which will be charged against the gain on the sale of JBL. In
addition, there were 252,300 options granted to the employees of JBL upon the
closing of the sale of JBL in connection with an ongoing service arrangement
between Promega and the Company, which will be accounted for under variable plan
accounting pursuant to SFAS No. 123 and the Black-
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Scholes guidelines. The estimated value of these options will be charged to
Research and Development expense until the vesting date, which will be no later
than one year from the closing date of the sale.
The closing of the sale of JBL was completed on May 10, 1999 with an
estimated gain on the sale of approximately $1.5 million, based upon the
purchase price of JBL less its net assets and costs and expenses associated with
the sale. Because the Company is continuing to evaluate the costs and expenses
associated with the sale of JBL, the gain on the sale is subject to change.
Net current assets of discontinued operations consisted of the following:
December 31, 1998 March 31, 1999
----------------- --------------
Accounts receivable, net ............ $ 832,018 $ 494,859
Inventories, net .................... 963,611 971,573
Property and equipment, net ......... 763,082 626,681
Other assets ........................ 897,399 958,034
Liabilities ......................... (849,806) (514,301)
----------- -----------
Total ...................... $ 2,606,304 $ 2,536,846
=========== ===========
Operating results of the discontinued segment consisted of the following:
Three Months Ended
March 31,
------------------------------
1998 1999
----------- -----------
Product sales .................. $ 1,602,179 $ 1,273,598
Operating expenses ............. (1,499,869) (1,461,553)
Other income (expense) ......... 750 (1,452)
----------- -----------
Income (loss) .................. $ 103,060 $ (189,407)
=========== ===========
Three customers accounted for an aggregate of approximately 37% and 39% of
product sales during the three months ended March 31, 1998 and 1999,
respectively. One other customer, who accounted for less than 10% of product
sales in 1998, accounted for approximately 27% of product sales during the three
months ended March 31, 1999.
(3) Net Loss Per Common Share
Under SFAS No. 128, "Earnings per Share," the Company is required to
present basic and diluted earnings per share if applicable. Basic earnings per
share includes the weighted average number of shares outstanding during the
period. Diluted earnings per share includes the weighted average number of
shares outstanding and gives effect to potentially dilutive common shares such
as options, warrants and convertible debt and preferred stock outstanding.
Net loss per common share for the three months ended March 31, 1998 and
1999 is based on the weighted average number of shares of Common Stock
outstanding during the periods. Basic and diluted loss per share are the same
for all periods presented as potentially
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<PAGE>
dilutive securities, including options, warrants and convertible preferred
stock, have not been included in the calculation of the net loss per common
share as their effect is antidilutive.
(4) Stockholders' Equity
During the three months ended March 31, 1999, an aggregate of 41,680 shares
of the Company's Series D Convertible Preferred Stock, par value $.001 per share
("Series D Preferred Stock"), were converted at the option of the respective
holders thereof into an aggregate of 4,436,118 shares of Common Stock at a
conversion price of $0.94375 per share. An aggregate of 18,000 shares of the
Company's Series A Preferred Stock, par value $.001 per share ("Series A
Preferred Stock"), were converted at the option of the holders of the shares
into an aggregate of 130,590 shares of Common Stock at a conversion price of
$8.27 per share. An aggregate of 37,500 shares of Common Stock were issued
pursuant to warrant exercises. In addition to the option grants described in
Note 2 above, to the owners of the building previously leased by JBL and to the
employees of JBL, options to acquire 675,000 shares of Common Stock were granted
to an employee of the Company at an exercise price below fair market value at
the date of grant resulting in deferred compensation of approximately $987,000.
This deferred compensation will be amortized over a period of four years.
In 1999, the Board of Directors of the Company and certain holders of
Common Stock, Series A Preferred Stock and Series D Preferred Stock approved, in
accordance with Delaware law, an amendment to the Company's Restated Certificate
of Incorporation to remove the "Fundamental Change" redemption right. The
Company recently distributed to its stockholders an Information Statement on
Form 14C describing this stockholder action and has formally amended the
Restated Certificate of Incorporation after the expiration of the 20-day period
provided for in Rule 14c-5 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(5) Genta Jago
On March 4, 1999, the Company and SkyePharma (on behalf of itself and its
affiliates) entered into an interim agreement (the "Interim JV Agreement")
pursuant to which the Company was released from all liability relating to unpaid
development costs and funding obligations of Genta Jago, the joint venture
between the Company and SkyePharma. SkyePharma agreed to be responsible for
substantially all the obligations of the joint venture to third parties and for
the further development of the joint venture's products, with any net income
resulting therefrom to be allocated in agreed-upon percentages between the
Company and SkyePharma. As a result of the Interim JV Agreement, the Company
wrote off its equity interest in the net loss of the joint venture and, as such,
recorded a gain of approximately $2.3 million for the three months ended March
31, 1999.
(6) Legal Proceedings
On June 4, 1998, the Company's statutory process agent received a Summons
and Complaint in a lawsuit brought by Johns Hopkins University ("Johns Hopkins")
against the Company in Maryland Circuit Court for Baltimore City (Case No.
98120110). Johns Hopkins alleges in the Complaint that the Company has breached
the Johns Hopkins Agreement and owes it licensing royalty fees and related
expenses in the amount of $308,832. Johns Hopkins also alleges the existence of
a separate March 1993 letter agreement wherein the Company agreed to support a
fellowship program at the Johns Hopkins School of Hygiene and Public Health and
the Company's breach thereof, with damages of $326,829. On August 10, 1998, the
Company's statutory process agent received a Summons and Complaint in a related
lawsuit brought by the Ts'o/Miller Partnership and others against the Company in
the same court (Case No. 98182113). The Ts'o/Miller Partnership claims that it
is owed licensing royalty fees in the amount of $287,671. The Company is
currently in settlement negotiations. The Company believes that no further
accrual should be necessary in connection with this settlement.
In October 1996, JBL retained a chemical consulting firm to advise it with
respect to an incident of soil and groundwater contamination (the "Spill").
Sampling conducted at the JBL facility revealed the presence of chloroform and
perchloroethylenes ("PCEs") in the soil and groundwater at this site. A
quarterly groundwater monitoring program is being conducted, under the
supervision of the California Regional Water Quality Control Board for the
purposes of determining whether the levels of chloroform and PCEs have
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<PAGE>
decreased over time. The results of the latest sampling conducted show that PCEs
and chloroform have decreased in all but one of the monitoring sites. The
Company has agreed to indemnify Promega in respect of this matter. The Company
believes that any costs stemming from further investigating or remediating this
contamination will not have a material adverse effect on the business of the
Company, although there can be no assurance thereof.
JBL received notice on October 16, 1998 from Region IX of the Environmental
Protection Agency (the "EPA") that it had been identified as a potentially
responsible party ("PRP") at the Casmalia Disposal Site, which is located in
Santa Barbara, California. JBL has been designated as a de minimis PRP by the
EPA. The EPA currently estimates that de minimis PRPs will be require to pay as
little as $75,000 and as much as $750,000 to settle their potential liability,
depending upon the volume of wastes attributed to them. The Company received an
estimated volume calculation from the EPA, and a response, which is due on June
9, 1999, is currently under review. While the terms of a settlement have not
been finalized, they should contain standard contribution protection and release
language. The Company has accrued $75,000 during 1998. The Company believes that
any costs stemming from further investigating or remediating this contamination
will not have a material adverse effect on the business of the Company, although
there can be no assurance thereof. The Company has agreed to indemnify Promega
in respect of this matter.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Since its inception in February 1988, the Company has devoted its principal
efforts toward drug discovery, research and development. The Company has been
unprofitable to date and, even if it obtains financing to continue its
operations, expects to incur substantial operating losses for the next several
years due to continued requirements for ongoing research and development
activities, preclinical and clinical testing activities, and regulatory
activities, and for the possible establishment of manufacturing activities and a
sales and marketing organization. From the period since its inception to March
31, 1999, the Company has incurred a cumulative net loss of approximately $132.3
million. The Company has experienced significant quarterly fluctuations in
operating results and it expects that these fluctuations in revenues, expenses
and losses will continue, although, as a result of the sale of JBL's business,
revenues are expected to decrease.
The unaudited condensed consolidated financial statements contained in this
Quarterly Report on Form 10-Q that are not historical are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Exchange Act, including
statements regarding the expectations, beliefs, intentions or strategies
regarding the future. The Company intends that all forward-looking statements be
subject to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements reflect the Company's views
as of the date they are made with respect to future events and financial
performance, but are subject to many risks and uncertainties, which could cause
the actual results of the Company to differ materially from any future results
expressed or implied by such forward-looking statements. Examples of such risks
and uncertainties include, but are not limited to, obtaining sufficient
financing to maintain the Company's planned operations, the timely development
and receipt of necessary regulatory approvals and acceptance of new products,
the successful application of the Company's technology to produce new products,
the obtaining of proprietary protection for any such technology and products,
the impact of competitive products and pricing and reimbursement policies,
changing market conditions and the other risks detailed in the Certain Trends
and Uncertainties section of this Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") and elsewhere in this
Quarterly Report on Form 10-Q. The Company does not undertake to update any
forward-looking statements.
Results of Operations
The following discussion of results of operations relates to the Company's
continuing business.
Operating revenues totaled $17,396 for the three months ended March 31,
1998 and decreased to $0 for the same period in 1999. The changes in operating
revenue have largely reflected the Company's lessened
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<PAGE>
involvement in Genta Jago development activities. The expenses relating to these
revenues are recognized as Costs and Expenses in the same period such that the
net effect on the Company's consolidated financial statements is zero. The
Company has reduced the breadth of its activities and focused its resources on
development of its lead AnticodeTM oligonucleotide, G3139.
On March 19, 1999, the Company entered into an Asset Purchase Agreement
with Promega, whereby a wholly-owned subsidiary of Promega acquired
substantially all of the assets and assumed certain liabilities of JBL for cash,
a promissory note and certain pharmaceutical development services in support of
the Company's development activities. See Note 2 to the Company's consolidated
financial statements. The sale of the assets of JBL was completed on May 10,
1999, and will result in a significant decrease in ongoing revenues, as all of
the Company's product sales have been attributable to JBL.
Costs and expenses totaled approximately $1.8 million in the three months
ended March 31, 1998, and increased to approximately $2.2 million for the same
period in 1999. Primarily, the overall increase reflects greater activity in
clinical trials along with an increase in general and administrative for legal
and consulting expenses.
Research and development expenses totaled approximately $0.8 million in the
three months ended March 31, 1998, and increased to approximately $1.1 million
for the same period in 1999. The increase in research and development expenses
is primarily attributable to the cost associated with clinical trials including
related drug supplies. During the three months ended March 31, 1999, $748,000
was recorded for clinical trials and for related drug supplies.
It is anticipated that research and development expenses may increase in
the future, assuming the Company obtains sufficient financing, as the
development program for G3139 expands and more patients are treated in clinical
trials at higher doses, through longer or more treatment cycles, or both.
Furthermore, the Company is pursuing other opportunities for new product
development candidates which, if successful, will require additional research
and development expenses. There can be no assurance, however, that the trials
will proceed in this manner or that the Company will initiate new development
programs.
General and administrative expenses were approximately $1.0 million for the
three months ended March 31, 1998, and increased to $1.1 million for the same
period in 1999. The increase reflects higher legal and consulting costs
associated with the Company's filings with the Securities and Exchange
Commission (the "SEC") and the costs associated with the relocation of its
headquarters from California to Massachusetts.
On March 4, 1999, the Company and SkyePharma (on behalf of itself and its
affiliates) entered into the Interim JV Agreement pursuant to which the Company
was released from all liability relating to unpaid development costs and funding
obligations of Genta Jago, the joint venture between the Company and SkyePharma.
SkyePharma agreed to be responsible for substantially all the obligations of the
joint venture to third parties and for the further development of the joint
venture's products, with any net income resulting therefrom to be allocated in
agreed-upon percentages between the Company and SkyePharma. As a result of the
Interim JV Agreement, the Company wrote off its equity interest in the net loss
of the joint venture and, as such, recorded income of approximately $2.3 million
for the three months ended March 31, 1999.
Other expenses include a loss on the sale of fixed assets as a result of
the headquarter relocation.
The Company's net loss from continuing operations before accrued dividends
totaled approximately $0.02 million, or $0.00 per share of Common Stock, for the
three months ended March 31, 1999 compared to a net loss from continuing
operations of approximately $1.9 million, or $0.33 per share of Common Stock,
for the same period in 1998. During the three months ended March 31, 1999, as a
result of accrued dividends on the Company's preferred stock of approximately
$0.34 million and a loss from discontinued operations of approximately $0.19
million the Company's net loss per common share was $0.04. The Company's net
loss for the three months ended March 31, 1999 was lower than those reported for
the comparable period of 1998 primarily as a result of recording nonrecurring
income of approximately $2.3 million relating to its equity interest in the net
loss of the joint venture.
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<PAGE>
Since the formation of Genta Jago, no products have been successfully
developed and marketed. Since the initial plans called for earlier introductions
and since there have been significant changes in the market environment since
the Company entered into the joint venture, there is reason to believe that any
products that may be marketed in the future could represent significantly poorer
financial opportunities than those that were anticipated in the earlier plans.
This reduction in opportunity derives from factors such as the presence of
direct competitors to Genta Jago's products being in the marketplace before
Genta Jago, and increasing pricing pressures on pharmaceuticals, particularly
multisource or generic products, from payors such as reimbursers and government
buyers. On May 20, 1998, Genta Jago received notice from Apothecon that they had
terminated the agreement for the development of ketoprofen. Apothecon stated
that their decision to terminate was based on the facts that a competing generic
is already being successfully marketed, other competitors already have ANDAs
pending for their own generic formulations of such drug and they consider the
GEOMATRIX(R) capsule size competitively disadvantageous. These factors may
adversely affect Genta Jago even if it is successful in developing products that
obtain regulatory approval. As a result and in consideration of the Company's
need to reduce expenses and focus its efforts, the Company is seeking to direct
its resources away from the joint venture to its Anticode(TM) drug development,
specifically G3139, for the immediate future. On July 27, 1998, SkyePharma PLC,
the parent company to SkyePharma, announced that an ANDA for naproxen sodium
filed by Brightstone Pharma, its U.S. sales and marketing subsidiary, had been
accepted for filing by the FDA. Brightstone has a license from Genta Jago to
market this product.
Interest income has fluctuated significantly each year and is anticipated
to continue to fluctuate primarily due to changes in the levels of cash,
investments and interest rates each period.
Liquidity and Capital Resources
Since inception, the Company has financed its operations primarily from
private and public offerings of its equity securities. Cash provided from these
offerings totaled approximately $124.5 million through March 31, 1999. At March
31, 1999, the Company had cash, cash equivalents and short-term investments
totaling approximately $0.6 million compared to approximately $2.5 million at
December 31, 1998.
The Company will need substantial additional funds before it can expect to
realize significant product revenue. The Company projects that, at its current
rate of spending and for its current activities, funds from the consummation of
the JBL sale and its existing cash funds will enable the Company to maintain its
present operations into the first quarter of 2000. To the extent that the
Company is successful in accelerating its development of G3139, expanding its
development portfolio or acquiring or adding new development candidates, the
current cash resources will be consumed at a greater rate. Similarly, the
Company has recently hired additional senior managers to direct the business of
the Company. This will cause the rate of cash utilization to increase. Certain
parties with whom the Company has agreements have claimed default and, should
the Company be obligated to pay these claims or should the Company engage legal
services to defend or negotiate its positions or both, its ability to continue
operations could be significantly reduced or shortened. See "Certain Trends and
Uncertainties--Claims of the Company's Default Under Various Agreements." The
Company anticipates that significant additional sources of financing, including
equity financings, will be required in order for the Company to continue its
planned principal operations. The Company also anticipates seeking additional
product development opportunities from external sources. Such acquisitions may
consume cash reserves or require additional cash or equity. The Company's
working capital and additional funding requirements will depend upon numerous
factors, including: (i) the progress of the Company's research and development
programs; (ii) the timing and results of preclinical testing and clinical
trials; (iii) the level of resources that the Company devotes to sales and
marketing capabilities; (iv) technological advances; (v) the activities of
competitors; and (vi) the ability of the Company to establish and maintain
collaborative arrangements with others to fund certain research and development
efforts, to conduct clinical trials, to obtain regulatory approvals and, if such
approvals are obtained, to manufacture and market products. See "Certain Trends
and Uncertainties--Need for Additional Funds; Risk of Insolvency."
If the Company successfully secures sufficient levels of collaborative
revenues and other sources of financing, it expects to use such financing to
continue and expand its ongoing research and development activities,
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preclinical and clinical testing activities, the manufacturing and/or market
introduction of potential products and expansion of its administrative
activities.
In the first three months ended March 31, 1999, the holders of an aggregate
of 41,680 shares of Series D Preferred Stock converted those shares into an
aggregate of 4,436,118 shares of Common Stock, and the holders of an aggregate
of 18,000 shares of Series A Preferred Stock converted those shares into an
aggregate of 130,590 shares of Common Stock.
As discussed in Note 2 to the Company's consolidated financial statements,
the Company entered into an Asset Purchase Agreement with Promega on March 19,
1999. Under the agreement, a wholly-owned subsidiary of Promega acquired
substantially all of the assets and assumed certain liabilities of JBL for
approximately $5.0 million in cash, including $250,000 that may be withheld by
Promega for up to sixty days while the closing balance sheet of JBL is
evaluated, a promissory note for $1.2 millon maturing in June 2000, and certain
pharmaceutical development services in support of the Company's development
activities. The purchase price may be reduced as a result of a post-closing
audit of JBL's balance sheet as at the closing date (which would result in a
dollar-for-dollar reduction of the purchase price to the extent that the net
book value of the purchased assets is less than $1,768,000) and indemnification
obligations.
Impact of Year 2000
Some older computer programs were written using two digits rather than four
to define the applicable year. As a result, those computer programs have
sensitive software that recognizes a date using 00 as the year 1900 rather than
the year 2000 (the "Year 2000 Issue"). This could cause a system failure or
miscalculations causing disruption of operations, including a temporary
inability to process transactions or engage in similar normal business
activities.
The Company has completed its assessment of whether it will have to modify
or replace portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The Company is
currently implementing a plan to acquire and install new computer hardware and
upgraded software in its facilities that will accommodate dating beyond 1999.
The total year 2000 project cost is not expected to be material and is expected
to be completed not later than October 31, 1999, which is prior to any
anticipated impact on its operating systems. The Company believes that with the
modifications to existing software and conversions to new software the Year 2000
Issue will not pose significant operational problems for its computer systems.
However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material adverse effect on
the operations of the Company.
The Company has initiated formal communications with all of its significant
suppliers to determine the extent to which the Company's interface systems are
vulnerable to the failure of those third-party suppliers to remediate their own
Year 2000 Issues. If through such communication or otherwise the Company becomes
aware of any such failure and is not satisfied that such failure is being
adequately addressed, it will take appropriate steps to find alternative
suppliers. There is no assurance that the systems of other companies on which
the Company's systems rely will be timely converted and will not have a material
adverse effect on the Company's systems. The costs of the project and the date
on which the Company believes it will complete the Year 2000 modifications are
based on management's best estimates, which were derived using numerous
assumptions of future events, including the continued availability of certain
resources and factors. However, there can be no assurance that these estimates
will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.
It has been acknowledged by governmental authorities that year 2000
problems have the potential to disrupt global economies, that no business is
immune from the potentially far-reaching effects of year 2000 problems, and that
it is difficult to predict with certainty what will happen after December 31,
1999. Consequently, it is possible that year 2000 problems will have a material
effect on the Company's business even if the Company takes all appropriate
measures to ensure that it and its key suppliers are year 2000 compliant.
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Certain Trends and Uncertainties
In addition to the other information contained in this Quarterly Report on
Form 10-Q, the following factors should be considered carefully.
Need for Additional Funds; Risk of Insolvency
The Company's operations to date have consumed substantial amounts of cash.
The Company's independent auditors have included an explanatory paragraph in
their report to the 1998 Form 10-K with respect to the Company's ability to
continue as a going concern. See "Liquidity and Capital preclinical [Global]."
The Company will need to raise substantial additional funds to continue its
operations and conduct the costly and time-consuming research, pre-clinical
development and clinical trials necessary to bring its products to market and to
establish production and marketing capabilities. The Company intends to seek
additional funding through public or private financings, including equity
financings, and through collaborative arrangements or the sale of key assets.
Adequate funds for these purposes, whether obtained through financial markets or
collaborative or other arrangements with corporate partners or from other
sources, may not be available when needed or on terms acceptable to the Company.
Insufficient funds may require the Company: to delay, scale back or eliminate
some or all of its research and product development programs; to license third
parties to commercialize products or technologies that the Company would
otherwise seek to develop itself; to sell itself to a third party; to cease
operations; or to declare bankruptcy. The Company's future cash requirements
will be affected by results of research and development, results of pre-clinical
studies and bioequivalence and clinical trials, relationships with corporate
collaborators, changes in the focus and direction of the Company's research and
development programs, competitive and technological advances, the FDA and
foreign regulatory processes, and other factors.
Loss History; Uncertainty of Future Profitability.
The Company has been unprofitable to date, incurring substantial operating
losses associated with ongoing research and development activities, pre-clinical
testing, clinical trials, manufacturing activities and development activities
undertaken by Genta Jago. From the period since its inception to March 31, 1999,
the Company has incurred a cumulative net loss of approximately $132.3 million.
The Company has experienced significant quarterly fluctuations in operating
results and expects that these fluctuations in revenues, expenses and losses
will continue, although, as a result of the sale of JBL's business, revenues are
expected to decrease. See "Certain Trends and Uncertainties--Need for Additional
Funds; Risk of Insolvency."
Subordination of Common Stock to Series A Preferred Stock and Series D Preferred
Stock; Risk of Dilution; Anti-Dilution Adjustments.
In the event of the liquidation, dissolution or winding up of the Company,
the Common Stock is expressly subordinate to the approximately $25.8 million
preference of the 429,600 outstanding shares of Series A Preferred Stock and the
approximately $20.2 million preference of the 144,341 outstanding shares of
Series D Preferred Stock (not including an additional 40,395 shares of Series D
Preferred Stock that are issuable upon exercise of certain warrants). Dividends
may not be paid on the Common Stock unless full cumulative dividends on the
Series A Preferred Stock and Series D Preferred Stock have been paid or funds
have been set aside, for such preferred dividends by the Company.
The conversion rate of the Series A Preferred Stock is subject to
adjustment, among other things, upon certain issuances of Common Stock or
securities convertible into Common Stock at $67.50 per share or less. As of May
10, 1999, each share of Series A Preferred Stock is convertible into
approximately 7.430 shares of Common Stock at a conversion price of $8.08 per
share. Each share of Series D Preferred Stock is presently convertible into
approximately 106 shares of Common Stock at a conversion price of $0.94375 per
share of Common Stock, and the exercise price of the Class D Warrants is
presently $0.94375 per share. The conversion rate of the Series D Preferred
Stock and the exercise price of the Series D Warrants are subject to adjustment,
among other things, upon certain issuances of Common Stock or securities
convertible into Common Stock at prices per share below certain levels. There
are 1,578,300 Class D Warrants outstanding and another 201,975 Class D Warrants
issuable upon the exercise of certain warrants. Finally, the Company has
outstanding Bridge Warrants to purchase an aggregate of 6,357,616 shares of
Common Stock at an exercise price
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of $0.471875 per share, Line of Credit Warrants to purchase an aggregate of
50,000 shares of Common Stock at an exercise price of $2.50 per share, LBC
Warrants to purchase an aggregate of 700,000 shares of Common Stock at an
exercise price of $0.52 per share, warrants to purchase an aggregate of 95,768
shares of Common Stock at various exercise prices between approximately $13 and
$21 per share, 134,238 outstanding employee stock options under the Company's
Amended and Restated 1991 Stock Plan at various exercise prices between $3.13
and $26.25 per share, and 5,681,263 outstanding employee stock options under the
Company's 1998 Stock Incentive Plan and Non-Employee Directors' 1998 stock
Option Plan at various exercise prices between $0.88 and $2.41 per share. The
Note and Warrant Purchase Agreement provides that a number of additional Bridge
Warrants ("Penalty Warrants") equal to 1.5% of the number of Bridge Warrants
then held by the Aries Funds shall be issued to the Aries Funds for each day
beyond 30 days after the final closing of the Private Placement that a shelf
registration statement covering the Common Stock underlying the securities
purchased pursuant to the Note and Warrant Purchase Agreement is not filed with
the SEC and for each day beyond 210 days after the closing date of the
investment contemplated by the Note and Warrant Purchase Agreement that such
shelf registration statement is not declared effective by the SEC. The Company
filed such shelf registration statement with the SEC on September 9, 1997, but
such shelf registration statement has not been declared effective by the SEC. As
a result, the Company could be obligated to issue Penalty Warrants to the Aries
Funds. The Aries Funds have not, to date, requested that the Company issue such
Penalty Warrants. The Company and the Aries Funds are currently conducting
negotiations to determine whether, and to what extent, Penalty Warrants will be
issued.
Claims of the Company's Default Under Various Agreements.
On May 15, 1997, Johns Hopkins University ("Johns Hopkins") sent the
Company a letter stating that the license agreement entered into between the
Company and Johns Hopkins in May 1990 (the "Johns Hopkins Agreement") was
terminated. On November 26, 1997, Drs. Paul O.P. Ts'o and Paul Miller (the
"Ts'o/Miller Partnership") sent the Company a letter claiming that the Company
was in material breach of the February 1989 license agreement between the
Company and the Ts'o/Miller Partnership (the "Ts'o/Miller Agreement") for
failing to pay royalties from 1995 through 1997. By letter dated April 28, 1998,
the Ts'o/Miller Partnership advised the Company that it was terminating the
license granted pursuant to the Ts'o/Miller Agreement. On June 4, 1998, the
Company's statutory process agent received a Summons and Complaint in a lawsuit
brought by Johns Hopkins against the Company in Maryland Circuit Court for
Baltimore City (Case No. 98120110). Johns Hopkins alleges in the Complaint that
the Company has breached the Johns Hopkins Agreement and owes it licensing
royalty fees and related expenses in the amount of $308,832. Johns Hopkins also
alleges the existence of a separate March 1993 letter agreement wherein the
Company agreed to support a fellowship program at the Johns Hopkins School of
Hygiene and Public Health and the Company's breach thereof, with damages of
$326,829. On August 10, 1998, the Company's statutory process agent received a
Summons and Complaint in a related lawsuit brought by the Ts'o/Miller
Partnership and others against the Company in the same court (Case No.
98182113). The Ts'o/Miller Partnership claims that it is owed licensing royalty
fees in the amount of $287,671. The Company is currently in settlement
negotiations. See "Legal Proceedings."
The French government agency ANVAR asserted, in a letter dated February 13,
1998, that Genta Europe was not in compliance with the ANVAR Agreement, and that
ANVAR might request the immediate repayment of such loan. On July 1, 1998, ANVAR
notified Genta Europe by letter of its claim that the Company remains liable for
4,187,423 FF (as of May 10, 1999, approximately $688,412) and is required to pay
this amount immediately. The Company is working with ANVAR to achieve a mutually
satisfactory resolution; however, there can be no assurance that such a
resolution will be obtained. There can be no assurance that the Company will not
incur material costs in relation to these terminations and/or assertions of
default or liability.
Early Stage of Development; Technological Uncertainty.
The Company is at an early stage of development. All of the Company's
potential therapeutic products are in research or development, and no revenues
have been generated from therapeutic product sales. To date, most of the
Company's resources have been dedicated to applying molecular biology and
medicinal chemistry to the research and development of potential Anticode(TM)
pharmaceutical products based upon oligonucleotide technology. While the Company
has demonstrated the activity of Anticode(TM) oligonucleotide technology in
model systems in
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vitro and the activity of antisense technology in animals and has identified
compounds that the Company believes are worthy of additional testing, only one
of these potential Anticode(TM) oligonucleotide products has begun to be tested
in humans, with such testing in its early stages. There can be no assurance that
the novel approach of oligonucleotide technology will result in products that
will receive necessary regulatory approvals or that will be successful
commercially. Further, results obtained in pre-clinical studies or early
clinical investigations or pilot bioequivalence trials are not necessarily
indicative of results that will be obtained in pivotal human clinical or
bioequivalence trials. There can be no assurance that any of the Company's or
Genta Jago's potential products can be successfully developed. Furthermore, the
Company's products in research or development may prove to have undesirable and
unintended side effects or other characteristics that may prevent or limit their
commercial use. There can be no assurance that any of the Company's or Genta
Jago's products will obtain FDA or foreign regulatory approval for any
indication or that an approved compound would be capable of being produced in
commercial quantities at reasonable costs and successfully marketed. Products,
if any, resulting from the Company's or Genta Jago's research and development
programs are not expected to be commercially available for a number of years.
Certain competitive products have already been filed with and/or approved by the
FDA. See "Certain Trends and Uncertainties--Potential Adverse Effect of
Technological Change and Competition."
Limited Availability of Net Operating Loss Carryforwards.
At December 31, 1998, the Company has federal and California net operating
loss carryforwards of approximately $82.0 million and $14.7 million,
respectively. The difference between the federal and California tax loss
carryforwards is primarily attributable to the capitalization of research and
development expenses for California tax purposes and the fifty percent
limitation on California loss carryforwards prior to 1997. The federal tax loss
carryforwards will begin expiring in 2003, unless previously utilized.
Approximately $2.8 million and $0.5 million of the California tax loss
carryforward expired during 1997 and 1998, respectively, and the related
deferred tax asset and tax loss carryforward amounts have been reduced
accordingly. The remaining California tax loss will continue to expire in 1999,
unless utilized. The Company also has federal and California research and
development tax credit carryforwards of $3.2 million and $1.3 million,
respectively, which will begin expiring in 2003, unless previously utilized.
Federal and California tax laws limit the utilization of income tax net
operating loss and credit carryforwards that arise prior to certain cumulative
changes in a corporation's ownership resulting in change of control of the
Company. The future annual use of net operating loss carryforwards and research
and development tax credits will be limited due to the ownership changes that
occurred during 1990, 1991, 1993, 1996, 1997 and 1998. Because of the decrease
in value of the Company's stock, the ownership changes which occurred in 1996,
1997 and 1998 will have a material adverse impact on the Company's ability to
utilize these carryforwards.
Dividends.
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any such dividends in the foreseeable future. In addition, the
Company is restricted from paying cash dividends on its Common Stock until such
time as all cumulative dividends have been paid on outstanding shares of its
Series A Preferred Stock and Series D Preferred Stock. The Company currently
intends to retain its earnings, if any, after payment of dividends on
outstanding shares of Series A Preferred Stock and Series D Preferred Stock, for
the development of its business.
No Assurance of Regulatory Approval; Government Regulation.
The FDA and comparable agencies in foreign countries impose substantial
premarket approval requirements on the introduction of pharmaceutical products
through lengthy and detailed pre-clinical and clinical testing procedures and
other costly and time-consuming procedures. Satisfaction of these requirements,
which includes demonstrating to the satisfaction of the FDA and foreign
regulatory agencies that the product is both safe and effective, typically takes
several years or more depending upon the type, complexity and novelty of the
product. There can be no assurance that such testing will show any product to be
safe or efficacious or, in the case of certain of Genta Jago's products, to be
bioequivalent to a currently marketed pharmaceutical. Government regulation also
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affects the manufacture and marketing of pharmaceutical products. The effect of
government regulation may be to delay marketing of any new products for a
considerable or indefinite period of time, to impose costly procedures upon the
Company's or Genta Jago's activities and to diminish any competitive advantage
that the Company or Genta Jago may have attained. It may take years before
marketing approvals are obtained for the Company's or Genta Jago's products, if
at all. There can be no assurance that FDA or other regulatory approval for any
products developed by the Company or Genta Jago will be granted on a timely
basis, if at all, or, if granted, that such approval will cover all the clinical
indications for which the Company or Genta Jago is seeking approval or will not
sustain significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use. Further, with respect to
the reformulated versions of currently available pharmaceuticals being developed
through Genta Jago, there is a substantial risk that the manufacturers or
marketers of such currently available pharmaceuticals will seek to delay or
block regulatory approval of any reformulated versions of such pharmaceuticals
through litigation or other means. Any significant delay in obtaining, or
failure to obtain, such approvals could materially adversely affect the
Company's or Genta Jago's revenue. Moreover, additional government regulation
from future legislation or administrative action may be established which could
prevent or delay regulatory approval of the Company's or Genta Jago's products
or further regulate the prices at which the Company's or Genta Jago's proposed
products may be sold.
The Company is also subject to various foreign, federal, state and local
laws, regulations and recommendations (collectively "Governmental Regulations")
relating to safe working conditions, laboratory and manufacturing practices, the
experimental use of animals and the use, manufacture, storage, handling and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with the Company's
research and development work and manufacturing processes. In October 1996, JBL
retained a chemical consulting firm to advise it with respect to an incident of
soil and groundwater contamination (the "Spill"). Sampling conducted at the JBL
facility revealed the presence of chloroform and PCEs in the soil and
groundwater at this site. Six soil borings were drilled and groundwater wells
were installed at several locations around the site. The Company has agreed to
indemnify Promega in respect of the matter. The Company believes that the costs
associated with further investigation or remediation will not have a material
adverse effect on the business of the Company, although there can be no
assurance thereof. The Company believes that it is in material compliance with
Governmental Regulations; however, there can be no assurance that the Company
will not be required to incur significant costs to comply with Governmental
Regulations in the future. See Note 6 to the Company's consolidated financial
statements.
JBL received notice on October 16, 1998 from Region IX of the Environmental
Protection Agency ("EPA") that it had been identified as a potentially
responsible party ("PRP") at the Casmalia Disposal Site, which is located in
Santa Barbara, California. JBL has been designated as a de minimis PRP by the
EPA. The EPA currently estimates that the de minimis PRPs will be required to
pay as little as $75,000 and as much as $750,000 to settle their potential
liability, depending upon the volume of wastes attributed to them. On this basis
the Company accrued $75,000 in 1998. The Company received an estimated volume
calculation from the EPA and a response, which is due on June 9, 1999, is
currently under review. While the terms of the settlement have not been
finalized, they should contain standard contribution release and protection
language. The Company has agreed to indemnify Promega in respect of the matter.
See Note 6 to the Company's consolidated financial statements.
Uncertainty Regarding Patents and Proprietary Technology.
The Company's and Genta Jago's success will depend, in part, on their
respective abilities to obtain patents, maintain trade secrets and operate
without infringing the proprietary rights of others. No assurance can be given
that patents issued to or licensed by the Company or Genta Jago will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide competitive advantages to the Company or Genta Jago. There can be
no assurance that the Company's or Genta Jago's patent applications will be
approved, that the Company or Genta Jago will develop additional products that
are patentable, that any issued patent will provide the Company or Genta Jago
with any competitive advantage or adequate protection for its inventions or will
not be challenged by others, or that the patents of others will not have an
adverse effect on the ability of the Company or Genta Jago to do business.
Competitors may have filed applications, may have been issued patents or may
obtain additional patents and proprietary rights relating to products or
processes competitive with those of the Company or Genta
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Jago. Furthermore, there can be no assurance that others will not independently
develop similar products, duplicate any of the Company's or Genta Jago's
products or design around any patented products developed by the Company or
Genta Jago. The Company and Genta Jago rely on secrecy to protect technology in
addition to patent protection, especially where patent protection is not
believed to be appropriate or obtainable. No assurance can be given that others
will not independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to the Company's or Genta Jago's trade
secrets, or that the Company or Genta Jago can effectively protect its rights to
its unpatented trade secrets.
The Company and Genta Jago have obtained licenses or other rights to
patents and other proprietary rights of third parties, and may be required to
obtain licenses to additional patents or other proprietary rights of third
parties. No assurance can be given that any existing licenses and other rights
will remain in effect or that any licenses required under any such additional
patents or proprietary rights would be made available on terms acceptable to the
Company or Genta Jago, if at all. If the Company's or Genta Jago's licenses and
other rights are terminated or if the Company or Genta Jago cannot obtain such
additional licenses, the Company or Genta Jago could encounter delays in product
market introductions while it attempts to design around such patents or could
find that the development, manufacture or sale of products requiring such
licenses could be foreclosed. In addition, the Company or Genta Jago could incur
substantial costs, including costs caused by delays in obtaining regulatory
approval and bringing products to market, in defending itself in any suits
brought against the Company or Genta Jago claiming infringement of the patent
rights of third parties or in asserting the Company's or Genta Jago's patent
rights, including those granted by third parties, in a suit against another
party. The Company or Genta Jago may also become involved in interference
proceedings declared by the United States Patent and Trademark Office (or any
foreign counterpart) in connection with one or more of its patents or patent
applications, which could result in substantial cost to the Company or Genta
Jago, as well as an adverse decision as to priority of invention of the patent
or patent application involved. There can be no assurance that the Company or
Genta Jago will have sufficient funds to obtain, maintain or enforce patents on
their respective products or technology, to obtain or maintain licenses that may
be required in order to develop and commercialize their respective products, to
contest patents obtained by third parties, or to defend against suits brought by
third parties.
Dependence on Others.
The Company's and Genta Jago's strategy for the research, development and
commercialization of their products requires negotiating, entering into and
maintaining various arrangements with corporate collaborators, licensors,
licensees and others, and is dependent upon the subsequent success of these
outside parties in performing their responsibilities. No assurance can be given
that they will obtain such collaborative arrangements on acceptable terms, if at
all, nor can any assurance be given that any current collaborative arrangements
will be maintained.
Technology Licensed From Third Parties.
The Company has entered into certain agreements with, and licensed certain
technology and compounds from, third parties. The Company has relied on
scientific, technical, clinical, commercial and other data supplied and
disclosed by others in entering into these agreements, including the Genta Jago
agreements, and will rely on such data in support of development of certain
products. Although the Company has no reason to believe that this information
contains errors of omission or fact, there can be no assurance that there are no
errors of omission or fact that would materially affect the future approvability
or commercial viability of these products.
Potential Adverse Effect of Technological Change and Competition.
The biotechnology industry is subject to intense competition and rapid and
significant technological change. The Company and Genta Jago have numerous
competitors in the United States and other countries for their respective
technologies and products under development, including among others, major
pharmaceutical and chemical companies, specialized biotechnology firms,
universities and other research institutions. There can be no assurance that the
Company's or Genta Jago's competitors will not succeed in developing products or
other novel technologies that are more effective than any which have been or are
being developed by the Company or Genta Jago or which would render the Company's
or Genta Jago's technology and products non-competitive. Many of
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the Company's and Genta Jago's competitors have substantially greater financial,
technical, marketing and human resources than the Company or Genta Jago. In
addition, many of those competitors have significantly greater experience than
the Company or Genta Jago in undertaking pre-clinical testing and human clinical
trials of new pharmaceutical products and obtaining FDA and other regulatory
approvals of products for use in healthcare. Accordingly, the Company's or Genta
Jago's competitors may succeed in obtaining regulatory approval for products
more rapidly than the Company or Genta Jago and such competitors may succeed in
delaying or blocking regulatory approvals of the Company's or Genta Jago's
products. As competitors of the Company or of Genta Jago receive approval for
products that share the same potential market as the Company's or Genta Jago's
potential products, the market share available to the Company or Genta Jago will
likely be reduced, thereby reducing the potential revenues and earnings
available to the Company or Genta Jago. In addition, increased pricing
competition would also likely result, further reducing the earnings potential of
the Company's or Genta Jago's products. The Company is aware that certain
competitors of Genta Jago have filed, and received approval of, an ANDA for a
generic formulation of drugs of which Genta Jago was working to develop generic
formulations. Furthermore, if the Company or Genta Jago is permitted to commence
commercial sales of products, it will also be competing with respect to
marketing capabilities, an area in which it has limited or no experience, and
manufacturing efficiency. There are many public and private companies that are
conducting research and development activities based on drug delivery or
antisense technologies. The Company believes that the industry-wide interest in
such technologies will accelerate and competition will intensify as the
techniques which permit drug design and development based on such technologies
are more widely understood.
Uncertainty of Clinical Trials and Results.
The results of clinical trials and pre-clinical testing are subject to
varying interpretations. Even if the development of the Company's or Genta
Jago's respective products advances to the clinical stage, there can be no
assurance that such products will prove to be safe and effective. The products
that are successfully developed, if any, will be subject to requisite regulatory
approval prior to their commercial sale, and the approval, if obtainable, may
take several years. Generally, only a very small percentage of the number of new
pharmaceutical products initially developed is approved for sale. Even if
products are approved for sale, there can be no assurance that they will be
commercially successful. The Company or Genta Jago may encounter unanticipated
problems relating to development, manufacturing, distribution and marketing,
some of which may be beyond the Company's or Genta Jago's respective financial
and technical capacity to solve. The failure to address such problems adequately
could have a material adverse effect on the Company's or Genta Jago's respective
businesses, financial conditions, prospects and results of operations. No
assurance can be given that the Company or Genta Jago will succeed in the
development and marketing of any new drug products, or that they will not be
rendered obsolete by products of competitors. "See "Certain Trends and
Uncertainties--Potential Adverse Effect of Technological Change and
Competition."
Difficult Manufacturing Process; Access to Certain Raw Materials.
The manufacture of Anticode(TM) oligonucleotides is a time-consuming and
complex process. Management believes that the Company has the ability to acquire
or produce quantities of oligonucleotides sufficient to support its present
needs for research and its projected needs for its initial clinical development
programs. However, in order to obtain oligonucleotides sufficient to meet the
volume and cost requirements needed for certain commercial applications of
Anticode(TM) oligonucleotide products, the Company requires raw materials
currently provided by a single supplier which is itself a development stage
biotechnology company (and a competitor of the Company) and is subject to
uncertainties including the potential for a decision by such supplier to
discontinue production of such raw materials, the insolvency of such supplier,
or the failure of such supplier to follow applicable regulatory guidelines.
Products based on chemically modified oligonucleotides have never been
manufactured on a commercial scale. The manufacture of all of the Company's and
Genta Jago's products will be subject to current GMP requirements prescribed by
the FDA or other standards prescribed by the appropriate regulatory agency in
the country of use. There can be no assurance that the Company or Genta Jago
will be able to manufacture products, or have products manufactured for it, in a
timely fashion at acceptable quality and prices, that they or third party
manufacturers can comply with GMP or that they or third party manufacturers will
be able to manufacture an
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adequate supply of product. Failure to establish compliance with GMP to the
satisfaction of the FDA can result in delays in, or prohibition from, initiating
clinical trials or commercial marketing of a product.
Limited Sales, Marketing and Distribution Experience.
The Company and Genta Jago have very limited experience in pharmaceutical
sales, marketing and distribution. In order to market and sell certain products
directly, the Company or Genta Jago would have to develop or subcontract a sales
force and a marketing group with technical expertise. There can be no assurance
that any direct sales or marketing efforts would be successful.
Uncertainty of Product Pricing, Reimbursement and Related Matters.
The Company's and Genta Jago's business may be materially adversely
affected by the continuing efforts of governmental and third party payers to
contain or reduce the costs of healthcare through various means. For example, in
certain foreign markets the pricing or profitability of healthcare products is
subject to government control. In the United States, there have been, and the
Company expects that there will continue to be, a number of federal and state
proposals to implement similar governmental control. While the Company cannot
predict whether any such legislative or regulatory proposals or reforms will be
adopted, the adoption of any such proposal or reform could adversely affect the
commercial viability of the Company's and Genta Jago's potential products. In
addition, in both the United States and elsewhere, sales of healthcare products
are dependent in part on the availability of reimbursement to the consumer from
third party payers, such as government and private insurance plans. Third party
payers are increasingly challenging the prices charged for medical products and
services, and therefore significant uncertainty exists as to the reimbursement
of existing and newly-approved healthcare products. If the Company or Genta Jago
succeeds in bringing one or more products to market, there can be no assurance
that these products will be considered cost effective and that reimbursement to
the consumer will be available or will be sufficient to allow the Company or
Genta Jago to sell its products on a competitive basis. Finally, given the above
potential market constraints on pricing, the availability of competitive
products in these markets may further limit the Company's and Genta Jago's
flexibility in pricing and in obtaining adequate reimbursement for its potential
products. See "Certain Trends and Uncertainties--Potential Adverse Effect of
Technological Change and Competition."
Need for and Dependence on Qualified Personnel.
The Company's success is highly dependent on the hiring and retention of
key personnel and scientific staff. The loss of key personnel or the failure to
recruit necessary additional personnel or both is likely further to impede the
achievement of development objectives. There is intense competition for
qualified personnel in the areas of the Company's activities, and there can be
no assurance that the Company will be able to attract and retain the qualified
personnel necessary for the development of its business.
Product Liability Exposure; Limited Insurance Coverage.
The Company's, JBL's and Genta Jago's businesses expose them to potential
product liability risks that are inherent in the testing, manufacturing,
marketing and sale of human therapeutic products. The Company has also obtained
a level of liability insurance coverage that it deems appropriate for its
current stage of development. However, there can be no assurance that the
Company's present insurance coverage is adequate. Such existing coverage may not
be adequate as the Company further develops products, and no assurance can be
given that, in the future, adequate insurance coverage will be available in
sufficient amounts or at a reasonable cost, or that a product liability claim
would not have a material adverse effect on the business or financial condition
of the Company.
Hazardous Materials; Environmental Matters.
The Company's research and development and manufacturing processes involve
the controlled storage, use and disposal of hazardous materials, biological
hazardous materials and radioactive compounds. The Company is
19
<PAGE>
subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by such
laws and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company may be held liable for any damages that result, and any such liability
could exceed the resources of the Company. There can be no assurance that the
Company will not be required to incur significant costs to comply with
environmental laws and regulations in the future, nor that the operations,
business or assets of the Company will not be materially adversely affected by
current or future environmental laws or regulations. See "Certain Trends and
Uncertainties--No Assurance of Regulatory Approval; Government Regulation" for a
discussion of the Spill.
Volatility of Stock Price; Market Overhang from Outstanding Convertible
Securities and Warrants.
The market price of the Company's Common Stock, like that of the common
stock of many other biopharmaceutical companies, has been highly volatile and
may be so in the future. Factors such as, among other things, the results of
pre-clinical studies and clinical trials by the Company, Genta Jago or their
competitors, other evidence of the safety or efficacy of products of the
Company, Genta Jago or their competitors, announcements of technological
innovations or new therapeutic products by the Company, Genta Jago or their
competitors, governmental regulation, developments in patent or other
proprietary rights of the Company, Genta Jago or their respective competitors,
including litigation, fluctuations in the Company's operating results, and
market conditions for biopharmaceutical stocks in general could have a
significant impact on the future price of the Common Stock. As of May 3, 1999,
the Company had 15,401,275 shares of Common Stock outstanding. Future sales of
shares of Common Stock by existing stockholders, holders of preferred stock who
might convert such preferred stock into Common Stock, and option and warrant
holders also could adversely affect the market price of the Common Stock.
No predictions can be made of the effect that future market sales of the
shares of Common Stock underlying the convertible securities and warrants
referred to under the caption "Certain Trends and Uncertainties--Subordination
of Common Stock to Series A Preferred Stock and Series D Preferred Stock; Risk
of Dilution; Anti-dilution Adjustments," or the availability of such securities
for sale, will have on the market price of the Common Stock prevailing from time
to time. Sales of substantial amounts of Common Stock, or the perception that
such sales might occur, could adversely affect prevailing market prices.
Certain Interlocking Relationships; Potential Conflicts of Interest.
The Aries Funds have the contractual right to appoint a majority of the
members of the Board of Directors of the Company. The Aries Funds have
designated Michael S. Weiss, Glenn L. Cooper, M.D., Donald G. Drapkin, Bobby W.
Sandage, Jr., Ph.D., and Andrew J. Stein as nominees to the Board of Directors.
Such persons were elected as Directors of the Company. Paramount Capital Asset
Management, Inc. ("PCAM") is the investment manager and general partner of The
Aries Trust and the Aries Domestic Fund, L.P., respectively. The Aries Funds
have the present right to convert and exercise their securities into a
significant portion of the outstanding Common Stock. See "Certain Trends and
Uncertainties--Concentration of Ownership and Control" below. Dr. Lindsay A.
Rosenwald, the President and sole stockholder of PCAM, is also the President of
Paramount Capital, Inc. and of Paramount Capital Investments LLC ("PCI"), a New
York-based merchant banking and venture capital firm specializing in
biotechnology companies. In the regular course of its business, PCI identifies,
evaluates and pursues investment opportunities in biomedical and pharmaceutical
products, technologies and companies. Generally, Delaware corporate law requires
that any transactions between the Company and any of its affiliates be on terms
that, when taken as a whole, are substantially as favorable to the Company as
those then reasonably obtainable from a person who is not an affiliate in an
arms-length transaction. Nevertheless, neither such affiliates nor PCI is
obligated pursuant to any agreement or understanding with the Company to make
any additional products or technologies available to the Company, nor can there
be any assurance, and the Company does not expect and investors in the Company
should not expect, that any biomedical or pharmaceutical product or technology
identified by such affiliates or PCI in the future will be made available to the
Company. In addition, certain of the current officers and directors of the
Company or certain of any officers or directors of the Company hereafter
appointed may from time to time serve as officers or directors of other
20
<PAGE>
biopharmaceutical or biotechnology companies. There can be no assurance that
such other companies will not have interests in conflict with those of the
Company.
Concentration of Ownership and Control.
The Company's directors, executive officers and principal stockholders and
certain of their affiliates have the ability to influence the election of the
Company's directors and most other stockholder actions. See "Certain Trends and
Uncertainties--Certain Interlocking Relationships; Potential Conflicts of
Interest." Accordingly, the Aries Funds have the ability to exert significant
influence over the election of the Company's Board of Directors and other
matters submitted to the Company's stockholders for approval. These arrangements
may discourage or prevent any proposed takeover of the Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over the then current market prices. Such stockholders may influence
corporate actions, including influencing elections of directors and significant
corporate events. See also "Certain Trends and Uncertainties--Effect of Certain
Anti-Takeover Provisions" below.
Effect of Certain Anti-Takeover Provisions.
The Company's Restated Certificate of Incorporation and By-laws include
provisions that could discourage potential takeover attempts and make attempts
by stockholders to change management more difficult. The approval of 66-2/3% of
the Company's voting stock is required to approve certain transactions and to
take certain stockholder actions, including the amendment of the By-laws and the
amendment, if any, of the anti-takeover provisions contained in the Company's
Restated Certificate of Incorporation.
Risks of Low-Priced Stock; Possible Effect of "Penny Stock" Rules on Liquidity
for the Company's Securities.
If the Company's securities were not listed on a national securities
exchange nor listed on a qualified automated quotation system, they may become
subject to Rule 15g-9 under the Exchange Act, which imposes additional sales
practice requirements on broker-dealers that sell such securities to persons
other than established customers and "accredited investors" (generally,
individuals with a net worth in excess of $1,000,000 or annual incomes exceeding
$200,000 or $300,000 together with their spouses). Rule 15g-9 defines "penny
stock" to be any equity security that has a market price (as therein defined) of
less than $5.00 per share or an exercise price of less than $5.00 per share,
subject to certain exceptions including (i) the securities being quoted on the
Nasdaq National Market or SmallCap Market and (ii) the securities' issuer having
net tangible assets in excess of $2,000,000 and having been in continuous
operation for at least three years (both exceptions enumerated above are
currently met by the Company). For transactions covered by Rule 15g-9, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. For any transaction involving a penny stock, unless exempt, the rules
require delivery, prior to any transaction in a penny stock, of a disclosure
schedule prepared by the SEC relating to the penny stock market. Disclosure is
also required to be made about sales commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stock. Consequently, such Rule may affect the
ability of broker-dealers to sell the Company's securities and may affect the
ability of purchasers to sell any of the Company's securities in the secondary
market.
There can be no assurance that the Company's securities will continue to
qualify for exemption from the penny stock restrictions. In any event, even if
the Company's securities are exempt from such restrictions, the Company would
remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the
authority to restrict any person from participating in a distribution of penny
stock, if the SEC finds that such a restriction would be in the public interest.
If the Company's securities were subject to the rules on penny stocks, the
market liquidity for the Company's securities could be materially adversely
affected.
21
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 4, 1998, the Company's statutory process agent received a Summons
and Complaint in a lawsuit brought by Johns Hopkins against the Company in
Maryland Circuit Court for Baltimore City (Case No. 98120110). Johns Hopkins
alleges in the Complaint that the Company has breached the Johns Hopkins
Agreement and owes it licensing royalty fees and related expenses in the amount
of $308,832. Johns Hopkins also alleges the existence of a separate March 1993
letter agreement wherein the Company agreed to support a fellowship program at
the Johns Hopkins School of Hygiene and Public Health and the Company's breach
thereof, with damages of $326,829. On August 10, 1998, the Company's statutory
process agent received a Summons and Complaint in a related lawsuit brought by
the Ts'o/Miller Partnership and others against the Company in the same court
(Case No. 98182113). The Ts'o/Miller Partnership claims that it is owed
licensing royalty fees in the amount of $287,671. The Company is currently in
settlement negotiations. The Company believes that no further accrual should be
necessary in connection with this settlement.
In October 1996, JBL retained a chemical consulting firm to advise it with
respect to an incident of soil and groundwater contamination (the "Spill").
Sampling conducted at the JBL facility revealed the presence of chloroform and
perchloroethylenes ("PCEs") in the soil and groundwater at this site. A
quarterly groundwater monitoring program is being conducted, under the
supervision of the California Regional Water Quality Control Board, for purposes
of determining whether the levels of chloroform and PCEs have decreased over
time. The results of the latest sampling conducted show that PCEs and chloroform
have decreased in all but one of the monitoring sites. The Company has agreed to
indemnify Promega in respect of this matter. The Company believes that any costs
stemming from further investigating or remediating this contamination will not
have a material adverse effect on the business of the Company, although there
can be no assurance thereof.
JBL received notice on October 16, 1998 from Region IX of the Environmental
Protection Agency ("EPA") that it had been identified as a potentially
responsible party ("PRP") at the Casmalia Disposal Site, which is located in
Santa Barbara, California. JBL has been designated as a de minimis PRP by the
EPA. The EPA currently estimates that the de minimis PRPs will be required to
pay as little as $75,000 and as much as $750,000 to settle their potential
liability, depending upon the volume of wastes attributed to them. The Company
received an estimated volume calculation from the EPA, and a response, which is
due on June 9, 1999, is currently under review. While the terms of the
settlement with the EPA have not been finalized, they should contain standard
contribution protection and release language. The Company has accrued $75,000
during 1998. The Company believes that any costs stemming from further
investigating or remediating this contamination will not have a material adverse
effect on the business of the Company, although there can be no assurance
thereof. The Company has agreed to indemnify Promega in respect of this matter.
22
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number Description of Document
- ------ -----------------------
10.1 Sublease, dated as of March 31, 1999, between Interneuron
Pharmaceuticals, Inc. and the Company
10.2 Asset Purchase Agreement, dated as of March 19, 1999, among JBL
Acquisition Corp., Promega Corporation, JBL Scientific, Inc. and the
Company
27 Financial Data Schedule
(b) Reports on Form 8-K.
(i) A Current Report on Form 8-K was filed by the Company on January 6, 1999
regarding a settlement with LBC Capital Resources, Inc.
(ii) A Current Report on Form 8-K was filed on February 10, 1999 regarding the
engagement of Deloitte & Touche LLP as the Company's principal independent
accountant.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENTA INCORPORATED
(Registrant)
By: /s/ Kenneth G. Kasses, Ph.D.
---------------------------------
Name: Kenneth G. Kasses, Ph.D.
Title: Chairman of the Board of Directors,
President, Principal Executive Officer
By: /s/ Gerald M. Schimmoeller
---------------------------------
Name: Gerald M. Schimmoeller
Title: Vice President, Chief Financial Officer
and Principal Accounting Officer
Date: May 15, 1999
24
Exhibit 10.1
AGREEMENT OF SUBLEASE
between
INTERNEURON PHARMACEUTICALS, INC., Sublandlord
and
GENTA, INC., Subtenant
Dated: March 31, 1999
PREMISES:
Portions of 200 Level
Ledgemont Development Center
128 Spring Street
Lexington, Massachusetts
<PAGE>
SUBLEASE BETWEEN
INTERNEURON PHARMACEUTICALS, INC., SUBLANDLORD
AND
GENTA, INC., SUBTENANT
SUBLEASE made as of the 31st day of March, 1999 by and between
INTERNEURON PHARMACEUTICALS, INC., a Delaware corporation, having an office at
99 Hayden Avenue, Lexington, Massachusetts 02173 (hereinafter called
"Sublandlord"), and GENTA, INC., a Delaware corporation, having an office at 99
Hayden Avenue, Lexington, Massachusetts 02173 (hereinafter called "Subtenant").
W I T N E S S E T H
WHEREAS:
A. By lease dated February 5, 1997, as amended by that certain Side
Agreement regarding indoor air quality dated January 31, 1997 and that certain
First Amendment to Lease dated February 12, 1997 (the "First Amendment") (which
lease, as the same has been and may hereafter be further amended, is hereinafter
referred to as the "Overlease"), Ledgemont Realty Trust u/d/t dated December 12,
1984 (hereinafter called "Overlandlord") leased to Sublandlord certain space
(hereinafter called the "Leased Space") in the building known as Ledgemont
Development Center located at 128 Spring Street, Lexington, Massachusetts
<PAGE>
(hereinafter called the "Building") in accordance with the terms of the
Overlease. A copy of the Overlease is annexed hereto as Exhibit A.
B. Sublandlord and Subtenant desire to consummate a subleasing of a
portion of the Leased Space on terms and conditions contained in this agreement
(hereinafter called the "Sublease").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, it is hereby agreed as follows:
l.
1.1. Sublandlord hereby leases to Subtenant and Subtenant hereby hires
from Sublandlord the portion of the 200 level of the East Wing of the Building
(comprising a portion of the Leased Space) shown hatched on Exhibit B annexed
hereto and made a part hereof (hereinafter referred to as the "Premises"), for a
term (the "Sublease Term") to commence on the date that Sublandlord delivers
possession of the Premises to Subtenant (hereinafter called the "Sublease
Commencement Date"), and to end on March 31, 2001 (hereinafter called the
"Sublease Expiration Date"), or until such term shall sooner cease and terminate
as herein provided.
1.2. The annual fixed rent (hereinafter called "Fixed Rent") payable by
Subtenant hereunder during the Sublease Term shall be paid to Sublandlord at the
rate of FORTY-THREE THOUSAND FOUR HUNDRED FIFTY FOUR AND 26/100 ($43,454.26)
DOLLARS per annum during the period commencing on the Sublease Commencement Date
and ending on the Sublease Expiration Date. The Fixed Rent is to be paid by
Subtenant to Sublandlord at Sublandlord's office (or such other location as
Sublandlord shall designate) by
2
<PAGE>
check drawn on a Massachusetts bank in equal monthly installments in advance, on
the first day of each month during the Sublease Term without any set-off,
off-set, abatement or reduction whatsoever. The security deposit payable with
respect to Article 19 hereof shall be paid upon the execution of this Sublease
by Subtenant.
1.3. Simultaneous with the execution of this Sublease, Subtenant is
paying to Sublandlord the sum of $6,174.77 which shall be applied by Sublandlord
to the first (1st) monthly installment of Fixed Rent due hereunder.
1.4. Sublandlord and Subtenant agree to the following with respect to
Subtenant's use of services within and access to the Premises:
(a) Subtenant may use: (i) the kitchen/lounge, (ii) the exercise
facilities, provided and on condition that each of Subtenant's employees
utilizing such exercise facilities furnishes Sublandlord with a written waiver
of liability, satisfactory to Sublandlord, and (iii) either of the front
training rooms (A or B), provided that Subtenant's employees shall not be
entitled to use both front training rooms at the same time and provided further
that any such use shall be subject to unavailability, including, without
limitation, unavailability resulting from Sublandlord's employees priority
status with respect to access to and use of the same.
(b) Subtenant may utilize the administrative services of Richard Hector
or any employee hereafter substituted by Sublandlord for Richard Hector, to the
extent available and provided that all use of such administrative services shall
first be approved by Sublandlord's office manager. Subtenant shall be billed
from time to time for all such administrative services in excess of one hour per
month at the hourly rate of $40.00, which Subtenant shall pay as additional rent
within ten (10) days after being billed therefor.
3
<PAGE>
2.
2.1. Subtenant shall not (a) assign this Sublease, nor (b) permit this
Sublease to be assigned by operation of law or otherwise, nor (c) underlet all
or any part of the Premises, nor (d) permit the Premises or any desk space
therein to be occupied by any person(s) other than Subtenant, nor (e) pledge or
encumber this Sublease, the term and estate hereby granted or the rentals
hereunder.
3.
3.1. Except as herein otherwise expressly provided and except for the
obligation to pay rent and additional rent under the Overlease, all of the
terms, covenants, conditions and provisions in the Overlease are hereby
incorporated in, and made a part of this Sublease, and such rights and
obligations as are contained in the Overlease are hereby imposed upon the
respective parties hereto; the Sublandlord herein being substituted for the
Landlord in the Overlease, and the Subtenant herein being substituted for the
Tenant named in the Overlease; provided, however, that the Sublandlord herein
shall not be liable for any defaults by Overlandlord. If the Overlease shall be
terminated for any reason during the term hereof, then and in that event this
Sublease shall thereupon automatically terminate and Sublandlord shall have no
liability to Subtenant by reason thereof. Upon the termination of this Sublease,
whether by forfeiture, lapse of time or otherwise, or upon the termination of
Subtenant's right to possession, Subtenant will at once surrender and deliver up
the Premises in good condition and repair, reasonable wear and tear excepted.
Notwithstanding any language to the contrary contained in this Sublease,
Subtenant agrees that Sublandlord may at any time after the date hereof
surrender the Overlease and the premises demised thereunder to Overlandlord,
provided
4
<PAGE>
Overlandlord shall deliver a written agreement to Subtenant providing that
notwithstanding such surrender Overlandlord shall not disturb Subtenant's
occupancy of the Premises so long as Subtenant is not in default hereunder if
Subtenant shall at Overlandlord's election either (i) attorn to Overlandlord as
if Overlandlord were the sublandlord hereunder or (ii) enter into a lease with
Overlandlord for the remaining term of the Sublease on the same terms and
conditions contained herein.
3.2. For purposes of this Sublease, the second paragraph of Section
2.1, Sections 2.3, 2.5, 2.6, 2.7, 2.8, 3.1, 4.1.1, 4.1.2, the second sentence of
Section 5.1.9, Sections 5.1.11, 5.2.3, 8.1, 9.1, Appendix A, Appendix E, and
Paragraphs 1 and 2 of the First Amendment, and all references in the Overlease
to the aforesaid Articles, Sections or Appendices of the Overlease between
Overlandlord and Sublandlord shall not be incorporated in or made a part hereof.
In addition, for the purposes of this Sublease, Article 1 of the Overlease is
incorporated only to the extent the definitions contained therein are consistent
with the terms hereof (i.e., references to Premises, Landlord, Tenant, Initial
Term, Commencement Date, Rent Commencement Date, Ending Date, Annual Fixed
Rent-Initial Term, Extension Term, Annual Fixed Rent-Extension Term, Tenant
Improvement Allowance, Parking Spaces, Tenant's Operating Percentage Share,
Tenant's Tax Percentage Share and Broker are not applicable to this Sublease),
and Sections 4.3.1, 4.3.2, 4.4.1, and 4.4.2 of the Overlease are incorporated
herein only for the purposes of Article 11 of this Sublease.
4.
4.1. Subtenant has examined the Premises, is aware of the physical
condition thereof, and agrees to take the same "as is," with the understanding
that there shall be no
5
<PAGE>
obligation on the part of Sublandlord to perform any work, supply any materials
or incur any expense whatsoever in connection with the preparation of the
Premises for Subtenant's occupancy thereof.
4.2. Subtenant shall pay to Sublandlord upon demand therefor as
additional rent all costs incurred by Sublandlord in making the Premises
available to the Subtenant, including, but not limited to costs to move
Sublandlord's furniture, fixtures, computer and communications connections from
the Premises and relocate and reinstall the same elsewhere. Upon termination of
the Sublease, Subtenant shall pay to Sublandlord upon demand therefor all costs
incurred by Sublandlord to restore the Premises to the condition as the same
were prior to Subtenant's occupation thereof pursuant to this Sublease and all
costs incurred by Sublandlord to move its furniture, fixtures, computer and
communications connections back to and reinstall the same in the Premises to the
extent they existed prior to this Sublease.
5.
5.1. Subtenant agrees that the Premises shall be occupied only as
executive, administrative and general offices for Subtenant's business. 6.
6.1. This Sublease is conditioned upon the consent by Overlandlord to
this Sublease which consent shall be evidenced by Overlandlord's signature
appended hereto or a separate consent in the form utilized by Overlandlord for
such purposes.
6.2. Subtenant stipulates that it is familiar with the provisions of
Section 5.1.11 of the Overlease. In the event that Overlandlord shall exercise
any of its options pursuant to Section 5.1.11 of the Overlease with respect to
the Premises upon Sublandlord's request for
6
<PAGE>
Overlandlord's consent to this Sublease, Sublandlord will so notify Subtenant
and, upon receipt of such notification by Sublandlord, this Sublease shall be
deemed to be null and void and without force or effect, and Sublandlord and
Subtenant shall have no further obligations or liabilities to the other with
respect to this Sublease.
6.3. In the event Overlandlord shall not exercise any of its options
pursuant to Section 5.1.11 of the Overlease with respect to the Premises,
Sublandlord makes no representation with respect to obtaining Overlandlord's
approval of this Sublease and, in the event that Overlandlord notifies
Sublandlord that Overlandlord will not give such approval, Sublandlord will so
notify Subtenant and, upon receipt of such notification by Sublandlord of the
disapproval by Overlandlord, this Sublease shall be deemed to be null and void
and without force or effect, and Sublandlord and Subtenant shall have no further
obligations or liabilities to the other with respect to this Sublease.
6.4. Except as otherwise specifically provided herein, wherever in this
Sublease Subtenant is required to obtain Sublandlord's consent or approval,
Subtenant understands that Sublandlord may be required to first obtain the
consent or approval of Overlandlord. If Overlandlord should refuse such consent
or approval, Sublandlord shall be released of any obligation to grant its
consent or approval whether or not Overlandlord's refusal, in Subtenant's
opinion, is arbitrary or unreasonable. Subtenant agrees that Sublandlord shall
not be required to dispute any determinations or other assertions or claims of
Overlandlord regarding the obligations of Sublandlord under the Overlease for
which Subtenant is or may be responsible under the terms of this Sublease.
7.
7
<PAGE>
7.1. Subtenant acknowledges that all services, repairs, restorations,
equipment and access to and for the Premises and any insurance coverage of the
Building will in fact be provided by Overlandlord, and Sublandlord shall have no
obligation during the term of this Sublease to provide any such services,
repairs, restorations, equipment, access or insurance. Subtenant agrees to look
solely to Overlandlord for the furnishing of such services, repairs,
restorations, equipment, access and insurance. Sublandlord shall in no event be
liable to Subtenant nor shall the obligations of Subtenant hereunder be impaired
or the performance thereof excused because of any failure or delay on
Overlandlord's part in furnishing such services, repairs, restorations,
equipment, access or insurance. If Overlandlord shall default in any of its
obligations to Sublandlord with respect to the Premises, Subtenant shall be
entitled to participate with Sublandlord in the enforcement of Sublandlord's
rights against Overlandlord, but Sublandlord shall have no obligation to bring
any action or proceeding or to take any steps to enforce Sublandlord's rights
against Overlandlord. If, after written request from Subtenant, Sublandlord
shall fail or refuse to take appropriate action for the enforcement of
Sublandlord's rights against Overlandlord with respect to the Premises within a
reasonable period of time considering the nature of Overlandlord's default,
Subtenant shall have the right to take such action in its own name, and for that
purpose and only to such extent, all of the rights of Sublandlord under the
Overlease hereby are conferred upon and assigned to Subtenant and Subtenant
hereby is subrogated to such rights to the extent that the same shall apply to
the Premises. If any such action against Overlandlord in Subtenant's name shall
be barred by reason of lack of privity, nonassignability or otherwise, Subtenant
may take such action in Sublandlord's
8
<PAGE>
name provided Subtenant has obtained the prior written consent of Sublandlord,
which consent shall not be unreasonably withheld or delayed, provided, and
Subtenant hereby agrees, that Subtenant shall indemnify and hold Sublandlord
harmless from and against all liability, loss, damage or expense, including,
without limitation, reasonable attorney's fees, which Sublandlord shall suffer
or incur by reason of such action.
7.2. Anything contained in any provisions of this Sublease to the
contrary notwithstanding, Subtenant agrees, with respect to the Premises, to
comply with and remedy any default claimed by Overlandlord and caused by
Subtenant, within the period allowed to Sublandlord as tenant under the
Overlease, even if such time period is shorter than the period otherwise allowed
in the Overlease, due to the fact that notice of default from Sublandlord to
Subtenant is given after the corresponding notice of default from Overlandlord.
Sublandlord agrees to forward to Subtenant, upon receipt thereof by Sublandlord,
a copy of each notice of default received by Sublandlord in its capacity as
tenant under the Overlease. Subtenant agrees to forward to Sublandlord, upon
receipt thereof, copies of any notices received by Subtenant with respect to the
Premises from Overlandlord or from any governmental authorities.
8.
8.1. Sublandlord represents (a) that it is the holder of the interest
of the tenant under the Overlease and (b) that the Overlease is in full force
and effect.
9.
9.1. This Sublease is subject to, and Subtenant accepts this Sublease
subject to, any amendments and supplements to the Overlease hereafter made
between Overlandlord and Sublandlord, provided that any such amendment or
supplement to the Overlease will not prevent
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<PAGE>
or adversely affect the use by Subtenant of the Premises in accordance with the
terms of this Sublease, increase the obligations of Subtenant or decrease its
rights under the Sublease or in any other way materially adversely affect
Subtenant.
9.2. This Sublease is subject and subordinate to the Overlease and to
all ground or underlying leases and to all mortgages which may now or hereafter
affect such leases or the real property of which the Premises are a part and all
renewals, modifications, replacements and extensions of any of the foregoing.
This Section 9.2 shall be self-operative and no further instrument of
subordination shall be required. To confirm such subordination, Subtenant shall
execute promptly any certificate that Sublandlord may request.
10.
10.1. Subtenant covenants, represents and warrants that Subtenant has
had no dealings or communications with any broker or agent in connection with
the consummation of this Sublease, and Subtenant covenants and agrees to pay,
hold harmless and indemnify Sublandlord from and against any and all cost,
expense (including reasonable attorneys' fees) or liability for any
compensation, commissions or charges claimed by any broker or agent with respect
to this Sublease or the negotiation thereof.
11.
11.1. Subtenant stipulates that it is familiar with the provisions of
Sections 4.3.1. and 4.3.2. of the Overlease. In the event of any payment of
additional rent by Sublandlord to Overlandlord during the term of this Sublease
which is attributable to the provisions of Sections 4.3.1. and 4.3.2. of the
Overlease (such additional rent payable by Sublandlord pursuant to Sections
4.3.1. and 4.3.2. of the Overlease being hereinafter called "Section 4.3 Rent"),
then
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Subtenant shall pay as additional rent pursuant to this Sublease an amount equal
to 1.248% of the Section 4.3 Rent. For purposes of this Section 11.1 of this
Sublease, the Premises shall be deemed to contain approximately 2,276 rentable
square feet and the Leased Space shall be deemed to contain 182,317 square feet.
At such time as the Section 4.3 Rent payable by Sublandlord is adjusted by
reason of any change in the rentable area of the Leased Space, the percentage
thereof payable by Subtenant to Sublandlord shall be similarly adjusted. At any
time after payment by Sublandlord to Overlandlord of any Section 4.3 Rent,
Sublandlord may deliver to Subtenant a statement with respect to the payment of
the Section 4.3 Rent and, within ten (10) days after delivery of such statement,
Subtenant shall pay to Sublandlord additional rent determined as aforesaid in
this Section 11.1. Additional rent payable pursuant to this Section 11.1 shall
be based solely upon actual payments made by Sublandlord pursuant to the
provisions of Sections 4.3.1. and 4.3.2. of the Overlease. Subtenant shall not
have the right to question the propriety of or the basis for any such payment
and Sublandlord shall be under no obligation to contest any such payment.
Sublandlord shall, however, at the written request of Subtenant, furnish to
Subtenant evidence of such payment.
11.2. Subtenant stipulates that it is familiar with the provisions of
Sections 4.4.1. and 4.4.2. of the Overlease. In the event of any payment of
additional rent by Sublandlord to Overlandlord during the term of this Sublease
which is attributable to the provisions of Sections 4.4.1. and 4.4.2. of the
Overlease (such additional rent payable by Sublandlord pursuant to Sections
4.4.1. and 4.4.2. of the Overlease being hereinafter called "Section 4.4 Rent"),
then Subtenant shall pay as additional rent pursuant to this Sublease an amount
equal to 4.473% of the Section 4.4 Rent. For purposes of this Section 11.2 of
this Sublease, the Premises shall be
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deemed to contain approximately 2,276 rentable square feet and the Leased Space
shall be deemed to contain 50,883 square feet. At such time as the Section 4.4
Rent payable by Sublandlord is adjusted by reason of any change in the rentable
area of the Leased Space, the percentage thereof payable by Subtenant to
Sublandlord shall be similarly adjusted. At any time after payment by
Sublandlord to Overlandlord of any Section 4.4 Rent, Sublandlord may deliver to
Subtenant a statement with respect to the payment of the Section 4.4 Rent and,
within ten (10) days after delivery of such statement, Subtenant shall pay to
Sublandlord additional rent determined as aforesaid in this Section 11.2.
Additional rent payable pursuant to this Section 11.2 shall be based solely upon
actual payments made by Sublandlord pursuant to the provisions of Sections
4.4.1. and 4.4.2. of the Overlease. Subtenant shall not have the right to
question the propriety of or the basis for any such payment and Sublandlord
shall be under no obligation to contest any such payment. Sublandlord shall,
however, at the written request of Subtenant, furnish to Subtenant evidence of
such payment.
11.3. Subtenant shall also pay to Sublandlord any "Tenant Surcharges"
(as that term is hereinafter defined). "Tenant Surcharges" shall mean any and
all amounts other than Fixed Rent, Section 4.3 Rent and Section 4.4 Rent which,
by the terms of the Overlease, become due and payable by Sublandlord to
Overlandlord as additional rent or otherwise and which would not have become due
and payable but for the acts, requests for services, and/or failures to act of
Subtenant, its agents, officers, representatives, employees, servants,
contractors, invitees, licensees or visitors under this Sublease, including, but
not limited to: (i) any increases in Overlandlord's fire, rent or other
insurance premiums, as provided in Article 6 of the Overlease, resulting from
any act or omission of Subtenant, (ii) any additional charges to Sublandlord on
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account of Subtenant's use of heating, ventilation or air conditioning after
hours, (iii) any charges which may be imposed on Sublandlord pursuant to the
Overlease, to the extent that such charges are attributable to the Premises or
the use thereof or services or utilities provided thereto, and (iv) any
additional charges to Subtenant on account of Subtenant's use of cleaning and
elevator services after hours or in excess of normal usage. Within a reasonable
time after receipt by Sublandlord of any statement or written demand from
Overlandlord, including any Tenant Surcharges, Sublandlord will furnish
Subtenant with a copy of such statement or demand, together with Sublandlord's
statement of the amount of any such Tenant Surcharges, and Subtenant shall pay
to Sublandlord the amount of such Tenant Surcharges within five (5) days after
Subtenant's receipt of such statement or demand; provided, however, that in any
instance in which Subtenant shall receive any such statement or demand directly
from Overlandlord, Subtenant may pay the amount of the same directly to
Overlandlord. Payments shall be made pursuant to this Section 11.3
notwithstanding the fact that the statement to be provided by Sublandlord is
furnished to Subtenant after the expiration of the term of this Sublease and
notwithstanding the fact that by its terms this Sublease shall have expired or
have been cancelled or terminated.
12.
12.1. Any notice, demand or communication which, under the terms of
this Sublease or under any statute or municipal regulation must or may be given
or made by the parties hereto, shall be in writing and given or made by mailing
the same by registered or certified mail, return receipt requested, addressed to
the party for whom intended at its address as aforesaid, except that, after the
Sublease Commencement Date, Subtenant's address shall be
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deemed to be the Building unless Subtenant shall give notice to the contrary.
Either party, however, may designate such new or other address to which such
notices, demands or communications thereafter shall be given, made or mailed by
notice given in the manner prescribed herein. Any such notice, demand or
communication shall be deemed given or served, as the case may be, on the date
of the posting thereof.
13.
13.1. Subtenant shall pay to Sublandlord 4.473% of the charges payable
under Section 5.2.2 of the Overlease for electricity.
13.2. Subtenant's use of electric current in the Premises shall not at
any time exceed the capacity of any of the electrical conductors and equipment
in or otherwise serving the Premises.
13.3. Sublandlord shall not be liable in any way to Subtenant for any
failure or defect in the supply or character of electric energy furnished to the
Premises by reason of any requirement, act or omission of the public utility
serving the Building with electricity or for any other reason not attributable
to Sublandlord.
14.
14.1. Subtenant may make no changes, alterations, additions,
improvements or decorations in, to or about the Premises without Overlandlord's
and Sublandlord's prior written consent.
15.
15.1. Subtenant agrees to look solely to Sublandlord's estate and
interest in this Sublease, and the Premises, for the satisfaction of any right
or remedy of Subtenant for the
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<PAGE>
collection of a judgment (or other judicial process) requiring the payment of
money by Sublandlord, in the event of any liability by Sublandlord, and no other
property or assets of Sublandlord shall be subject to levy, execution,
attachment, or other enforcement procedure for the satisfaction of Subtenant's
remedies under or with respect to this Sublease, the relationship of Sublandlord
and Subtenant hereunder, or Subtenant's use and occupancy of the Premises, or
any other liability of Sublandlord to Subtenant.
16.
16.1. So long as Subtenant pays all of the Fixed Rent and additional
rent due under this Sublease and performs all of Subtenant's other obligations
hereunder, Sublandlord shall not disturb or terminate Subtenant's leasehold
estate hereunder, subject, however, to the terms, provisions and obligations of
this Sublease and the Overlease.
17.
17.1. This Sublease may not be changed orally, but only by an agreement
in writing signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
17.2. This Sublease shall not be binding upon Sublandlord unless and
until it is signed by Sublandlord and delivered to Subtenant. This Section 17.2
shall not be deemed to modify the provisions of Article 6 hereof.
17.3. This Sublease constitutes the entire agreement between the
parties and all representations and understandings have been merged herein.
17.4. This Sublease shall inure to the benefit of all of the parties
hereto, their successors and (subject to the provisions hereof) their assigns.
15
<PAGE>
17.5. The term "Sublandlord" as used in this Sublease shall mean only
the Sublandlord named herein, so that in the event of any assignment of the
Sublease, the Sublandlord named herein shall be and hereby is entirely freed and
relieved of all future covenants, obligations and liabilities of Sublandlord
hereunder, and it shall be deemed and construed without further agreement
between the parties or their successors in interest that the assignee of the
Sublease has assumed and agreed to carry out any and all such covenants,
obligations and liabilities of Sublandlord hereunder.
18.
18.1. Subject to the Sublease Expiration Date set forth in Section 1.1
hereof, either Sublandlord or Subtenant may elect, at its option, to terminate
this Sublease and the term and estate hereby granted, by written notice of such
termination (hereinafter called the "Sublease Termination Notice") to the other
party, which Sublease Termination Notice shall contain a surrender date (such
date being hereinafter called the "Sublease Surrender Date"), which Sublease
Surrender Date shall be the last day of the month designated in the Sublease
Termination Notice which shall be not less than six (6) months following the
date on which such Sublease Termination Notice is given.
18.2. In the event of the giving of such Sublease Termination Notice by
either Sublandlord or Subtenant, this Sublease and the term and estate hereby
granted (unless the same shall have expired sooner pursuant to any of the
conditions of limitation or other provisions of this Sublease or pursuant to
law) shall terminate on the Sublease Surrender Date with the same effect as if
such date were the date hereinbefore specified for the expiration of the term of
this
16
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Sublease, and the Fixed Rent and other charges payable hereunder shall be
apportioned as of the Sublease Surrender Date.
19.
19.1. Subtenant has deposited with Sublandlord on the date hereof an
amount equal to $6,174.77 as security for the faithful performance and
observance by Subtenant of the terms, provisions, covenants and conditions of
this Sublease. It is agreed that in the event Subtenant defaults in respect to
any of the terms, provisions, covenants and conditions of this Sublease,
including, but not limited to, the payment of Fixed Rent and additional rent,
Sublandlord may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any Fixed Rent and
additional rent or any other sum as to which Subtenant is in default or for any
sum which Sublandlord may expend or may be required to expend by reason of
Subtenant's default in respect of any of the terms, provisions, covenants and
conditions of this Sublease, including, but not limited to, any damages or
deficiency accrued before or after summary proceedings or other re-entry by
Sublandlord. In the event that Subtenant shall fully and faithfully comply with
all of the terms, provisions, covenants and conditions of this Sublease, the
security shall be returned to Subtenant after the date fixed as the end of the
Sublease and after delivery of entire possession of the Premises to Sublandlord.
In the event of an assignment of the Sublease, Sublandlord shall have the right
to transfer the security to the assignee and Sublandlord shall ipso facto be
released by Subtenant from all liability for the return of such security; and
Subtenant agrees to look solely to the new sublandlord for the return of said
security; and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the security to a new sublandlord. Subtenant
further covenants that it will
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not assign or encumber or attempt to assign or encumber the monies deposited
herein as security and that neither Sublandlord nor its successors or assigns
shall be bound by any such assignment, encumbrance, attempted assignment or
attempted encumbrance. In the event Sublandlord applies or retains any portion
or all of the security deposited, Subtenant shall restore the amount so applied
or retained within 3 days after the application thereof so that at all times the
amount deposited hereunder shall be equal to the amount set forth above.
19.2. Sublandlord shall deposit the security in an interest-bearing
account at Fleet Bank, and the interest earned thereon, less an administrative
fee of one (1%) percent per annum of principal, shall be credited to Subtenant
annually.
20.
20.1. Sublandlord represents that to the best of its knowledge there
are no Hazardous Materials (as hereinafter defined) within the Premises.
Sublandlord agrees to indemnify and hold Subtenant harmless from any expense
paid or incurred in connection with the investigation, removal, containment,
replacement, enclosure, encapsulation, abatement, remediation or other treatment
or repairs or cleaning of areas (herein collectively called "remediation") in
connection with the presence of Hazardous Materials in the Premises to the
extent that such remediation is made necessary by Sublandlord's use or manner of
use of the Premises and required under Legal Requirements existing as of the
date hereof. For purposes hereof, the term "Hazardous Materials" shall mean any
flammable explosives, radioactive materials, hazardous wastes, hazardous and
toxic substances, or related materials, asbestos or any material containing
asbestos, or any other substance or material, as defined by any federal, state
or local environmental law, ordinance, rule or regulation, including, without
limitation, the
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Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended, the Hazardous Materials Transportation Act, as amended, the Resource
Conservation and Recovery Act, as amended, and in the regulations adopted and
publications promulgated pursuant to each of the foregoing. Hazardous Materials
shall not include normal cleaning and/or normal office substances or materials.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
as of the day and year first above written.
INTERNEURON PHARMACEUTICALS, INC.,
Sublandlord
By: ________________________________
Name:
Title:
GENTA, INC., Subtenant
By: ________________________________
Name:
Title:
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STATE OF MASSACHUSETTS )
: ss.:
COUNTY OF MIDDLESEX )
On the ____ day of April, 1999, before me personally came _______, to
me known, who, being by me duly sworn, did depose and say that he resides in
_______________ ______________; that he is the _________________ of GENTA, INC.,
the corporation described in and which executed the above instrument; and that
he signed his name thereto by order of the board of directors of said
corporation.
____________________________________
Notary Public
20
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EXHIBIT A
Overlease
(Copy of Overlease to be annexed hereto)
<PAGE>
EXHIBIT B
Floor Plan of 200 Premises
(TO BE ATTACHED)
EXECUTION COPY
ASSET PURCHASE AGREEMENT
dated as of March 19, 1999,
by and among
JBL SCIENTIFIC INCORPORATED,
as the Seller,
GENTA INCORPORATED,
as Shareholder and Guarantor,
and
JBL ACQUISITION CORP.,
as the Buyer
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE OF ASSETS.....................................2
1.1 Defined Terms............................................2
1.2 Purchased Assets.........................................2
1.3 Excluded Assets..........................................4
1.4 Closing..................................................5
1.5 Assets Not Assignable....................................5
ARTICLE II PURCHASE PRICE.................................................6
2.1 Payment of the Purchase Price............................6
2.2 Post-Closing Adjustment to Preliminary Purchase Price....6
2.3 Purchase Price Allocation................................8
2.4 Sales and Transfer Taxes.................................8
2.5 Prorations...............................................8
ARTICLE III LIABILITIES...................................................8
3.1 Assumption of Liabilities................................8
3.2 Non-Assumption of Liabilities............................9
3.3 Employee Benefit Plans...................................9
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLER AND SHAREHOLDER..10
4.1 Ownership, Organization and Qualification...............10
4.2 Authorization...........................................10
4.3 Enforceability..........................................10
4.4 Conflicting Obligations.................................10
4.5 Subsidiaries............................................11
4.6 Title to Assets.........................................11
4.7 Third Party Consents....................................11
4.8 Organizational Documents................................11
4.9 Financial Statements....................................11
4.10 Real Property; Leases...................................11
4.11 Personal Property.......................................12
4.12 All Necessary Assets....................................12
4.13 Receivables.............................................12
4.14 Inventories.............................................13
4.15 Intellectual Property...................................13
4.16 Insurance...............................................15
4.17 Permits.................................................15
4.18 Material Contract.......................................16
4.19 Litigation..............................................17
4.20 Compliance With Law.....................................17
4.21 Environmental Matters...................................17
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4.22 Contingent and Undisclosed Liabilities..................18
4.23 Tax Matters.............................................19
4.24 Employees; Labor Matters................................19
4.25 Employee Benefit Plans..................................20
4.26 Products Liability......................................21
4.27 Product Warranty........................................21
4.28 Events Subsequent to Latest Fiscal Year End.............21
4.29 Customers and Suppliers.................................23
4.30 Brokerage...............................................23
4.31 Affiliate Transactions..................................24
4.32 Guaranties..............................................24
4.33 Investment..............................................24
4.34 Commission Filings......................................24
4.35 Amersham Termination....................................25
4.36 Representations and Warranties True and Correct.........25
ARTICLE V REPRESENTATIONS OF THE BUYER...................................25
5.1 Ownership, Organization and Qualification...............25
5.2 Authorization...........................................25
5.3 Enforceability..........................................26
5.4 Conflicting Obligations.................................26
5.5 Litigation..............................................26
5.6 Brokerage...............................................26
ARTICLE VI COVENANTS OF THE SELLER AND THE SHAREHOLDER...................26
6.1 Access..................................................26
6.2 Operation of Business...................................27
6.3 Preservation of Business................................27
6.4 Insurance and Maintenance of Property...................27
6.5 Compliance with Laws....................................27
6.6 Supplemental Disclosure.................................27
6.7 Fulfill Conditions......................................28
6.8 Employees...............................................28
6.9 Release of Liens........................................28
6.10 Change of Corporate Name................................28
6.11 Documents of Transfer...................................28
6.12 Nondisclosure and Noncompetition Agreement..............28
6.13 Other Deliveries........................................28
6.14 Collection of the Receivables...........................29
6.15 Exclusive Dealing.......................................29
6.16 Further Assurances......................................29
6.17 Brokerage...............................................30
6.18 Quality Assurance Agreement.............................30
6.19 Intellectual Property Assignments.......................30
6.20 Lipid License Agreement.................................30
6.21 Biogenex License Agreement..............................30
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6.22 Note....................................................30
6.23 On-Site Contamination...................................31
6.24 The Seller's Welfare Plans..............................31
6.25 The Seller's 401(k) Plan................................31
ARTICLE VII COVENANTS OF THE BUYER.......................................32
7.1 Certified Resolutions...................................32
7.2 Assignment, Bill of Sale and Assumption Agreement.......32
7.3 Nondisclosure and Noncompetition Agreement..............32
7.4 Quality Assurance Agreement.............................32
7.5 Lipid License Agreement.................................32
7.6 Note....................................................32
7.7 Lease...................................................32
7.8 Employees...............................................32
7.9 Preservation of Records.................................33
7.10 Uncollectible Receivables...............................33
7.11 Access to Property......................................33
7.12 The Buyer's 401(k) Plan.................................34
7.13 The Buyer's Welfare Plans...............................34
7.14 Employment Terms and Benefits after the Closing Date....35
7.15 Product Liability Claims................................35
7.16 Minimum Net Book Value..................................35
ARTICLE VIII CONDITIONS OF THE BUYER'S OBLIGATION TO CLOSE...............35
8.1 Representation and Warranties...........................35
8.2 Performance of Covenants and Obligations................36
8.3 Proceedings and Instruments Satisfactory................36
8.4 Adverse Change..........................................36
8.5 No Litigation...........................................36
8.6 Consents, Approvals, Certifications, Licenses
and Permit...........................................36
8.7 Good Standing Certificates..............................36
8.8 Opinion of Counsel......................................36
8.9 Due Diligence...........................................37
8.10 Approval by the Shareholder's Shareholders..............37
8.11 Lease...................................................37
ARTICLE IX CONDITIONS TO THE SELLER'S OBLIGATION TO CLOSE................37
9.1 Representations and Warranties..........................37
9.2 Performance of Covenants and Obligations................37
9.3 Proceedings and Instruments Satisfactory................37
9.4 No Litigation...........................................37
9.5 Opinion of Counsel......................................38
ARTICLE X INDEMNIFICATION BY SELLER AND SHAREHOLDER......................38
10.1 Indemnification.........................................38
10.2 Procedures for Making Claims............................38
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10.3 Participation in Defense of Third Party Claims..........39
10.4 Survival of Representations and Indemnification.........39
10.5 Limitations on Indemnifiable Damages....................40
10.6 Offset..................................................40
10.7 Other Indemnification Provisions........................40
ARTICLE XI INDEMNIFICATION BY BUYER......................................41
11.1 Indemnification.........................................41
11.2 Procedures for Making Claims............................41
11.3 Participation in Defense of Third Party Claims..........42
11.4 Survival of Indemnification.............................42
11.5 Limitations on Indemnifiable Damages....................43
11.6 Offset..................................................43
11.7 Other Indemnification Provisions........................43
ARTICLE XII TERMINATION..................................................44
12.1 Rights to Terminate.....................................44
12.2 Effects of Termination..................................44
ARTICLE XIII GUARANTEE...................................................44
13.1 Guarantee by the Shareholder............................44
13.2 Guarantee by Promega....................................45
ARTICLE XIV DEFINITIONS..................................................45
14.1 Certain Defined Terms...................................45
14.2 Interpretation..........................................53
14.3 Other Terms.............................................53
ARTICLE XV MISCELLANEOUS.................................................53
15.1 Survival of Representations and Warranties..............53
15.2 Benefit and Assignment..................................53
15.3 Governing Law...........................................53
15.4 Expenses................................................53
15.5 Notices.................................................53
15.6 Counterparts............................................54
15.7 Headings................................................54
15.8 Amendment, Modification and Waiver......................54
15.9 Entire Agreement........................................54
15.10 Third-Party Beneficiaries...............................55
15.11 Publicity...............................................55
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<PAGE>
EXHIBITS:
Exhibit A-1 Form of Legal Opinion of Kramer Levin Naftalis & Frankel LLP
Exhibit A-2 Form of Legal Opinion of Sinsheimer, Schiebelhut & Baggett
Exhibit A-3 Form of Legal Opinion of Michael Best & Friedrich LLP
Exhibit B Form of Assignment, Bill of Sale and Assumption Agreement
Exhibit C-1 Form of Seller Intellectual Property Assignment
Exhibit C-2 Form of Shareholder Intellectual Property Assignment
Exhibit D Summary of Lease Terms
Exhibit E Form of Lipid License Agreement
Exhibit F Form of Nondisclosure and Noncompetition Agreement
Exhibit G Form of Note
Exhibit H Form of Quality Assurance Agreement
SCHEDULES:
Schedule 1.2(e) - Real Estate
Schedule 1.2(f) - Equipment
Schedule 1.2(g) - Vehicles
Schedule 1.3(h) - Shareholder Tangible Personal Property
Schedule 1.3(n) - Excluded Assets
Schedule 2.3 - Purchase Price Allocation
Schedule 4.5 - Subsidiaries
Schedule 4.7 - Third Party Consents
Schedule 4.8 - Organization Documents
Schedule 4.9 - Financial Statements
Schedule 4.10(a) - Real Estate
Schedule 4.11 - Personal Property
Schedule 4.13 - Receivables
Schedule 4.15(b) - Infringement of Intellectual Property
Schedule 4.15(c) - Patents
Schedule 4.15(d) - Permits
Schedule 4.15(e) - Misappropriation
Schedule 4.16(a) - Insurance Policies
Schedule 4.16(c) - Insurance Claims
Schedule 4.16(d) - Self-Insurance
Schedule 4.17 - Permits
Schedule 4.18 - Material Contracts and Other Descriptions and Lists
Schedule 4.19 - Litigation
Schedule 4.20 - Compliance With Law
Schedule 4.21(a) - Environmental Compliance
Schedule 4.21(c) - Environmental Litigation
Schedule 4.21(d) - Disposal Practices
Schedule 4.24(a) - Employees
Schedule 4.25(a) - Employee Benefit Plans
Schedule 4.25(g) - Family and Medical Leave Act
Schedule 4.28 - Subsequent Events
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<PAGE>
Schedule 4.29 - Customers and Suppliers
Schedule 4.30 - Brokerage
Schedule 4.31 - Affiliate Transactions
Schedule 4.33 - Bank Accounts; Power of Attorney; Other
Schedule 7.8 - Retained Employees
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as
of the 19th day of March, 1999, by and among JBL ACQUISITION CORP., a Wisconsin
corporation (the "Buyer"), JBL SCIENTIFIC INCORPORATED, a California corporation
(the "Seller"), and GENTA INCORPORATED, a Delaware corporation, being the sole
shareholder of the Seller (the "Shareholder").
RECITALS
WHEREAS, the Seller is engaged in the development, manufacture and
sale of specialty chemical products, including DNA reagents used in the
synthesis of oligomers (the "Business");
WHEREAS, the Seller leases and uses certain real property and owns,
leases and uses certain tangible and intangible assets used in the Business,
including, without limitation, intellectual property, buildings and
improvements, machinery and equipment, vehicles, inventory, contract rights and
prepaid expenses and receivables;
WHEREAS, the Buyer desires to purchase all of the assets related to
the Business other than the Excluded Assets referred to below and to assume only
certain specific liabilities associated with the Business, and the Seller
desires to sell and transfer to the Buyer those assets and liabilities, while
retaining environmental and all other liabilities, all as more fully set forth
below;
WHEREAS, the Shareholder, in consideration of the sale of those
assets and the assumption of those liabilities, agrees to be party to the
Agreement and to guarantee the Seller's performance and each and every
obligation of the Seller under this Agreement and the transactions contemplated
hereby; and
WHEREAS, Promega Corporation, a Wisconsin corporation ("Promega"),
in consideration of the purchase of those assets and the assumption of those
liabilities, is willing to guarantee the Buyer's payment of the Purchase Price
(as defined by below), including the payments of obligations under the Note, the
Buyer's obligations under the Lease (as defined below) and the Buyer's
obligations under the Quality Assurance Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual agreements and covenants contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Buyer, Promega, the Seller and the Shareholder, hereby agree
as follows:
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ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Defined Terms. Capitalized terms used herein have the meanings
set forth in Section 13.1.
1.2 Purchased Assets. Subject to the terms and conditions of this
Agreement, and in reliance upon the representations, warranties, covenants and
agreements made in this Agreement by the Buyer, the Seller and the Shareholder
(1) the Buyer shall purchase, accept and acquire from the Seller, and the Seller
shall sell, transfer, convey, assign and deliver to the Buyer, all of its right,
title and interest in and to the assets and properties of the Seller (but
excluding Excluded Assets) used or held in the conduct of or in connection with
the Business, whether tangible or intangible, real, personal or mixed, and
wherever located (the "Seller Purchased Assets"), and (2) the Buyer shall
purchase, accept and acquire from the Shareholder, and the Shareholder shall
sell, transfer, convey, assign and deliver to the Buyer, all of its right, title
and interest in and to the assets and properties of the Shareholder specified in
Section 1.2(o) (the "Shareholder Purchased Assets"; together with the Seller
Purchased Assets, the "Purchased Assets"). The Purchased Assets include, without
limitation, the Seller's or, in the case of Section 1.2(o), the Shareholder's
right, title and interest in and to the following, except as otherwise provided
in Sections 1.3, 1.5 and 3.3.
(a) All Intellectual Property of the Seller and all goodwill
associated with the foregoing, all goodwill associated with
respect thereto, licenses and sublicenses granted and obtained
with respect thereto and rights thereunder, remedies against
infringements thereof and rights to protection of interests
therein under the laws of all jurisdictions;
(b) All retail and non-retail inventories of the Seller of whatever
kind, including, without limitation, merchandise, supplies,
accessories, finished goods, work-in-process and raw materials
(the "Inventories");
(c) All present and future rights of the Seller to payment for goods
sold or services rendered whether or not earned by performance,
including, without limitation, trade and other accounts
receivable, all notes receivable and all other amounts receivable
(the "Receivables");
(d) All prepaid expenses, advance payments, deposits and rights to
receive discounts, refunds, rebates, awards and the like;
(e) All leaseholds and subleaseholds, and improvements, fixtures and
appurtenances thereto, including, without limitation, leases
relating to the parcels of land with the legal description of
which is described on Schedule 1.2(e) attached hereto
(collectively, the "Real Estate");
(f) All equipment (building or office), machinery, reactors,
lyophilizers, chemical manufacturing equipment, prototypes,
parts, components, projects in process,
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furniture, appliances, artwork, computers, computer terminals and
printers, telephone systems, telecopiers and photocopiers, office
supplies and office equipment and other tangible personal
property of every kind and description, which are owned or leased
by the Seller, or are utilized in connection with the operations
of the Business upon or within the Real Estate, including,
without limitation, those items listed on Schedule 1.2(f)
attached hereto, but excluding the Inventories and the Vehicles
(the "Equipment");
(g) All motor vehicles, including, without limitation, those listed
on Schedule 1.2(g) attached hereto (the "Vehicles");
(h) All contracts, leases, subleases, arrangements, commitments and
other agreements of the Seller (other than the Granada Leases),
including, without limitation, all customer agreements, vendor
agreements, purchase orders, installation and maintenance
agreements, hardware lease or rental agreements, contract claims
and all other arrangements and understandings related to the
Business, including, without limitation, those items which are
listed on Schedule 4.18 (the "Contracts");
(i) All qualifications, registrations, filings, privileges,
franchises, immunities, licenses, permits, authorizations and
approvals issued by Governmental Authorities to the Seller which
are used or required in order for the Seller to own and operate
the Business, including, without limitation, all certificates of
occupancy and certificates, licenses and permits relating to
zoning, building, housing, safety, Environmental Laws, fire and
health (the "Permits");
(j) All Records;
(k) All sales, marketing and expansion plans, strategic plans,
projections, studies, reports and other documents and data
(including, without limitation, creative materials, advertising
and promotional matters and current and past lists of customers,
suppliers, vendors and sources) related to the Business, and all
training materials and marketing brochures related to the
Business;
(l) The Seller's goodwill related to the Business;
(m) All of the Seller's rights and remedies, under warranty or
otherwise, against a manufacturer, vendor or other Person for any
defects in any Purchased Asset;
(n) All deposits held by the Seller with respect to services to be
performed or products to be delivered after the Closing;
(o) All patents, patent applications and other Intellectual Property
of the Shareholder set forth in the Intellectual Property
Assignment made by the Shareholder in favor of the Buyer;
(p) All other properties, assets and rights of every kind, character
or description which
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are owned by the Seller and which are not Excluded Assets; and
(q) All causes of action, choses in action and rights of recovery
with respect to any of the foregoing.
1.3 Excluded Assets. The Purchased Assets shall not include, and the
Seller shall retain, the following assets (the "Excluded Assets"):
(a) The Seller's rights under this Agreement;
(b) The Seller's minute books, stock record books, corporate
franchise and authorizations to do business as a foreign
corporation and tax returns;
(c) The Seller's cash and cash equivalents;
(d) The Seller's environmental policies and procedures;
(e) All bank or investment accounts of the Seller;
(f) All causes of action, choses in action and rights of recovery
that may arise in connection with the discharge by the Seller of
any Excluded Liability or rights of recovery or contribution in
respect of any Excluded Liability;
(g) Any claims of the Seller for refunds of income and other taxes
attributable to periods prior to the closing;
(h) All tangible personal property of the Shareholder in the
possession of the Seller, all of which is listed on Schedule
1.3(h);
(i) All Records relating to Excluded Assets or Excluded Liabilities;
(j) Any Intellectual Property and know-how related to therapeutic
applications of antisense technology, including but not limited
to, manufacturing, storage, packaging, handling, distribution and
quality control information related to compound G3139; control
oligonucleotides related to G3139; phosphorothioates and modified
backbone structures and components thereof related to G3139;
analytical testing and control information relating to such
compounds; stability information and information relating to
preclinical and clinical development and testing of such
compounds; and all written Records pertaining to the above;
(k) The Granada Leases;
(l) Employee-related assets not being assumed by the Buyer;
(m) All insurance policies of the Seller;
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(n) All assets listed on Schedule 1.3(n); and
(o) All rights and obligations under the Granada Leases.
Nothing in this Section 1.3 shall prevent the concurrent use of
know-how by the Buyer to the extent such know-how is necessary and sufficient
for the Buyer to assume control of and to conduct the Business.
1.4 Closing. The closing (the "Closing") of the purchase and sale of
the Purchased Assets shall take place at 10:00 a.m., local time, on the Closing
Date, at the offices of Michael Best & Friedrich LLP, One South Pinckney Street,
Suite 700, Madison, Wisconsin 53703, or at such other time and place as may be
mutually agreed to by the Buyer and the Seller. The "Closing Date" means the
second business day following the satisfaction or waiver of all conditions to
the obligations of the parties to consummate the transactions contemplated
hereby (other than conditions with respect to action the respective parties will
take at the Closing), or such other date as may be mutually agreed to by the
Buyer and the Seller. The Closing shall be effective as of 12:01 a.m. on the
Closing Date; provided, however, that the Buyer shall have no further obligation
under this Agreement if the conditions set forth in Article VIII have not been
satisfied by the Seller or expressly waived by the Buyer on or before May 15,
1999.
1.5 Assets Not Assignable.
(a) To the extent that any interest in any of the Purchased Assets
is not capable of being assigned, transferred or conveyed without the consent,
waiver or authorization of any Person and that consent, waiver or authorization
is not obtained, or if such assignment, transfer or conveyance or attempted
assignment, transfer or conveyance would constitute a breach of any Contract or
other Purchased Asset, or a violation of any law, statute, decree, rule,
regulation or other governmental edict or is not immediately practicable,
notwithstanding anything to the contrary contained herein, this Agreement shall
not constitute an assignment, transfer or conveyance of such interest, or an
attempted assignment, transfer or conveyance of such interest (such interests
being hereinafter collectively referred to as "Restricted Interests"). The
entire beneficial interest in any Purchased Assets subject to a restriction as
described above, and any other interest in such Purchased Assets, which are
transferable notwithstanding such restriction, shall be transferred from the
Seller to the Buyer as provided in this Section 1.5.
(b) Anything in this Agreement to the contrary notwithstanding, the
Seller shall not be obligated to transfer to the Buyer any Restricted Interests
without the Buyer or the Seller first having obtained all consents, waivers and
authorizations necessary for such transfers. In consultation with the Buyer as
to the practicalities of proposed actions, the Seller shall use its reasonable
efforts to assist the Buyer in obtaining such consents, waivers and
authorizations and to resolve any impracticalities of assignment referred to in
Section 1.5(a) hereof.
(c) To the extent that the consents, waivers and authorizations
referred to in Section 1.5(a) hereof are not obtained by the Buyer or the
Seller, or until the impracticalities of transfer referred to therein are
resolved, the Seller shall use reasonable efforts to (i) provide to the Buyer,
at the request of the Buyer and at the Seller's expense, the benefits of any
Restricted
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Interests, (ii) cooperate in reasonable and lawful arrangements designed to
provide such benefits to the Buyer and (iii) enforce, at the request of the
Buyer for the account of the Buyer, any rights of the Seller arising from any
Restricted Interests (including the right to elect to terminate in accordance
with the terms thereof upon the request of the Buyer).
ARTICLE II
PURCHASE PRICE
2.1 Payment of the Purchase Price.
(a) The payment by the Buyer to the Seller for the Purchased Assets
on the Closing Date (the "Preliminary Purchase Price") shall be SIX MILLION TWO
HUNDRED THOUSAND DOLLARS ($6,200,000) payable on the Closing Date in the
following manner:
(i) The delivery of the Note in an aggregate principal
amount of ONE MILLION TWO HUNDRED THOUSAND DOLLARS
($1,200,000);
(ii) TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) of the
Preliminary Purchase Price (the "Adjustment Amount")
shall be retained by the Buyer until any adjustment
to the Preliminary Purchase Price is determined in
accordance with Section 2.2; and
(iii) The balance of the Preliminary Purchase Price shall
be paid in cash to the Seller.
(b) The amounts paid in cash pursuant to Section 2.1(a) shall be by
wire transfer of same-day funds to an account designated in writing to the Buyer
by the Seller prior to the Closing.
2.2 Post-Closing Adjustment to Preliminary Purchase Price.
(a) Purchase Price Adjustment. The Preliminary Purchase Price
assumes the Net Book Value of the Purchased Assets on the Closing Date will be
at least $1,768,000 (the "Estimated Net Book Value"). The Preliminary Purchase
Price shall be reduced on a dollar-for-dollar basis by the amount that the
actual Net Book Value of the Purchased Assets determined as of the Closing Date
and reflected on the Closing Balance Sheet (the "Final Net Book Value") is less
than the Estimated Net Book Value. The Preliminary Purchase Price, as reduced by
this Section 2.2, is the "Purchase Price."
(b) Net Book Value. As used herein, the term "Net Book Value" shall
mean the book value of the Purchased Assets calculated in accordance with GAAP
on a basis consistent with the preparation of the Financial Statements less the
value of the Operating Accruals; provided, however, the Purchased Assets
acquired pursuant to the Biogenex License Agreement shall not include any
increases in the assets attributable to any payments made under such license
after December 31, 1998; provided, further, such definition is modified as to
Inventories as set forth in
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the following sentence. Inventories shall be valued on the basis of the lower of
cost (first-in, first-out) or market in accordance with GAAP, excluding the
following: (a) all slow-moving, obsolete or damaged merchandise included in
reserves established on a basis consistent with the Inventories shown on the
Latest Balance Sheet; (b) items with an expiration date prior to the twelve
month anniversary of the Closing Date; (c) products that do not meet current
quality standards and specifications of the Seller; and (d) finished goods in
quantities on hand in excess of quantities sold in the twenty-four (24)
preceding months up to and including the Closing Date.
(c) Closing Balance Sheet. Within sixty (60) days after the Closing
Date, the Buyer shall cause Ernst & Young LLP (the "Buyer's Accountants") to
prepare a draft audited balance sheet of the Business as of the close of
business on the Closing Date in accordance with GAAP applied on a basis
consistent with the preparation of the Financial Statements (the "Closing
Balance Sheet"). The Closing Balance Sheet shall consist solely of those
Purchased Assets and the Operating Accruals normally included in the Seller's
historical balance sheets. For purposes of measuring the carrying value of any
element of the Closing Balance Sheet, the assets and liabilities referred to
above will be presented as though the transactions contemplated herein had not
occurred and in accordance with GAAP consistently applied by the Seller.
(d) Dispute Resolution. The Closing Balance Sheet and any
supporting documentation may be reviewed by a firm of independent certified
public accountants selected by the Seller (the "Seller's Accountants"). In
connection with the preparation of the Closing Balance Sheet, the Buyer's
Accountants shall conduct a physical count of the Inventories as of the Closing
Date. The Seller's Accountants may audit the work papers used in the preparation
of the Closing Balance Sheet, and the Seller shall grant the Buyer's Accountants
full access to all work papers and other documents and information and to all
personnel as may be reasonably requested. If the Seller has any objection to the
draft Closing Balance Sheet, it shall deliver a detailed statement describing
its objection to the Buyer within thirty (30) days after receiving the draft
Closing Balance Sheet. The Buyer and the Seller shall meet (if necessary) in an
attempt to stipulate to the purchase price adjustment described in Section
2.2(a) (or stipulate to such portion thereof with respect to which there is no
dispute). If the parties do not agree upon a final resolution within fifteen
(15) days after the Buyer has received the Seller's objections, the Buyer's
Accountants and the Seller's Accountants shall mutually select a third firm of
independent public accountants (the "Dispute Accountants") to resolve any
remaining objections. The determination of the Dispute Accountants shall be
binding on the parties. The Buyer and the Seller shall pay equally all fees and
expenses of the Dispute Accountants. No party may unreasonably withhold its
consent to the appointment as Dispute Accountants of a firm of independent
accountants suggested by another party.
(e) Modification of the Closing Balance Sheet. If the Buyer and the
Seller agree upon a change to the Closing Balance Sheet, or the Dispute
Accountants determines that a change should be made to the Closing Balance
Sheet, the Buyer shall promptly cause the Buyer's Accountants to modify
appropriately the Closing Balance Sheet. All references in this Agreement to the
Closing Balance Sheet, other than in Section 2.2(c), 2.2(d) and 2.2(e), shall be
to the Closing Balance Sheet as initially prepared by the Buyer and accepted by
the Seller, or to the Closing Balance Sheet as modified by the Seller pursuant
to agreement of the Buyer and the Seller or a determination of the Dispute
Accountants, as applicable.
(f) Payment of Purchase Price Reduction. After the Closing Balance
Sheet is in final
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form, if the Final Net Book Value reflected on the Closing Balance Sheet is less
than the Estimated Net Book Value, then the Buyer shall retain such difference
from the Adjustment Amount. If the Final Net Book Value as of the Closing Date
is greater than the Estimated Net Book Value, no adjustment shall be made. After
deducting any adjustments to the Preliminary Purchase Price as set forth in this
Section 2.2(f), the Buyer shall pay the remainder of the Adjustment Amount to
the Seller in same day funds on the day following the date the Closing Balance
Sheet is in final form. In the event of a dispute regarding the Closing Balance
Sheet, any undisputed amounts shall be promptly paid, and any disputed amounts
shall be promptly paid upon resolution of the dispute.
2.3 Purchase Price Allocation. The parties agree to allocate the
Purchase Price as set forth on Schedule 2.3 for all federal, state and local
income tax purposes (including IRS Form 8594), and will not take any
inconsistent or contrary position therewith for any other purpose.
2.4 Sales and Transfer Taxes. The Seller shall pay any and all
transfer, sales, purchase, use, value added, excise or similar tax imposed under
the laws of the United States, or any state or political subdivision thereof,
which arises out of the transfer by the Seller to the Buyer of any of the
Purchased Assets.
2.5 Prorations.
(a) Real and personal property taxes for the Purchased Assets for
1999 shall be prorated on the Closing Date based upon the taxes assessed for
1999; but if the taxes assessed for 1999 are not known on the Closing Date, such
taxes shall be prorated based upon the taxes assessed for 1998 and shall be
re-prorated within ten (10) days after the 1999 tax assessment and rate shall
become available with appropriate payment made.
(b) The Seller shall order final readings for utility services, such
as gas, electricity, water and sewer services, as of the Seller's close of
business on the day before the Closing Date, and prorated charges for such
utility services shall be reflected on the Closing Balance Sheet.
ARTICLE III
LIABILITIES
3.1 Assumption of Liabilities. As additional consideration for the
Purchased Assets, the Buyer shall, on the Closing Date, by its execution and
delivery of the Assignment, Bill of Sale and Assumption Agreement, assume and
agree to pay when due and perform when required only the following (the "Assumed
Liabilities"):
(a) all current liabilities of the Seller classified as trade
payables or operating accruals as set forth on the face of
the Closing Balance Sheet (rather than in any notes
thereto);
(b) all written and oral obligations of the Seller under the
Contracts which constitute Purchased Assets and all
obligations under written and oral Contracts entered into
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by the Seller in the Ordinary Course of Business between
the date of this Agreement and the Closing Date and which
do not violate any covenant in this Agreement, but as to
any obligation, only to the extent that payment is for
goods, services or other consideration to another party
that are delivered, performed or provided on or after the
Closing Date; and
(c) accrued vacation owing to employees of the Seller up to a
maximum of four weeks per employee.
provided, however, that the Buyer shall not assume any obligation to the extent
the existence thereof violates or is in breach of any of the representations,
warranties and covenants of the Seller or the Shareholder in this Agreement.
3.2 Non-Assumption of Liabilities. Except only as expressly provided
in Section 3.1, the Buyer shall not be responsible for, assume, pay, perform,
discharge, or accept any liabilities, debts or obligations of the Seller of any
kind whatsoever, whether actual, contingent, accrued, known or unknown,
including, without limitation, any relating to interest-bearing debt,
intercompany indebtedness owing from the Seller to the Shareholder, notes to
Affiliates or other related Persons, interest and termination penalties on
indebtedness, taxes, employee compensation, severance, pension, profit-sharing,
vacation in excess of four weeks per employee, health insurance, disability
insurance or other employee benefit plans and programs, worker's compensation,
breach or negligent performance of any contract, or breach of warranty relating
thereto, liabilities resulting from breach of contract, torts (including,
without limitation, product liability claims), illegal activity, unlawful
employment or business practice, infringement of intellectual property rights,
claim for environmental liability or remediation or any other liability or
obligation whatsoever. All such non-assumed liabilities, debts and obligations
(collectively, the "Excluded Liabilities") shall remain the responsibility of
the Seller which shall pay and discharge the same when and as due.
3.3 Employee Benefit Plans. The Buyer shall not assume, honor or
accept any employee benefit plan or stock option plan of the Seller, including
but not limited to any employee pension benefit plan within the meaning of
Section 3(2) of ERISA. Except for the obligation of the Buyer with respect to
accrued vacation set forth in Section 3.1(c) and except for liabilities
resulting from any failure by the Buyer to meet its obligations under Sections
7.8 or 7.13 of this Agreement, the Seller shall be solely responsible for
satisfying all obligations (whether arising under federal, state or local law,
or pursuant to contract) which may arise or which may have arisen prior to the
Closing, in connection with the employment by the Seller of the Seller's
employees, the creation, funding or operation of any of the Seller's employee
benefit plans that cover any of the Seller's employees, or which may arise as a
result of the transactions described in this Agreement, but excluding any
liabilities incurred by the Seller as a result of the Buyer's failure to meet
its obligations under Sections 7.8 or 7.13 of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND SHAREHOLDER
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In order to induce the Buyer and Promega to enter into this
Agreement, the Seller and the Shareholder, jointly and severally, make the
following representations and warranties to the Buyer and Promega (which
representations and warranties shall survive the Closing to the extent provided
in Section 10.4), each of which shall be deemed to be independently material and
relied upon by the Buyer and Promega, regardless of any investigation made by,
or information known to, the Buyer and Promega. Any matter described on the
disclosure schedules attached hereto and incorporated herein shall be set forth
with reference to each separate Section of this Agreement to which the matter
relates.
4.1 Ownership, Organization and Qualification. The Seller and the
Shareholder are corporations duly incorporated and in good standing under the
laws of the State of California and the State of Delaware, respectively, have
not filed articles of dissolution and have a perpetual period of existence. Each
of the Seller and the Shareholder are qualified to transact business as a
foreign corporation in the jurisdictions where it is required to be so
qualified, except where such failure to be qualified would not result in a
Material Adverse Effect.
4.2 Authorization. The Seller and the Shareholder have all necessary
power and authority to enter into and perform the transactions contemplated
hereby in accordance with the terms and conditions hereof. The execution and
delivery of this Agreement, and the performance by the Seller of each of its
obligations contained herein, have been duly approved by the Board of Directors
of the Seller and the Shareholder, and by the Shareholder, in its capacity as
sole shareholder of the Seller. No other corporate authorization by either the
Seller or the Shareholder (including, without limitation, approval by the
Shareholder's shareholders) is required for the execution and delivery of this
Agreement or the performance by each of the Seller and the Shareholder of its
obligations hereunder.
4.3 Enforceability. Assuming the execution and delivery by the Buyer
and Promega have been duly authorized, this Agreement and all other agreements
of the Seller or the Shareholder contemplated hereby are or, upon the execution
and delivery thereof will be, the valid and binding obligations of the Seller
and the Shareholder, respectively, enforceable against them in accordance with
their terms.
4.4 Conflicting Obligations. The execution and delivery of this
Agreement does not, and the consummation of the sale and purchase of the
Purchased Assets will not: (a) conflict with or violate any provisions of the
certificate of incorporation or bylaws of each of the Seller or the Shareholder,
as amended and in effect on and as of the date hereof and on and as of the
Closing Date; (b) conflict with or violate any provisions of, or result in the
maturation or acceleration of, any obligations under any contract, agreement,
instrument, document, lease, license, permit, indenture, or obligation, or any
law, statute, ordinance, rule, regulation, code, guideline, order, arbitration
award, judgment or decree, to which the Seller or the Shareholder is subject or
to which the Seller or the Shareholder is a party; or (c) violate any
restriction or limitation, or result in the termination or loss of any right (or
give any third Person the right to cause such termination or loss), of any kind
to which the Seller or the Shareholder is bound, except, with respect to clauses
(b) and (c), where such conflict, violation or loss would not result in a
Material Adverse Effect on the Business.
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4.5 Subsidiaries. Except as set forth on Schedule 4.5, the Seller
owns no stock or other securities of nor has any investment in any corporation,
joint venture, partnership or other business enterprise. The Seller has no
Subsidiaries.
4.6 Title to Assets. The Seller has good title to all of the Seller
Purchased Assets and the Shareholder has good title to all of the Shareholder
Purchased Assets, in each case, free and clear of any Lien (other than Permitted
Liens).
4.7 Third Party Consents. Except as set forth on Schedule 4.7, no
third party consents, approvals or authorizations are necessary for the
execution and consummation of the transactions contemplated hereby, nor are any
such consents, approvals or authorizations required in order for any of the
Purchased Assets, including without limitation, the Contracts and the Permits,
to be assigned to the Buyer.
4.8 Organizational Documents. Attached as Schedule 4.8 are true,
correct and complete copies of the certificate of incorporation and bylaws of
the Seller and the Shareholder, in each case as amended and in effect on and as
of the date hereof.
4.9 Financial Statements. Attached as Schedule 4.9 are complete
copies of the unaudited financial statements (including December 31, 1998
balance sheets and statements of earnings and cash flow) of the Seller for each
of its last three fiscal years ending December 31 through and including December
31, 1998 (the "Latest Fiscal Year End"), and a complete copy of the unaudited
financial statements (including balance sheets and statement of earnings and
cash flow) of the Seller for the 2-month period ending February 28, 1999 (the
"Latest Balance Sheet Date") (collectively, the "Financial Statements"). The
Financial Statements have been prepared in accordance with GAAP maintained and
applied on a consistent basis throughout the indicated periods, and fairly
present in all material respects the financial condition and results of
operation of the Seller at the dates and for the relevant periods indicated.
True and correct copies have been delivered to Buyer of all written reports
submitted to the Seller or the Shareholder by the Shareholder's auditors since
January 1, 1994, relating to the findings of audits or examination of the books
and records of the Seller and the Shareholder; provided, that such written
reports shall be redacted so that they shall include only those items related to
the Seller.
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4.10 Real Property; Leases. The Seller does not own any real
property. Schedule 4.10(a) sets forth a true and correct summary description of
all Real Estate leased or rented by the Seller. The description of each parcel
of Real Estate describes such parcel fully and adequately. To the Knowledge of
the Seller and the Shareholder, except as set forth on Schedule 4.10(a), all
buildings, structures and other improvements on the Real Estate are free of
defects that would result in loss to the Business in excess of $25,000. The use
and operation of the Real Estate conform to all applicable building, zoning,
safety, and other laws, statutes, ordinances, rules, regulations, codes,
licenses, material permits, and all other restrictions and conditions, except
where the failure to conform would not result in a Material Adverse Effect. To
the Knowledge of the Seller and the Shareholder, no portion of any of the Real
Estate is located in a flood plain, flood hazard area or designated wetlands
area. Except as set forth on Schedule 4.10(a), neither the Seller nor the
Shareholder has received any written notice of, and neither the Seller nor the
Shareholder has Knowledge of, any assessments for public improvements against
the Real Estate or any written order by any Governmental Authority, any
insurance company which has issued to the Seller or the Shareholder a policy
with respect to any parcel of Real Estate or any board of fire underwriters or
other body exercising similar functions that: (i) relates to material violations
of building, safety or fire ordinances or regulations which have not been
remediated; (ii) claims any material defect or deficiency with respect to any
parcel of Real Estate which has not been remediated; or (iii) requests the
performance of any repairs, alterations or other work to or in any parcel of
Real Estate or in the streets bounding the same that have not yet been
performed. Neither the Seller nor the Shareholder has made any arrangements with
any Governmental Authority for the deferral of taxes or assessments for any
parcel of Real Estate. To the Knowledge of the Seller and the Shareholder, there
is no condemnation, expropriation, eminent domain or similar proceeding
affecting all or any portion of the Real Estate pending or threatened. Except
where the Seller is lessee, to the Knowledge of the Seller and the Shareholder,
there are no leases, subleases, licenses, concessions or other agreements
(written or oral) granting to any Person the right to use or occupy any portion
of each parcel of Real Estate. Except as set forth on Schedule 4.10(a), to the
Knowledge of the Seller and the Shareholder, there are no outstanding options or
rights of first refusal to purchase any parcel of Real Estate or any portion
thereof or interest therein.
4.11 Personal Property. Schedule 4.11 sets forth all items of
personal property of the Seller which have a book value or current estimated
market value in excess of $25,000. Except for such personal property as has been
disposed of in the Ordinary Course of Business since the Latest Balance Sheet
Date, the Seller owns all property reflected on the Latest Balance Sheet, and
will own all property reflected on the Closing Balance Sheet. All tangible
personal property of the Seller is located upon the Seller's premises, except
items in transit or as set forth on Schedule 4.11. To the Knowledge of the
Seller and the Shareholder, all such property set forth on Schedule 4.11 is in
good condition and repair (normal wear and tear excepted).
4.12 All Necessary Assets. The Purchased Assets constitute all of
the material assets which are used in, and all of the assets which are necessary
for, the conduct of the Business, as presently conducted and presently is
proposed to be conducted, subject to Section 1.5.
4.13 Receivables. All of the Receivables (a) have arisen and will
arise solely from bona fide transactions in the Ordinary Course of Business and
are not and will not be subject to
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counterclaim or set-off and are not or will not be otherwise in dispute and (b)
are, and as of the Closing Date will, be good and collectible in full (less only
the allowance for doubtful accounts receivable as set forth on the Latest
Balance Sheet), and will be collected (less only such allowance) within 120 days
following the Closing Date. Schedule 4.13 contains a true and correct aging list
of Receivables as of March 18, 1999, specifying the date of original invoice and
current payment status of each Receivable.
4.14 Inventories. The Inventories of the Seller have been valued at
the lower of cost or market. The values at which Inventories are reflected on
the Financial Statements have been determined on a first-in-first-out basis in
accordance with GAAP consistently applied for all periods. The Inventories which
consist of work-in-process are being completed on schedule and there are no
forfeitures, chargebacks or penalties which have been or will be incurred due to
the failure of the Seller to complete the work-in-progress in a timely manner.
None of the Inventories have been consigned to others, nor is any inventory
consigned to the Seller. All of the Inventories are located at San Luis Obispo,
California.
4.15 Intellectual Property.
(a) The Seller owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property necessary for the
operation of the Businesses. Each item of Intellectual Property owned or used by
the Seller immediately prior to the Closing hereunder which constitute Purchased
Assets will be owned or available for use by the Buyer on identical terms and
conditions immediately subsequent to the Closing hereunder. To the Knowledge of
the Seller and the Shareholder, the Seller has taken all necessary action to
maintain and to protect each item of Intellectual Property that it owns or uses
which constitute Purchased Assets, including, but not limited to, payment of any
and all maintenance fees and annuities.
(b) The Seller has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
of any Person and, except as set forth on Schedule 4.15(b), neither the
Shareholder nor the Seller has received any charge, complaint, claim, demand, or
notice alleging any such interference, infringement, misappropriation, or
violation of any Intellectual Property of any other party, including, but not
limited to, any claim that the Seller must license or refrain from using any
Intellectual Property of any third party.
(c) Schedule 4.15(c) identifies each patent or registration which
has been issued to the Seller with respect to any of its Intellectual Property,
identifies each pending patent application or application for registration which
the Seller has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which the Seller has
granted to any third party with respect to any of its Intellectual Property
(together with any exceptions). The Seller has delivered to the Buyer correct
and complete copies of all such patents, registrations, applications, licenses,
agreements, and permissions (as amended to date) and has made available to the
Buyer correct and complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item. Schedule 4.15(c)
identifies each trade name or unregistered trademark used by the Seller in
connection with any of its businesses. With respect to each item of Intellectual
Property required to be identified in Schedule 4.15(c):
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(i) the Seller possesses all right, title and interest in
and to the item, free and clear of any Lien, license, or other
restriction;
(ii) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing, investigation,
claim, or demand is pending or, to the Knowledge of the Seller and
the Shareholder, is threatened which challenges the legality,
validity, enforceability, use, or ownership of the item; and
(iv) the Seller has not entered into any agreement to
indemnify any Person for or against any interference,
infringement, misappropriation, reexamination, opposition or other
conflict with respect to the item.
(d) Schedule 4.15(d) identifies each and every material item of
Intellectual Property (excluding commercially available computer software) that
any third party owns or licenses and that the Seller uses pursuant to license,
sublicense, agreement, or permission. The Seller has delivered to the Buyer
correct and complete copies of all such licenses, sublicenses, agreements, and
permissions (as amended to date). With respect to each item of Intellectual
Property required to be identified in Schedule 4.15(d), except as stated in
Schedule 4.15(d):
(i) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and in
full force and effect;
(ii) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of
the transactions contemplated hereby (including the assignments
and assumptions referred to in Section 1.2 above);
(iii) to the Knowledge of the Seller and the Shareholder,
no party to the license, sublicense, agreement, or permission is
in breach or default, and no event has occurred which with notice
or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(v) to the Knowledge of the Seller and the Shareholder,
with respect to each sublicense, the representations and
warranties set forth in subsections (i) through (iv) above are
true and correct with respect to the underlying license;
(vi) the underlying item of Intellectual Property is not
subject to any outstanding injunction, judgment, order, decree,
ruling or charge;
(vii) no action, suit, proceeding, hearing, investigation,
claim, or demand is pending or, to the Knowledge of the Seller and
the Shareholder, is threatened which
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challenges the legality, validity, or enforceability of the
underlying item of Intellectual Property; and
(viii) the Seller has never granted any sublicense or
similar right with respect to the license, sublicense, agreement,
or permission.
(e) Except as set forth on Schedule 4.15(e), neither the Seller nor
the Shareholder have any Knowledge of any products, inventions or procedures of
competitors which reasonably could or do infringe or misappropriate any
Intellectual Property of the Seller. The Seller has not given formal or informal
notice of infringement or sent a demand to "cease and desist" to any Person.
4.16 Insurance.
(a) General. Schedule 4.16(a) lists and contains a description of
each policy of insurance owned by the Seller currently in effect (including
without limitation, policies for fire and casualty, liability, worker's
compensation, business interruption, umbrella coverage, products liability,
medical, disability and other forms of insurance) specifying the insurer, amount
of coverage, type of insurance, policy number, deductible limits and any pending
claim in excess of $5,000, whether or not covered by insurance (the
"Insurance"). True and complete copies of each policy of Insurance have been
previously delivered to Buyer. The Insurance is in full force and effect, all
premiums with respect thereto covering all periods up to and including the date
hereof have been paid, and no notice of cancellation or termination has been
received by the Seller with respect to any such policy. To the Knowledge of the
Seller and the Shareholder, the Insurance is sufficient for compliance with all
requirements of law and with all agreements to which the Seller is a party. The
Seller has not received any notice from or on behalf of any insurance carrier
issuing any such policy that: (i) insurance rates will hereafter be
substantially increased; (ii) that there will hereafter be no renewal of any
such policy; or (iii) that alteration of any personal or real property or
purchase of additional equipment, or modification of any method of doing
business, is required or suggested.
(b) Denials of Coverage. The Seller has not been refused any
insurance with respect to the Seller's assets or operations, nor has the
Seller's coverage been limited by any insurance carrier to which it has applied
for or with which it has carried insurance.
(c) Claims. Schedule 4.16(c) sets forth a list of and summary of
information pertaining to, all claims (other than workers' compensation claims)
of property damage and personal injury or death against the Seller which are
currently pending or were made during the preceding three (3) fiscal years or
the current fiscal year. Except as set forth on Schedule 4.16(c), all of such
claims are fully satisfied or are being defended by an insurance carrier and
involve no exposure to the Seller (other than deductibles).
(d) Self-Insurance. Schedule 4.16(d) describes any self-insurance
programs relating to the Business.
4.17 Permits. The Seller possesses all Permits (including, without
limitation, occupancy permits for real estate and permits required pursuant to
Environmental Law) as are necessary for the
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consummation of the transactions contemplated hereby or the conduct of its
business or operations, except where the failure to hold such Permits would not
have a Material Adverse Effect on the Business. Schedule 4.17 sets forth a list
of all Permits and true and complete copies of each written document evidencing
or affecting any Permits have been previously delivered to the Buyer. The Seller
is in compliance with the terms and conditions of all Permits, except where such
noncompliance would not result in a Material Adverse Effect.
4.18 Material Contract. Schedule 4.18 lists the following contracts
and other agreements to which the Seller is a party:
(a) Leases. All leases of real or personal property, excluding the
leases described in Schedule 4.10(a) hereof;
(b) Purchase and Sale Orders. All written and oral agreements,
including purchase orders, relating to the purchase or sale of products,
services or supplies by the Seller other than (i) any such agreements which have
been completely performed and (ii) individual purchase or sales orders issued in
the Ordinary Course of Business for amounts in each case not in excess of
$10,000 individually;
(c) Certain Agreements. All of the following described types of
agreements or documents: (i) distributorship, sales representative or similar
agreements; (ii) license, royalty or similar agreements; (iii) service or
maintenance; (iv) protective services or security; and (v) commission or other
contingent agreements pursuant to which the Seller's obligation to make payments
is in excess of $10,000 per year, or pursuant to which the Seller's obligation
to make contingent payments is dependent upon sales, revenues, income, success
or other performance standard;
(d) Other Financial Obligations. All other written and oral
agreements or commitment which requires the Seller to pay or expend, after the
Closing, more than $10,000 in the aggregate of all such instances with the same
or related parties;
(e) Capital Expenditures. All outstanding written and oral
commitments by the Seller to make a capital expenditure, capital addition or
capital improvement in excess of $10,000;
(f) Employment Contracts. All written and oral employment, bonus,
incentive compensation, profit sharing, stock option, salary-continuation or
other fringe benefit agreements, other than those disclosed in Schedule 4.25(a),
currently in effect or to become effective, or under which any amounts remain
unpaid, on the date of this Agreement or to become payable or effective after
the date of this Agreement;
(g) Non-Compete Covenants. All written and oral covenants not to
compete, non-solicitation covenants and non-disclosure covenants in favor of the
Seller, or binding upon or against the Seller;
(h) Discounts. All agreements, arrangements or programs pursuant to
which the Seller has offered, promised or made available to its customers any
volume discount, rebate, credit or allowance; and
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(i) Non-Ordinary Course Agreements. All other contracts, agreements
and arrangements binding upon the Seller and which was made or entered into
either other than in the Ordinary Course of Business or the performance of which
involves consideration in excess of $10,000.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed on Schedule 4.18 (as amended to date) and a written
summary setting forth the material terms and conditions of each oral agreement
which involve amounts in excess of $10,000 as referred to in Schedule 4.18. With
respect to each such agreement: (i) the agreement is legal, valid, binding,
enforceable, except as enforceability may be limited by (A) bankruptcy,
insolvency, reorganization, moratorium or similar law affecting creditors'
rights generally or (B) general principles of equity, whether considered in a
proceeding in equity or at law, and in full force and effect; and (ii) no party
is in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default, or permit termination, modification
or acceleration under the agreement; and (iii) no party has repudiated any
provision of the agreement.
4.19 Litigation. Except as set forth on Schedule 4.19 or Schedule
4.21(a), there is not now, and there has not been within the last three (3)
years, any litigation, claim, proceeding or investigation pending, or, to the
Seller's or the Shareholder's Knowledge, threatened against or relating to the
Seller, its properties or the Business, or the ability to perform its
obligations under this Agreement. Schedule 4.19 sets forth, with respect to each
item described thereon, the name or title of the action (and parties or
potential parties thereto), a description of the nature of the action or claim,
and an estimate of the maximum liability of the Seller in the event of an
adverse result. Except as so described, neither the Seller nor the Shareholder
have Knowledge of any facts or circumstances which reasonably could be expected
to ripen into litigation, proceeding or investigation that would result in a
Material Adverse Effect. Except as described on Schedule 4.19, there is no
outstanding order, decree or stipulation issued by any Governmental Authority to
which the Seller is a party or subject and which adversely affects or may
adversely affect its properties, business or prospects.
4.20 Compliance With Law. Except as set forth on Schedule 4.21(a),
the conduct of the Business does not violate, nor is the Seller in default
under, any law, statute, ordinance, rule, regulation, code, license, permit,
guideline, order, arbitration award, judgment or decree, and Buyer will not
after the Closing incur any Liability or obligation as a result of any such
violation or default existing at the Closing or arising or accruing thereafter
but based upon conditions existing at the Closing, except where such violation
or default would not have a Material Adverse Effect on the Business. Except as
set forth on Schedule 4.20, no material expenditures are anticipated which are
necessary or appropriate for the continuation of the Business in compliance with
any such law, statute, rule, regulation, code, license, permit, guidelines,
order, arbitration award, judgment or decree.
4.21 Environmental Matters.
(a) Environmental Compliance. Except as set forth in Schedule
4.21(a), (i) the Seller is
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in material compliance with all applicable Environmental Laws and to the
Knowledge of the Seller and the Shareholder, the Leased Property is in material
compliance with all applicable Environmental Laws; (ii) the Seller has furnished
or made available to the Buyer and Promega all communications (either written or
oral) received by the Seller or the Shareholder from a Governmental Authority or
other Person which alleges that the Seller, the Shareholder or the Leased
Property is not in material compliance with any applicable Environmental Law;
(iii) to the Knowledge of the Seller and the Shareholder, neither the Seller nor
the Shareholder is under investigation by any Governmental Authority for the
failure to comply in all material respects with any Environmental Law; (iv)
neither the Seller nor the Shareholder is required to take on behalf of the
Business or at the Real Estate, any Remedial Action by any Governmental
Authority or Environmental Law; and (v) to the Knowledge of the Seller and the
Shareholder, neither the Seller nor the Shareholder has made any statements,
warranties, or representations in any documents submitted to any Governmental
Authority or submittal created pursuant to an obligation imposed by
Environmental Law containing any untrue statement of material fact or omitting
any statement of material fact which render the statements made misleading in
connection with any Environmental Law.
(b) Environmental Permits. The Seller and the Shareholder have
obtained all Environmental Permits necessary for the Seller's operations on the
Leased Property, and all such Environmental Permits are in good standing.
(c) Pending Litigation. Except as set forth in Schedule 4.21(c), to
the Knowledge of the Seller and the Shareholder, there is no Environmental Claim
pending or threatened against the Seller or the Shareholder in connection with
the Leased Property or the Business, operations or actions of the Seller.
Neither the Seller nor the Shareholder has received any notice of any past,
present or future event, condition, circumstance, activity, practice, incident,
action or plan which may give rise to any Environmental Claim based on or
related to the Leased Property.
(d) Disposal Practices. Except as set forth in Schedule 4.21(d), to
the Knowledge of the Seller and the Shareholder, neither the Seller, the
Shareholder nor any other Person has arranged for the disposal, treatment or
recycling of, or transported for disposal, treatment or recycling of any
Environmental Material, including, but not limited to, any Hazardous Waste,
PCB-containing Material, petroleum substance (including crude oil or any
fraction thereof), or petroleum product from the Leased Property to any other
location which has been identified on the National Priority List (NPL), CERCLIS
or state equivalent lists. To the knowledge of the Seller and the Shareholder,
no Environmental Materials have, in a manner that violates any Environmental
Laws, been transported from the Leased Property for purposes of disposal.
4.22 Contingent and Undisclosed Liabilities. The Seller has no
Liabilities, whether such Liabilities are now known or unknown, fixed or
contingent, of any nature whatsoever, except: (i) those fully reflected or
reserved against on the face of the Latest Balance Sheet (rather than in any
notes thereto); (ii) those fully disclosed in this Agreement and the Schedules
hereto; or (iii) Liabilities which do not result in a Material Adverse Effect.
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4.23 Tax Matters.
(a) The Seller has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects. All Taxes
owed by the Seller (whether or not shown on any Tax Return) have been paid. The
Seller is not currently the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where the Seller does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no Liens on any of the
assets of the Seller that arose in connection with any failure (or alleged
failure) to pay any Tax.
(b) The Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, stockholder, or other third party.
4.24 Employees; Labor Matters.
(a) Schedule 4.24(a) lists each of the following:
(i) (A) all officers and directors of the Seller; (B) the names
and current annual salary rates (and bonus, incentive or
commission arrangements) of all full-time and part-time
employees and agents of the Seller; (C) all loans made by
the Seller to its employees and a statement of the terms
thereof; and (D) a list of all of the Seller's employees
who are currently laid-off or on parental, disability or
other leave; and
(ii) All employees who are expected, as of the Closing Date, to
have earned but unused vacation and other personal days (or
earned but unpaid vacation pay in lieu thereof), together
with an estimate of the dollar amount thereof.
(b) The Seller is not a party to any collective bargaining
agreement or bound to any other agreement with a labor union. The labor
relations of the Seller are satisfactory in that there has not been within the
preceding three (3) fiscal years of the Seller and the current fiscal year, nor
is there currently, any strike, walkout or work stoppage; nor, to the Seller's
and the Shareholder's Knowledge, is any such action threatened. Neither the
Seller nor the Shareholder has been notified of any proceedings pending for
certification or representation before the National Labor Relations Board nor,
to the Seller's and the Shareholder's Knowledge, has there been any attempt
within the preceding three (3) fiscal years or the current fiscal year to
organize the employees of the Seller into a collective bargaining unit. To the
Knowledge of the Seller and the Shareholder, there is no investigation pending,
nor is there any uncorrected or unresolved citation, complaint or charge issued,
by any agency responsible for administering or enforcing laws relating to labor
relations, employee safety or health, fair labor standards and equal employment
opportunity nor, to the Knowledge of the Seller and the Shareholder, is any such
proceeding threatened.
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4.25 Employee Benefit Plans.
(a) General. Schedule 4.25(a) sets forth a true and complete list
and brief description of each "employee pension benefit plan" (as defined in
Section 3(2) of ERISA), each "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA) and each and every other employee benefit plan maintained
or contributed to, or required to be contributed to, by the Seller for the
benefit of any officers or employees, current or former, active or inactive, of
the Business, whether on an active or frozen basis (all the foregoing being
herein called "Benefit Plans"). The Seller does not have any formal plan or
commitment, whether legally binding or not, to modify or change any existing
Benefit Plan that would affect any employee or former employee of the Seller.
True, complete and correct copies of the following have been previously
delivered to the Buyer: (i) each Benefit Plan, including any amendments thereto;
(ii) the most recent Form 5500 or Form 5500-C filed with the IRS with respect to
each Benefit Plan (if any such report was required), (iii) the most recent
summary plan description together with each subsequent summary of material
modifications required under ERISA with respect to each Benefit Plan; (iv) each
trust agreement or other funding arrangement relating to each Benefit Plan which
is an employee pension benefit plan as defined in Section 3(2) of ERISA
(hereinafter "Pension Plan"); and (v) all currently effective IRS rulings or
determination letters relating to each Pension Plan.
(b) PBGC. No Pension Plan is subject to Title IV of ERISA and there
are no facts which might give rise to any liability of the Seller under Title IV
of ERISA or which could reasonably be anticipated to result in any claims being
made against the Seller by the Pension Benefit Guaranty Corporation with respect
to any Pension Plan. For purposes of the preceding sentence and Section 4.25(e)
hereof, the term "Seller" shall also include any entity which is under common
control or affiliated with the Seller, within the meaning of Section 4001(b)(1)
of ERISA, and the rules and regulations promulgated thereunder and/or Sections
414(b), (c), (m) or (o) of the Code, and the rules and regulations promulgated
thereunder.
(c) Post-Retirement Benefits. Except as disclosed on Schedule 4.18
or Schedule 4.25(a), no Benefit Plan provides benefits, including without
limitation, death, disability, or medical benefits (whether or not insured),
with respect to current or former employees of the Business beyond their
retirement or other termination of service other than (i) coverage mandated by
applicable law, or (ii) death benefits or retirement benefits under any Pension
Plan.
(d) COBRA. Each "group health plan" (within the meaning of Section
5000(b)(1) of the Code) maintained by the Seller that covers or has covered
employees of the Business, as of the first day of each such group health plan's
first plan year beginning on or after July 1, 1986, has been administered in
compliance with the continuation coverage requirements initially enacted as a
part of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and
as formerly provided under Section 162(k) of the Code and as currently provided
under Sections 601 through 609 of ERISA and Section 4980B of the Code and any
regulations promulgated or proposed under any of those Code or ERISA sections,
except where a failure to administer any such group health plan in compliance
with such laws and regulations would not have a Material Adverse Effect.
(e) Multiemployer Plans. At no time has the Seller been required to
contribute to, or incurred any withdrawal liability (within the meaning of
Section 4201 of ERISA) to any Benefit
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Plan which is a multiemployer plan as defined in Section 3(37) of ERISA and no
event has occurred that could result in any liability of the Seller to any
multiemployer plan.
(f) Foreign Employees. No current officers or employees, active or
inactive, of the Business regularly work at a location outside the United
States.
(g) Family and Medical Leave. Except as disclosed on Schedule
4.25(g), on the date hereof, no employees of the Seller are inactive or are on a
leave of absence covered by the Family and Medical Leave Act of 1993, P.L.
103-3.
4.26 Products Liability. To the Knowledge of the Seller and the
Shareholder, there exists no defect in the design or manufacture of any of the
Seller's products and there is no pending or threatened action, suit, inquiry,
proceeding or investigation by or before any Person relating to any product
alleged to have been manufactured, distributed or sold by the Seller to others,
and alleged to have been defective or improperly designed or manufactured or in
breach of any express or implied product warranty ("Products Liability"). There
exists no pending or, to the Knowledge of the Seller or the Shareholder,
threatened, Products Liability claims. To the Knowledge of the Seller and the
Shareholder, there is no valid basis for any such suit, inquiry, action,
proceeding, investigation or claim. The Seller does not have any Liability (and
there is no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) arising out of any injury to individuals or property as a
result of the ownership, possession, or use of any product manufactured, sold,
leased or delivered by the Seller. The Seller is insured, and has been insured
continuously for the past five years against product liabilities, in accordance
with the insurance policies identified on Schedule 4.16(a) (including a
statement of the name of the insurer, the type of policy, the amounts of
coverage and the applicable deductible limits).
4.27 Product Warranty. All product warranties given by the Seller in
connection with the Business: (a) limit the remedy available to Seller's
customers to the replacement of the warranted goods by Seller, or alternatively,
a refund of the sales price of such goods to customer; (b) expressly disallow
claims for incidental or consequential damages; and (c) expressly disclaim all
other warranties not expressly stated therein, whether express or implied,
including warranties of merchantability, fitness for a particular purpose.
4.28 Events Subsequent to Latest Fiscal Year End. Except as set
forth on Schedule 4.28, since the Latest Fiscal Year End, the Seller has
operated in the Ordinary Course of Business and there has not been any Material
Adverse Effect. Without limiting the generality of the foregoing, since that
date, except as set forth on Schedule 4.28:
(a) The Seller has not sold, leased, transferred, or assigned any of
its assets, tangible or intangible, other than sales of Inventory in the
Ordinary Course of Business or which would not result in a Material Adverse
Effect on the Business;
(b) The Seller has not entered into any agreement, contract, lease
or license (or series of related agreements, contracts, leases, and licenses)
either involving more than $10,000 or outside the Ordinary Course of Business;
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(c) No party (including the Seller) has accelerated, terminated,
modified, or cancelled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, or licenses) involving more than $10,000
individually to which the Seller is a party or by which it is bound;
(d) The Seller has not made any capital expenditure (or series of
related capital expenditures) either involving more than $25,000 individually or
outside the Ordinary Course of Business;
(e) The Seller has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of, any other Person (or series
of related capital investments, loans, and acquisitions) either involving more
than $25,000 individually or outside the Ordinary Course of Business;
(f) The Seller has not issued any note, bond, or other debt security
or created, incurred, assumed, or guaranteed any indebtedness for borrowed money
or capitalized lease obligation;
(g) The Seller has not delayed or postponed the payment of accounts
payable and other Liabilities outside the Ordinary Course of Business;
(h) The Seller has not cancelled, compromised, waived, or released
any right or claim (or series of related rights and claims);
(i) The Seller has not granted any license or sublicense of any
rights under or with respect to any of its Intellectual Property;
(j) There has been no change made or authorized in the certificate
of incorporation or bylaws of the Seller;
(k) The Seller has not issued, sold, or otherwise disposed of any of
its capital stock, or granted any options, warrants, or other rights to purchase
or obtain (including upon conversion, exchange, or exercise) any of its capital
stock;
(l) The Seller has not declared, set aside, or paid any dividend or
made any distribution with respect to its capital stock (whether in cash or in
kind) or redeemed, purchased, or otherwise acquired any of its capital stock;
(m) The Seller has not experienced any damage, destruction, or loss
(whether or not covered by insurance) to its property, other than damage,
destruction or loss that did not, individually or in the aggregate, have a
Material Adverse Effect;
(n) The Seller has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees, except for the
payment of compensation in the Ordinary Course of Business;
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(o) The Seller has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement outside the Ordinary Course of Business;
(p) The Seller has not granted any increase in the base compensation
of any of its directors, officers, and employees outside the Ordinary Course of
Business;
(q) The Seller has not adopted, amended, modified, or terminated any
bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, and employees (or
taken any such action with respect to any other Employee Benefit Plan), other
than as necessary to comply with applicable law (including Section 401(a) of the
Code) and other than in the Ordinary Course of Business;
(r) The Seller has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(s) Neither the Seller nor the Shareholder has entered into any
agreement or arrangement for the sale of the Business or any part thereof or for
the purchase of another business, whether by merger, consolidation, exchange of
capital stock or otherwise (other than with respect to this Agreement);
(t) The Seller has not changed or modified its accounting methods or
practice;
(u) The Seller has not settled, or agreed to settle, any litigation,
arbitration or other proceeding; and
(v) The Seller has not committed to any of the foregoing.
4.29 Customers and Suppliers. Schedule 4.29 lists, in descending
order, those customers of the Seller accounting for at least 5% of annual sales
volume in the Seller's most recently completed fiscal year and the top ten
suppliers of raw materials or supplies accounting for the largest annual expense
to the Seller. The Seller has received no notice, nor do the Seller or the
Shareholder have any Knowledge, that (a) any customer of the Seller who
accounted for five percent (5%) or more of the Seller's sales during its
immediately preceding fiscal year or (b) any supplier to the Seller (if such
supplier could not be replaced by the Seller with no material adverse effect to
it), has terminated or will terminate business relations with the Seller.
4.30 Brokerage. Except as described on Schedule 4.30, neither the
Seller nor the Shareholder has incurred, or made commitments for, any brokerage,
finders' or similar fee in connection with the transactions contemplated by this
Agreement.
4.31 Affiliate Transactions. Except as described on Schedule 4.31,
the Seller: (a) has not had any financial transactions or arrangements (other
than payment of regular salary to Affiliates who are employees) with any
Affiliate since the Latest Fiscal Year End, and (b) does not have and will not
have any present or future obligation to enter into any transaction or
arrangement with any Affiliate. Except as described on Schedule 4.31, no
Affiliate owns, directly or indirectly, or is a
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director, member, officer or employee of, or consultant to, any business
organization which is a competitor, supplier, or customer of the Seller, nor
does any Affiliate own any assets or properties which are used in the Business.
4.32 Guaranties. The Seller is not a guarantor or otherwise liable
for any Liability (including, without limitation, indebtedness) of any other
Person.
4.33 Investment. The Seller (i) understands that the Note has not
been, and will not be, registered under the Securities Act, or under any state
securities laws, and are being offered and sold in reliance upon federal and
state exemptions for transactions not involving any public offering, (ii) is
acquiring the Note solely for its own account for investment purposes, and not
with a view to the distribution thereof (except to the Shareholder), (iii) is a
sophisticated investor with knowledge and experience in business and financial
matters, (iv) has received certain information concerning the Buyer and has had
the opportunity to obtain additional information as desired in order to evaluate
the merits and the risks inherent in holding the Note, (v) is able to bear the
economic risk and lack of liquidity inherent in holding the Note and (vi) is an
Accredited Investor.
4.34 Commission Filings. The Shareholder has filed with the
Commission all reports, registration statements, proxy statements and other
filings (including all notes, exhibits and schedules thereto and documents
incorporated by reference therein) required to be filed by the Shareholder with
the Commission since December 31, 1997 (such reports, registration, statements
and other filings, together with any amendments thereto, are sometimes
collectively referred to as the "Commission Filings"). The Shareholder has
delivered to the Buyer true and complete copies of all Commission Filings within
the past year. The Commission Filings and any forms, reports and other documents
filed by the Shareholder with the Commission after the date of this Agreement
(a) were or will be prepared in all material respects in accordance with the
requirements of the Securities Act and the Exchange Act, as the case may be, and
(b) at the time they were or will be filed with the Commission, did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading. The
Seller has not ever been required to file any form, report or other document
with the Commission. Each of the audited consolidated financial statements and
unaudited interim financial statements (including any related notes or
schedules) included in the Commission Filings was prepared in accordance with
GAAP applied on a consistent basis except as may be indicated therein or in the
notes or schedules thereto, and fairly presents the financial position of the
Shareholder and its consolidated subsidiaries as at the dates thereof and the
results of their operations, cash flows, changes in financial position and
changes in stockholders' equity for the periods then ended.
4.35 Amersham Termination. Neither the Seller nor the Shareholder
has received any notices or other communication from Amersham International,
p.l.c. challenging the validity of the Seller's termination of that certain
agreement dated August 16, 1995 between the Seller and Amersham International,
p.l.c.
4.36 Representations and Warranties True and Correct. The
representations and warranties contained herein, and, subject to the following
sentence, all other documents, certifications, materials and statements or
information given to the Buyer by or on behalf of the
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Seller or Shareholder or disclosed in this Agreement, do not include any untrue
statement of a material fact or omit to state a material fact required to be
stated herein or therein in order to make the statements herein or therein, in
light of the circumstances under which they are made, not misleading.
Notwithstanding the foregoing, neither the Seller nor the Shareholder makes any
representation, warranty or other assurance that any of the financial
information, financial estimates, forecasts or projections contained in that
certain Confidential Memorandum, delivered to Promega via facsimile on October
28, 1998 and relating to the Business, will be realized.
ARTICLE V
REPRESENTATIONS OF THE BUYER
In order to induce the Seller and the Shareholder to enter into this
Agreement, the Buyer makes the following representations and warranties to the
Seller and the Shareholder (which representations and warranties shall survive
the Closing to the extent provided in Section 11.4), each of which shall be
deemed to be independently material and relied upon by the Seller and the
Shareholder, regardless of any investigation made by, or information known to,
the Seller and the Shareholder.
5.1 Ownership, Organization and Qualification. Each of the Buyer and
Promega is a corporation duly incorporated and validly existing under the laws
of the State of Wisconsin, has filed with the appropriate state agency the most
recent annual report required to be filed by it, has not filed articles of
dissolution and has a perpetual period of existence. Each of the Buyer and
Promega are qualified to transact business as a foreign corporation in the
jurisdictions where it is required to be so qualified, except where the failure
to be qualified would not result in a material adverse effect on the operations,
prospects or condition (financial or otherwise) on Promega.
5.2 Authorization. Each of the Buyer and Promega (with respect to
its obligations under Section 12.2) has all necessary power and authority to
enter into and perform the transactions contemplated hereby in accordance with
the terms and conditions hereof. The execution and delivery of this Agreement,
and the performance by each of the Buyer and Promega of each of its obligations
contained herein, have been duly approved by the Buyer's and Promega's Board of
Directors. No other corporate authorization of the Buyer or Promega is required
for the execution and delivery of this Agreement or the performance by them of
their obligations hereunder.
5.3 Enforceability. Assuming the execution and delivery by the
Seller and the Shareholder have been duly authorized, this Agreement and all
other agreements of the Buyer and Promega contemplated hereby and, with respect
to Promega, its obligations under Section 12.2, are or, upon the execution
thereof, will be the valid and binding obligations of each of the Buyer and
Promega enforceable against each of the Buyer and Promega, as applicable, in
accordance with their terms.
5.4 Conflicting Obligations. The execution and delivery of this
Agreement do not, and the consummation of the sale and purchase of the Purchased
Assets will not: (a) conflict with or violate any provisions of the articles of
incorporation of each of the Buyer and Promega;
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(b) conflict with or violate any provisions of, or result in the
maturation or acceleration of, any obligations under any contract, agreement,
instrument, document, lease, license, permit, indenture, or obligation, or any
law, statute, ordinance, rule, regulation, code, guideline, order, arbitration
award, judgment or decree, to which the Buyer or Promega is subject to or which
the Buyer or Promega is a party; or (c) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which the Buyer or Promega is a party or by which it is bound or to which any
of the assets of the Buyer or Promega is subject.
5.5 Litigation. There is no litigation, claim, proceeding or
investigation pending, or to the Buyer's Knowledge, threatened, against the
Buyer or Promega and relating to their ability to perform their obligations
under this Agreement.
5.6 Brokerage. Neither the Buyer nor Promega has incurred, or made
commitment for, any brokerage, finders' or similar fee in connection with the
transactions contemplated by this Agreement.
ARTICLE VI
COVENANTS OF THE SELLER AND THE SHAREHOLDER
The Seller and the Shareholder, jointly and severally, covenant and
agree with the Buyer as follows:
6.1 Access. From the date hereof and until the earlier of (i)
termination of this Agreement pursuant to Article XII and (ii) the Closing Date,
the Buyer and its authorized officers, agents and representatives shall have
full access (upon reasonable prior notice) to all properties, Records,
Contracts, Tax Returns, management letters, work papers of outside auditors and
other documents of the Seller. The Seller and the Shareholder shall cooperate
with the Buyer by using reasonable efforts to arrange meetings among the Seller,
the Buyer and the Seller's customers and suppliers to meet with and respond to
all questions posed by the Buyer concerning the Seller and promptly responding
to, and causing the Seller's and the Shareholder's outside auditors, officers
and employees promptly to respond to, all questions posed by the Buyer
concerning the Seller, the Business, the Purchased Assets, or the condition
(financial or otherwise) or prospects of the Seller.
6.2 Operation of Business. From the date hereof and until the
Closing Date, without the express prior written consent of the Buyer, the Seller
shall not engage in any practice, take any action or enter into any transaction
outside the Ordinary Course of Business. Without limiting the generality of the
foregoing, the Seller shall not:
(a) issue, sell or otherwise dispose of any of its capital stock, or
grant any options, warrants or other rights to purchase or obtain (including
upon conversion, exchange or exercise) any of its capital stock;
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(b) declare, set aside or pay any dividend or make any distribution
with respect to its capital stock (whether in cash or in kind) or redeem,
purchase or otherwise acquire any of its capital stock;
(c) without the prior approval of the Seller, enter into any
agreement with Affiliates or any other Person (other than in the Ordinary Course
of Business) that cannot be terminated upon thirty (30) days' notice without
liability to the Seller and without payment of any cancellation fee or penalty;
or
(d) otherwise engage in any practice, take any action or enter into
any transaction of the sort described in Section 4.28.
6.3 Preservation of Business. From the date hereof and until the
Closing Date, the Seller and the Shareholder shall carry on the Business
substantially in the Ordinary Course of Business and shall use commercially
reasonable efforts to keep the Business intact, including its present
relationships with employees, suppliers and customers and others having business
relations with it. The Seller shall use commercially reasonable efforts to
maintain at all times in inventory quantities of raw materials, finished goods,
spare parts and other supplies and materials sufficient to allow the Buyer to
continue to operate the Business, after the Closing Date, free from any shortage
of such items.
6.4 Insurance and Maintenance of Property. From the date hereof and
until the Closing Date, the Seller shall cause all property owned or leased by
it to be insured against all ordinary insurable risks and shall maintain in
effect all the Insurance, and shall operate, maintain and repair all of its
property in a manner consistent with past practice.
6.5 Compliance with Laws. From the date hereof and until the Closing
Date, the Seller shall comply with all applicable laws, statutes, ordinances,
rules, regulations, guidelines, orders, arbitration awards, judgments and
decrees applicable to, or binding upon, the Seller or the Business, except where
such noncompliance would not have a Material Adverse Effect.
6.6 Supplemental Disclosure. On the Closing Date, the Seller and the
Shareholder shall inform the Buyer in writing of all information, events or
actions which, if this Agreement were signed on the Closing Date, would be
required to be disclosed on the Schedules in order to make the Seller's and the
Shareholder's representations and warranties contained herein true and not
misleading. The delivery thereof by the Seller and the Shareholder shall not
absolve the Seller or the Shareholder from liability for breach of any
representation or warranty which was untrue when made.
6.7 Fulfill Conditions. The Seller and the Shareholder shall use
their best efforts to cause to be fulfilled on or prior to the Closing each of
the conditions set forth in Article VIII hereof.
6.8 Employees. The Seller shall terminate the employment of all of
its employees, other than Robert E. Klem.
6.9 Release of Liens. The Seller shall on or prior to the Closing
Date deliver to the
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Buyer such documents as are necessary to terminate and release all Liens on the
Purchased Assets, except for Permitted Liens, which documents shall be in form
and substance acceptable to the Buyer and shall include without limitation, all
documents necessary to terminate of record all Liens on the Purchased Assets,
except for Permitted Liens.
6.10 Change of Corporate Name. The Seller and the Shareholder agree
to take all action that is necessary to authorize the amendment of the Seller's
certificate of incorporation to change the corporate name of the Seller to a
name which does not include the words "JBL Scientific" and/or words of similar
meaning. At or prior to the Closing, the Seller and the Shareholder shall
provide the Buyer with documentation reasonably satisfactory to the Buyer
evidencing this amendment.
6.11 Documents of Transfer. On the Closing Date, the Seller shall
duly execute and deliver to the Buyer (i) the Assignment, Bill of Sale and
Assumption Agreement and (ii) certificates of title sufficiently endorsed to
transfer the Vehicles to the Buyer. Any applicable transfer fee shall be paid by
the Seller at the Closing.
6.12 Nondisclosure and Noncompetition Agreement. On the Closing
Date, the Seller, the Shareholder and Robert E. Klem shall execute and deliver
to the Buyer the Nondisclosure and Noncompetition Agreement.
6.13 Other Deliveries. On the Closing Date, the Seller shall deliver
to the Buyer the following:
(a) The resolutions of the Boards of Directors of the Seller
and the Shareholder and the Shareholder in its capacity as
the sole shareholder of the Seller authorizing and
approving the execution and delivery of this Agreement and
performance by the Seller and the Shareholder of the
transactions contemplated hereby, certified on behalf of
the Seller and the Shareholder, as applicable, by an
officer of the Seller and the Shareholder, respectively;
(b) Current Uniform Commercial Code and state, local and
federal tax, sales and unemployment compensation tax,
judgment, bankruptcy and similar lien searches showing no
Liens against the Purchased Assets other than Permitted
Liens;
(c) All consents for the assignment of all Contracts and
Permits, which are necessary in order for said Contracts
and Permits to be assigned to the Buyer upon their present
terms (other than those for which, individually or in the
aggregate, would not result in a Material Adverse Effect)
and the Seller shall pay all fees, charges and other costs
that are required or imposed in connection with obtaining
any such consent;
(d) An affidavit that the Seller is not a "foreign person"
within the meaning of Section 1445 of the Code, and stating
the Seller's federal taxpayer identification number, in
form and substance acceptable to counsel for the Buyer; and
(e) All other documents reasonably requested by counsel for the
Buyer to consummate the transactions herein contemplated.
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6.14 Collection of the Receivables. After the Closing, subject to
Section 7.10, the Buyer shall have full power and authority to collect for its
account all Receivables, and to endorse, without recourse to the Seller, in the
name of the Seller, any checks or other instruments of payment received on
account of payment of any such Receivables. Subject to Section 7.10, if, after
the Closing, the Seller receives any payment on account of any such Receivables,
the Seller shall transfer and deliver such payment (endorsed where necessary) to
the Buyer, promptly after receipt.
6.15 Exclusive Dealing. Neither the Seller, the Shareholder, nor any
of their agents or representatives will take, directly or indirectly, any action
to initiate, continue, assist, solicit, negotiate, encourage or accept any offer
or inquiry from any Person (a) to engage in any Business Combination, (b) to
reach any agreement or understanding (whether or not such agreement or
understanding is absolute, revocable, contingent or conditional) for, or
otherwise attempt to consummate, any Business Combination or (c) to furnish or
cause to be furnished any information with respect to the Seller or its assets
to any Person (other than as contemplated in this Agreement) who the Seller or
the Shareholder knows or has reason to believe is in the process of considering
any Business Combination. For purposes hereof, "Business Combination" means any
merger, consolidation or combination to which the Seller is a party, any sale,
dividend, split or other disposition of capital stock or other equity interest
of the Seller or any sale, dividend or other disposition of all or substantially
all of the assets of the Seller.
6.16 Further Assurances. The Seller and the Shareholder, upon
request of the Buyer, shall execute, acknowledge and deliver such other
instruments as reasonably may be requested to more effectively transfer the
Purchased Assets to the Buyer or to otherwise carry out the terms and conditions
of this Agreement.
6.17 Brokerage. Any brokerage, finders' or similar fee incurred in
connection with the transactions contemplated by this Agreement shall be
promptly paid by the Seller or the Shareholder.
6.18 Quality Assurance Agreement. On the Closing Date, the Seller
and the Shareholder shall execute and deliver to the Buyer the Quality Assurance
Agreement.
6.19 Intellectual Property Assignments. On the Closing Date, each of
the Seller and the Shareholder shall execute and deliver to the Buyer its
Intellectual Property Assignment.
6.20 Lipid License Agreement. On the Closing Date, the Seller and
the Shareholder shall execute and deliver to the Buyer the Lipid License
Agreement.
6.21 Biogenex License Agreement. The Seller shall have consummated
the transactions contemplated by the Biogenex License Agreement, including,
without limitation, the licensing of the Amadite technology to the Seller and
any payments required to be made by the Seller has been made.
6.22 Note. The Note shall be imprinted with a legend substantially
in the following form:
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THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO,
OR FOR SALE IN CONNECTION WITH, ANY DISTRIBUTION HEREOF WITHIN THE
MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED. THE PAYMENT OF
PRINCIPAL AND INTEREST ON THIS NOTE IS SUBJECT TO CERTAIN RECOUPMENT
PROVISIONS SET FORTH IN THIS NOTE AND AN ASSET PURCHASE AGREEMENT
DATED AS OF MARCH 19, 1999 (THE "PURCHASE AGREEMENT") BETWEEN THE
BUYER (AS DEFINED BELOW), JBL SCIENTIFIC INCORPORATED AND GENTA
INCORPORATED. NOTWITHSTANDING ANY OTHER PROVISIONS CONTAINED HEREIN,
NO TRANSFER OF THIS NOTE SHALL BE MADE UNLESS CONDITIONS SPECIFIED
IN THE PURCHASE AGREEMENT HAVE BEEN FULFILLED. A COPY OF THE
PURCHASE AGREEMENT IS ON FILE AND AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE BUYER.
The Note shall not be assigned or transferred (other than to the Shareholder)
without the express written consent of the Buyer. Each holder desiring to
transfer the Note first must furnish the Buyer with (i) a written opinion
satisfactory to the Buyer in form and substance from counsel satisfactory to the
Buyer by reason of experience to the effect that the holder may transfer the
Note as desired without registration under the Securities Act and (ii) a written
undertaking executed by the desired transferee satisfactory to the Buyer in form
and substance agreeing to be bound by the recoupment provisions and the
restrictions on transfer contained herein and therein; provided, that the Seller
shall be permitted to transfer the Note to the Shareholder without compliance
with clause (i) above.
6.23 On-Site Contamination. With respect to any further monitoring
and possible cleanup of PCE and chloroform contamination at the facility located
at 277 Granada Drive, San Luis Obispo, California (that contamination, the
"On-Site Contamination"), the Seller shall comply promptly with all directives
from the Regional Water Quality Control Board and other Governmental Authorities
to remain in material compliance with all Environmental Laws, other than those
directives being contested in good faith through appropriate legal proceedings.
The Seller shall determine what actions must be taken after the date of this
Agreement to ensure such compliance. The Seller shall provide the Buyer with any
documents to be submitted to any Governmental Authority, and shall not take any
action with respect to the On-Site Contamination without the Buyer's prior
consent, which may not be unreasonably withheld and must be promptly provided if
it is to be given. The Seller shall bear all costs and expenses incurred in
connection with the On-Site Contamination.
6.24 The Seller's Welfare Plans. Effective as of the end of the day
immediately preceding the Closing Date, except as otherwise provided in this
Section 6.24, Hired Employees shall cease to be covered by the Seller's Welfare
Plans (as hereinafter defined) except the Seller shall be liable for any
vacation pay in excess of four (4) weeks per Hired Employee that has accrued as
of the Closing Date. The Seller shall be responsible for all of the following
claims under the Seller's Welfare Plans, which shall be deemed to have been
"incurred" prior to the Closing Date: (i) under any medical, dental or health
plans for any treatment or service actually rendered prior to the Closing Date
(but not rendered thereafter), regardless of whether the service or treatment is
part of
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an ongoing course of treatment that commenced prior to the Closing Date; (ii)
under any life insurance plans with respect to deaths occurring prior to the
Closing Date; and (iii) for any payments or benefits otherwise incurred or
arising prior to the Closing Date under any other Seller's Welfare Plan. The
Seller shall be responsible for providing all employees of the Business whose
employment is terminated by the Seller and who are covered under a "group health
plan" (within the meaning of Section 5000(b)(1) of the Code) maintained by the
Seller (the "Seller's Group Health Plan"), and the qualified spouses and
dependents of these employees, with continuation coverage under the Seller's
Group Health Plan to the extent required by the provisions of COBRA as currently
set forth in Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the
Code, and the implementing regulations promulgated or proposed under any of
those laws. The Buyer shall have no obligation to provide, nor any liability
for, any benefits of any kind under any of the Seller's Welfare Plans,
including, but not limited to, any COBRA benefits under any group health plan of
the Seller, except to the extent related to a failure by the Buyer to meet its
obligations under Sections 7.8 and 7.13 hereof. For purposes of this Section,
the "Seller's Welfare Plans" shall include each "employee welfare benefit plan"
(within the meaning of Section 3(1) of ERISA) and each other benefit plan,
program, policy or arrangement that is maintained by the Seller, that covers
employees of the Seller who are employed by the Seller in connection with the
Business, and that is not an "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA.
6.25 The Seller's 401(k) Plan. The Seller maintains the JBL
Scientific Savings and Retirement Plan (the "Seller's 401(k) Plan"), a defined
contribution profit-sharing plan with a cash or deferred arrangement that is
intended to be qualified under Sections 401(a) and 401(k) of the Code. The
Seller shall retain sponsorship of the Seller's 401(k) Plan after the Closing
Date and neither the Buyer nor any plan maintained by the Buyer shall be
entitled to any assets of the Seller's 401(k) Plan. The Buyer shall not assume
any responsibility or liability for the Seller's 401(k) Plan, and the Seller and
the Seller's 401(k) Plan shall remain solely and entirely responsible for
satisfying any and all obligations and liabilities arising under the Seller's
401(k) Plan. The accrued benefits under the Seller's 401(k) Plan of all
participants are 100% vested and non-forfeitable.
ARTICLE VII
COVENANTS OF THE BUYER
The Buyer covenants and agrees with the Seller and the Shareholder
as follows:
7.1 Certified Resolutions. On the Closing Date, the Buyer shall
deliver to the Seller a copy of the resolutions of the Boards of Directors of
the Buyer and Promega, authorizing and approving the execution and delivery of
this Agreement and the performance by the Buyer and Promega of the transactions
contemplated hereby, as certified on behalf of the Buyer and Promega, as
applicable, by an officer of the Buyer and Promega, respectively.
7.2 Assignment, Bill of Sale and Assumption Agreement. On the
Closing Date, the Buyer shall execute and deliver to the Seller the Assignment,
Bill of Sale and Assumption Agreement.
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7.3 Nondisclosure and Noncompetition Agreement. On the Closing Date,
the Buyer shall execute and deliver to the Seller and the Shareholder the
Nondisclosure and Noncompetition Agreement.
7.4 Quality Assurance Agreement. On the Closing Date, the Buyer
shall execute and deliver to the Seller and the Shareholder the Quality
Assurance Agreement.
7.5 Lipid License Agreement. On the Closing Date, the Buyer shall
execute and deliver to the Shareholder the Lipid License Agreement.
7.6 Note. On the Closing Date, the Buyer shall execute and deliver
to the Seller the Note.
7.7 Lease. On the Closing Date, the Buyer shall execute and deliver
to Granada Associates, LLC the Lease.
7.8 Employees. On the Closing Date, the Buyer shall offer
employment, effective as of the Closing Date, to all full-time and part-time
employees of the Seller, other than Robert E. Klem, who are active or on leave
for medical or disability reasons or are covered by the Family and Medical Leave
Act of 1993, P.L. 103-3, with employee benefits and perquisites which, in the
aggregate, are substantially comparable to the employee benefits and perquisites
set forth on Schedule 7.8; provided, that each employee shall receive a base
salary that is no less favorable than the base salary set forth on Schedule 7.8.
Employees of the Seller who accept the Buyer's offers of employment and who
become employees of the Buyer as of the Closing Date are referred to herein as
"Hired Employees."
7.9 Preservation of Records. Subject to the following sentence, the
Buyer shall at its own expense (a) preserve and keep the Records for a period of
five (5) years from the Closing and (b) make the Records and its personnel
available to the Seller or the Shareholder at their request. In the event the
Buyer wishes to destroy any Records during the time specified above, it shall
first give thirty (30) days' prior written notice to the Seller and the
Shareholder and the Seller and the Shareholder shall have the right at its
option and expense, upon prior written notice given to the Buyer within that
thirty (30) day period, to take possession of the records within thirty (30)
days after the date of the Seller's notice to the Buyer.
7.10 Uncollectible Receivables.
(a) The Buyer shall promptly assign each Receivable to the Seller
upon the end of the 120-day period following the Closing Date.
(b) The Buyer shall afford the Seller and its representatives a
reasonable opportunity, during normal business hours, to examine and audit the
books and records of the Buyer with respect to the collection of Receivables.
(c) For purposes of determining the collections on Receivables, any
payments received by the Buyer shall be applied against the oldest account owed
by the Person making the payment
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unless that Person indicates to the Buyer that that account is in dispute, in
which event the payment shall be applied against the next oldest Receivable.
(d) The Buyer shall maintain appropriate records with respect to the
Receivables and shall act in good faith to collect the Receivables in accordance
with the Seller's past practices for the collection of accounts receivable;
provided, however, that in no event shall the Buyer be required to institute or
threaten litigation or refuse to accept any purchase order.
(e) All proceeds of any Receivable assigned by the Buyer to the
Seller pursuant to Section 7.10(a) that are collected by the Buyer after the
date that Receivable was so assigned shall be promptly remitted by the Buyer.
The Buyer shall provide to the Seller a copy of such records relating to the
Receivables so assigned to the Seller as the Seller may request, such copies to
be delivered within ten (10) days after the pertinent Receivable is so assigned
or after such request is made, whichever is later.
7.11 Access to Property. From the Closing Date, the Buyer shall
cooperate with the Seller and shall provide the Seller with reasonable access at
reasonable times to the facility located at 277 Granada Drive, so that the
Seller may oversee any monitoring and cleanup activities with respect to the
On-Site Contamination required by the Regional Water Quality Control Board
directives. From the Closing Date, the Buyer shall allow the Seller to use Greg
Frank for up to fifteen (15) hours each month to assist in the Seller's efforts
to comply with all directives, monitoring and clean-up at the facility located
at 277 Granada Drive; provided, that each hour Greg Frank spends assisting the
Seller shall reduce the Buyer's obligations under the Quality Assurance
Agreement by one hour.
7.12 The Buyer's 401(k) Plan. Promega maintains the Promega Profit
Sharing and Salary Deferral Plan (the "Promega 401(k) Plan"), a defined
contribution profit-sharing plan with a cash or deferred arrangement that is
intended to be qualified under Sections 401(a) and 401(k) of the Code. As of the
Closing Date, coverage under the Promega 401(k) Plan shall be extended to all
Hired Employees and credit under the Promega 401(k) Plan shall be given to Hired
Employees for all their service with the Seller, solely for purposes of
eligibility to participate and vesting, to the same extent such service would
have been credited if the service had been performed for Promega, and Promega
shall cause the Promega 401(k) Plan to be amended, to the extent (if any)
necessary, to provide for this crediting of service with the Seller. After the
Closing Date, Promega shall permit Hired Employees who are entitled and who
elect to receive an eligible rollover distribution from the Seller's 401(k) Plan
to direct that the eligible rollover distribution be transferred to the Promega
401(k) Plan in accordance with Section 402(c) of the Code and Promega shall
cause the Promega 401(k) Plan to be amended, to the extent (if any) necessary,
to permit such transfers.
The Buyer shall be responsible for all of the following claims under
the Buyer's Welfare Plans, which shall be deemed "incurred" on or after the
Closing Date: (i) under any medical, dental or health plans for any treatment or
service actually rendered on or after (but not rendered before) the Closing
Date, regardless of whether the service or treatment is part of an ongoing
course of treatment that commenced prior to the Closing Date, (ii) under any
life insurance plans with respect to deaths occurring on or after the Closing
Date, and (iii) for any payments or benefits incurred on or after the Closing
Date under any other Buyer Welfare Plan.
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7.13 The Buyer's Welfare Plans. The Buyer shall not assume or
continue any of the Seller's Benefit Plans. As of the Closing Date, the Buyer
shall provide Hired Employees with employee benefit plans, programs, policies
and arrangements (the "Buyer's Welfare Plans") that provide benefits on an
aggregate basis which are comparable to the benefits provided to Hired Employees
immediately prior to the Closing under the Seller's Welfare Plans. Specifically
with respect to medical and other health-related benefits, the Buyer shall
provide each Hired Employee (and each such Hired Employee's spouses and
dependents) with immediate coverage as of the Closing Date under a "group health
plan" (within the meaning of Section 5001(b) of the Code) maintained by the
Buyer (the "Buyer's Group Health Plan") that provides benefits and includes
terms and conditions which are substantially similar to or better than the
benefits provided and terms and conditions included under the Seller's group
health plan in which each Hired Employee participated immediately prior to the
Closing, and the Buyer shall waive any pre-existing condition exclusions or
restrictions with respect to Hired Employees under the Buyer's Group Health Plan
to the same extent as coverage is provided under the Seller's Group Health Plan.
Each Hired Employee shall receive credit under the Buyer's group health plan for
all amounts paid by each Hired Employee in calendar year 1999 under the Seller's
group health plan for purposes of any applicable deductibles, co-payments or
out-of-pocket maximums. The Buyer shall be solely responsible for providing
Hired Employees with any continuation coverage (and shall have sole liability in
respect of any failure to provide such continuation coverage) under Section
4980B of the Code or Part 6 of Subtitle B or Title I of ERISA resulting from any
"qualifying event" occurring on or after the Closing Date. The Buyer shall grant
full credit to Hired Employees, under the Buyer's Welfare Plans that are not
group health plans, for service with the Seller (or with a predecessor employer
to the extent credited under the corresponding Seller's Welfare Plan) for
purposes of (i) satisfying any and all eligibility and participation
requirements under the Buyer's Welfare Plans and (ii) determining the amount and
duration of any benefits under the Buyer's Welfare Plans to the extent that
service or seniority is a consideration in calculating benefits but the Buyer
shall not be required to credit any service that would result in a duplication
of benefits. The Seller shall have no obligation to provide, nor any liability
for, any benefits of any kind to Hired Employees under any of the Buyer's
Welfare Plans, including, but not limited to, COBRA benefits under any Buyer's
Group Health Plan.
7.14 Employment Terms and Benefits after the Closing Date. Nothing
in this Agreement shall be construed to limit or restrict the Buyer in any way
after the Closing Date with respect to (i) the Buyer's conduct of the Business;
(ii) the Buyer's modification or change in the terms of employment (including
the termination of employment) of any Hired Employee; and (iii) the Buyer's
modification, amendment or termination of any employee benefit plan maintained
or contributed to by the Buyer, including but not limited to any of the Buyer's
Welfare Plans; provided, however, within ninety (90) days from the Closing Date,
no such amendment or modification shall be inconsistent with the requirement
that Hired Employees receive immediate coverage under a group health plan
pursuant to Section 7.13.
7.15 Product Liability Claims. If the Buyer successfully asserts a
claim against the Seller or the Shareholder with respect to a breach of the
representations or warranties contained in Section 4.26, the Buyer shall
promptly assign any rights and remedies, under warranty or otherwise, against
the manufacturers, vendors or other Persons for any defects in the Purchase
Asset giving rise to such claim.
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7.16 Minimum Net Book Value. From and after the Closing Date, until
the third anniversary of the Closing Date, the Buyer shall not cause its Net
Book Value to be more than $500,000 less than the Final Net Book Value, unless
Promega agrees to indemnify the Seller and the Shareholder with respect to
Assumed Liabilities as set forth in Article XI and to assume the Buyer's
obligations under Article XI.
ARTICLE VIII
CONDITIONS OF THE BUYER'S OBLIGATION TO CLOSE
The obligation of the Buyer to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction and
fulfillment or waiver, prior to and on the Closing Date, of the following
express conditions precedent:
8.1 Representation and Warranties. The representations and
warranties in this Agreement made by the Shareholder and the Seller shall be
true and correct in all material respects as of and at the Closing Date with the
same force and effect as though said representations and warranties had been
again made on the Closing Date, and each of the Seller and the Shareholder shall
have furnished the Buyer a certificate to that effect signed on behalf of the
Seller and the Shareholder and by an officer of the Seller and the Shareholder,
respectively.
8.2 Performance of Covenants and Obligations. The Shareholder and
the Seller shall have performed and complied in all material respects with all
of their covenants and obligations under this Agreement which are to be
performed or complied with by them prior to or on the Closing Date, and each of
the Seller and the Shareholder shall have furnished the Buyer a certificate to
that effect signed on behalf of the Shareholder and the Seller and by an officer
of the Seller and the Shareholder, respectively.
8.3 Proceedings and Instruments Satisfactory. All proceedings,
corporate or otherwise, to be taken in connection with the transactions
contemplated by this Agreement, and all documents incident thereto, shall be
satisfactory in form and substance to the Buyer. The Seller shall have made
available to the Buyer for examination the originals or true and correct copies
of all documents which the Buyer reasonably may request in connection with the
transactions contemplated by this Agreement.
8.4 Adverse Change. From and after the date of this Agreement and
until the Closing Date, the Buyer shall have reasonably determined that there
has been no event or condition which has resulted in a Material Adverse Effect
in the Business. Each of the Seller and the Shareholder shall have furnished
with the Buyer a certificate to that effect signed on behalf of the Shareholder
and the Seller and by an officer of the Seller and the Shareholder,
respectively.
8.5 No Litigation. No investigation, suit, action or other
proceeding shall be threatened or pending before any Governmental Authority in
which it is sought to restrain, prohibit or obtain
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damages or other relief in connection with this Agreement or the consummation of
the transactions contemplated hereby.
8.6 Consents, Approvals, Certifications, Licenses and Permits. All
necessary consents, approvals, certifications, licenses and permits with respect
to the transaction contemplated hereby, including, without limitation, the
transfer of the Purchased Assets to the Buyer, the absence of which would have a
Material Adverse Effect.
8.7 Good Standing Certificates. The Seller and the Shareholder shall
have delivered to the Buyer current certificates of good standing relative to
the Seller and the Shareholder recently certified by the Secretary of State or
other appropriate governmental authority of each state or jurisdiction in which
the Seller and the Shareholder, as applicable, are organized or qualified to
transact business.
8.8 Opinion of Counsel. On the Closing Date, the Seller and the
Shareholder shall have delivered to the Buyer the legal opinions of Kramer Levin
Naftalis & Frankel LLP and Sinsheimer, Schiebelhut & Baggett, the Shareholder's
and the Seller's counsel, in substantially the form of Exhibits A-1 and A-2,
respectively, attached hereto.
8.9 Due Diligence. On or prior to March 22, 1999, the Buyer shall
have conducted a due diligence investigation and review of the Purchased Assets,
the Assumed Liabilities, the Business and all matters pertaining thereto that
the Buyer deems relevant and the results of such investigation and review shall
be satisfactory to the Buyer in its sole and absolute discretion, including,
without limitation, any due diligence investigation relating to the Seller's
Intellectual Property and existing Environmental Claims. This Section 8.9 shall
terminate on 12:01 a.m. Eastern Time on March 23, 1999.
8.10 Approval by the Shareholder's Shareholders. A majority of the
voting power of the Shareholder's holders of voting securities shall have
delivered to the Shareholder a written consent in the form previously delivered
to the Buyer.
8.11 Lease. Granada Associates, LLC shall have entered into the
Lease.
ARTICLE IX
CONDITIONS TO THE SELLER'S OBLIGATION TO CLOSE
The obligation of the Seller and the Shareholder to consummate the
transactions contemplated by this Agreement shall be subject to the satisfaction
and fulfillment or waiver, prior to and on the Closing Date, of the following
express conditions precedent:
9.1 Representations and Warranties. The representations and
warranties in this Agreement made by the Buyer and Promega shall be true and
correct in all material respects as of and at the Closing Date with the same
force and effect as though said representations and warranties had been again
made on the Closing Date, and each of the Buyer and Promega shall have furnished
the Seller a certificate to that effect signed on behalf of the Buyer and
Promega by an officer of the Buyer and Promega, respectively.
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9.2 Performance of Covenants and Obligations. The Buyer and Promega
shall have performed and complied with all of its covenants and obligations
under this Agreement which are to be performed or complied with by it prior to
or on the Closing Date, and each of the Buyer and Promega shall have furnished
the Seller a certificate to that effect signed on behalf of the Buyer and
Promega by an officer of the Buyer and Promega, respectively.
9.3 Proceedings and Instruments Satisfactory. All proceedings,
corporate or otherwise, to be taken in connection with the transactions
contemplated by this Agreement, and all documents incident thereto, shall be
reasonably satisfactory in form and substance to the Seller; and, the Buyer
shall have made available to the Seller for examination the originals or true
and correct copies of all documents which the Buyer reasonably may request in
connection with the transactions contemplated by this Agreement.
9.4 No Litigation. No investigation, suit, action or other
proceeding shall be threatened or pending before any Governmental Authority in
which it is sought to restrain, prohibit or obtain damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated hereby.
9.5 Opinion of Counsel. On the Closing Date, the Buyer and Promega
shall have delivered the legal opinion of Michael Best & Friedrich LLP, the
Buyer's and Promega's counsel, in substantially the form of Exhibit A-3 attached
hereto.
ARTICLE X
INDEMNIFICATION BY SELLER AND SHAREHOLDER
10.1 Indemnification. Notwithstanding the Closing, and regardless of
any investigation made by, or on behalf of, the Buyer, or any information known
to the Buyer, the Seller and the Shareholder (collectively, the "Indemnitors"),
subject to the terms and conditions of this Article X, jointly and severally,
indemnify and save the Buyer, its shareholders, officers, directors or employees
(collectively, the "Buyer" as used in this Article X) harmless from and against
any and all losses, claims, damages, liabilities, costs, expenses or
deficiencies including, but not limited to, reasonable attorneys' fees and other
costs and expenses, and including simple interest thereon at the Applicable Rate
(collectively, "Losses") reasonably incident to proceedings or investigations or
the defense or settlement of any claim or claims, incurred by or asserted
against the Buyer or the Purchased Assets due to or resulting from any of the
following: (a) the inaccuracy or breach of any representation or warranty of the
Seller or the Shareholder given in or pursuant to this Agreement; (b) any breach
or default in the performance by the Seller or the Shareholder of any of their
covenants, obligations or agreements in or pursuant to this Agreement; (c) any
liability or obligation of the Seller not expressly assumed by the Buyer
pursuant to this Agreement; and (d) the ownership or conduct of the Business or
the ownership or use of the Seller's assets at any time prior to the Closing, or
any incident, occurrence, condition or claim existing, arising or accruing prior
to the Closing and relating to the operation or conduct of the Business or the
ownership or use of the Seller's assets (including, without limitation, all
Losses due to Environmental Claims, Environmental Releases by any Person prior
to the Closing Date) other than any liability or obligation of the Seller
expressly assumed by the Buyer pursuant to this Agreement. The foregoing are
collectively referred to as "Indemnifiable Damages." The term "Indemnifiable
Damages" shall also include an amount of interest on the amount of such
Indemnifiable Damages (computed before the application of this sentence), which
interest shall be computed at the Applicable Rate in simple interest per annum
from the Closing Date and until paid by the Indemnitors.
10.2 Procedures for Making Claims. If and when the Buyer desires to
assert a claim for Indemnifiable Damages against the Indemnitors pursuant to the
provisions of this Article X, the Buyer shall deliver to the Indemnitors,
reasonably promptly after the Buyer's receipt of a claim or specific and
affirmative awareness of a potential claim, a certificate signed by an officer
(the "Notice of Claim"): (a) stating that the Buyer has paid or accrued (or
intends to pay or accrue) Indemnifiable Damages to which it is entitled to
indemnification pursuant to this Article X and the amount thereof (to the extent
then known); and (b) specifying to the extent possible (i) the individual items
of loss, damage, liability, cost, expense or deficiency included in the amount
so stated, (ii) the date each such item was or will be paid or accrued and (iii)
the basis upon which Indemnifiable Damages are claimed. If the Indemnitors shall
object to such Notice of Claim, the Indemnitors shall simultaneously deliver
written notice of objection (the "Notice of Objection") to the Buyer within
thirty (30) days after the Buyer's delivery of the Notice of Claim. The Notice
of Objection shall set forth the grounds upon which the objection is based and
state whether the Indemnitors object to all or only a portion of the matter
described in the Notice of Claim. If the Notice of Objection shall not have been
so delivered within such thirty (30) day period, all Indemnitors shall be
conclusively deemed to have acknowledged the correctness of the claim or claims
specified in the Notice of Claim for the full amount thereof, and the
Indemnifiable Damages set forth in the Notice of Claim shall be paid to the
Buyer, on demand, in cash.
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10.3 Participation in Defense of Third Party Claims. If any third
party shall assert any claim against the Buyer which, if successful, might
result in an obligation of the Indemnitors to pay Indemnifiable Damages and
which can be remedied to the reasonable satisfaction of the Buyer by the payment
of money damages without further adverse consequence to the Buyer, the
Indemnitors, at the sole expense of the Indemnitors, may assume the primary
defense thereof with counsel reasonably acceptable to the Buyer, but only if and
so long as: (a) the Indemnitors diligently pursue the defense of such claim; and
(b) the Indemnitors acknowledge to the Buyer in writing that the claim, if
resolved or settled with an acknowledgement that the Indemnitors have an
indemnification claim hereunder, is one for which the Indemnitors are obligated
to indemnify the Buyer hereunder. Except with the prior written consent of the
Buyer, which shall not be unreasonably withheld, the Indemnitors shall not
consent to entry of any judgment, or enter into any settlement, that provides
for injunctive or other nonmonetary relief affecting the Buyer or that does not
include as an unconditional term thereof the giving by each claimant or
plaintiff to the Buyer of a release from all liability with respect to such
claim or litigation. If the Indemnitors fail or are unable to so elect to assume
the primary defense of any such claim, the Buyer may (but need not) do so, in
which event the Buyer may defend, settle or compromise the claim, at the expense
and cost of the Indemnitors, in any such manner as the Buyer reasonably deems
appropriate; provided, that, except with the prior written consent of the
Indemnitors, which shall not be unreasonably withheld, the Buyer shall not
consent to entry of any judgment, or enter into any settlement, that provides
for injunctive or other nonmonetary relief affecting either of the Indemnitors
or that does not include as an unconditional term thereof the giving by each
claimant or plaintiff to the Indemnitors of a release from all liability with
respect to such claim or litigation.
10.4 Survival of Representations and Indemnification. The
Indemnitor's obligation to pay Indemnifiable Damages arising out of claims
described in Sections 10.1(b), (c) and (d) shall survive the Closing of this
transaction indefinitely. The representations and warranties contained in
Article IV, and the Indemnitor's obligation to pay Indemnifiable Damages arising
out of Section 10.1(a) hereof, shall survive the Closing Date, as follows:
(a) Fraudulent Breach of Representations; Certain Representations.
In the case of a claim based upon the inaccuracy or breach of a representation
or warranty which was made fraudulently or with respect to any representation or
warranty contained in Sections 4.1, 4.2, 4.3, 4.4(a), 4.5, 4.6 and 4.30,
indefinitely;
(b) Taxes; Environmental. In the case of a claim based upon the
inaccuracy or breach of a representation or warranty contained in Sections 4.21
and 4.23, for a period equal to the applicable statute of limitations;
(c) Inventories. In the case of a claim based upon the inaccuracy or
breach of a representation or warranty contained in Section 4.14, until the
Closing Balance Sheet has been finalized pursuant to Section 2.2(c)-(d) and any
required payment has been made pursuant to Section 2.2(f); and
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(d) All Other Claims. In the case of all other claims based upon the
inaccuracy or breach of any other representation or warranty contained in
Article IV, for a period commencing on the date hereof and ending three (3)
years after the Closing Date.
No claim for recovery of Indemnifiable Damages arising out of Section 10.1
hereof may be asserted by the Buyer after the expiration of the applicable time
period described in this Section 10.4; provided, however, that any claim first
asserted by the giving of a Notice of Claim within the applicable survival
period shall neither be abated nor barred.
10.5 Limitations on Indemnifiable Damages. Notwithstanding the
foregoing, other than Indemnifiable Damages (a) due to fraud or intentional
misrepresentation on behalf of the Seller or the Shareholder or (b) arising out
of an inaccuracy or breach of any representations or warranty contained in
Sections 4.1, 4.2, 4.3, 4.4(a), 4.5, 4.6, 4.21, 4.23 and 4.30, for which there
shall be no limitation on the Seller's breach, (x) the maximum amounts of
Indemnifiable Damages payable by the Seller and the Shareholder arising under
Section 10.1(a) shall not exceed the Purchase Price and (y) the Buyer shall not
be entitled to recover Indemnifiable Damages for any matter described in Section
10.1(a) unless and until the aggregate of all claims for Indemnifiable Damages
asserted pursuant to Section 10.1(a) exceeds $25,000.
10.6 Offset. The Buyer shall be entitled to offset against any
obligations owed by the Buyer to the Indemnitors the sum of all Indemnifiable
Damages that the Buyer is entitled to pursuant to Article X and all other
obligations owed by the Buyer to the Indemnitors under any other agreement,
contract or other arrangement. Without limiting the generality of the foregoing,
the Buyer shall have the option of recouping all or any part of any
Indemnifiable Damages it may suffer (in lieu of seeking any indemnification to
which it is entitled under this Article X) by notifying the Seller that the
Buyer is reducing the principal amount outstanding under the Note. No offset
made by the Buyer pursuant to this Section 10.6 shall constitute a default under
any of the Buyer's payment obligations or, even if it is subsequently determined
that no Indemnifiable Damages or other obligations were due the Buyer, give rise
to any right of acceleration under the Note or any other agreement, contract or
understanding on the part of any of the Indemnitors by reason of such offset.
10.7 Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy (including without limitation any such remedy
arising under Environmental Law) the Buyer may have with respect to the Seller,
the Shareholders or the transactions contemplated by this Agreement.
Notwithstanding the foregoing, each of the Buyer and Promega hereby agrees that
it will not make, and agrees that its officers, directors or employees will not
make, any claim for indemnification against any Person who is or was a director,
officer, employee, or agent of any of the Seller, the Shareholder and their
Affiliates or was serving at the request of any such entity as a partner,
trustee, director, officer, employee, or agent of another entity (each such
Person, a "Protected Shareholder Person") (whether such claim is for judgments,
damages, penalties, fines, costs, amounts paid in settlement, losses, expenses,
or otherwise and whether such claim is pursuant to any statute, charter
document, bylaw, agreement, or otherwise) with respect to any action, suit,
proceeding, complaint, claim, or demand brought by the Buyer or Promega in
connection with the transactions contemplated by this Agreement.
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ARTICLE XI
INDEMNIFICATION BY BUYER
11.1 Indemnification. Notwithstanding the Closing, and regardless of
any investigation made by, or on behalf of, the Seller or Shareholder, or any
information known to the Seller or Shareholder, the Buyer, subject to the terms
and conditions of this Article XI, indemnifies and saves the Seller and the
Shareholder and their shareholders, officers, directors or employees
(collectively, the "Indemnitees") harmless from and against any and all Losses,
reasonably incident to proceedings or investigations or the defense or
settlement of any claim or claims, incurred by or asserted against the
Indemnitees due to: (a) the inaccuracy or breach of any representation or
warranty of the Buyer or Promega given in or pursuant to this Agreement; (b) any
breach or default in the performance by the Buyer of any of its covenants,
obligations or agreements in or pursuant to this Agreement; (c) any Assumed
Liabilities; (d) Losses relating to the operations of the Business after the
Closing Date, including, without limitation, Losses from Environmental Releases
caused by the operations of the Business and Environmental Claims resulting from
the operations of the Business after the Closing; and (e) Losses arising from
the Buyer's due diligence activities at the Real Estate prior to the Closing,
including, without limitation any soil or groundwater testing conducted by or on
behalf of the Buyer. The foregoing are collectively referred to as "Seller
Indemnifiable Damages." The term "Seller Indemnifiable Damages" shall also
include an amount of interest on the amount of such Indemnifiable Damages
(computed before the application of this sentence), which interest shall be
computed at the Applicable Rate simple interest per annum from the date such
Seller Indemnifiable Damages were incurred by the Indemnitees and until paid.
11.2 Procedures for Making Claims. If and when the Indemnitees
desire to assert a claim for Seller Indemnifiable Damages against the Buyer
pursuant to the provisions of this Article XI, the Indemnitees shall deliver to
the Buyer, reasonably promptly after the Indemnitees' receipt of a claim or
awareness of a potential claim, a certificate signed by the Indemnitees (the
"Seller Notice of Claim"): (a) stating that the Indemnitees have paid or accrued
(or intend to pay or accrue) Seller Indemnifiable Damages to which they are
entitled to indemnification pursuant to this Article XI and the amount thereof
(to the extent then known); and (b) specifying to the extent possible (i) the
individual items of loss, damage, liability, cost, expense or deficiency
included in the amount so stated, (ii) the date each such item was or will be
paid or accrued and (iii) the basis upon which Seller Indemnifiable Damages are
claimed. If the Buyer shall object to such Notice of Claim, the Buyer shall
deliver written notice of objection (the "Seller Notice of Objection") to the
Indemnitees within thirty (30) days after the Indemnitee's delivery of the
Seller Notice of Claims. The Seller Notice of Objection shall set forth the
grounds upon which the objection is based and state whether the Buyer objects to
all or only a portion of the matter described in the Seller Notice of Claim. If
the Seller Notice of Claim shall not have been so delivered within such thirty
(30) day period, the Buyer shall be conclusively deemed to have acknowledged the
correctness of the claim or claims specified in the Seller Notice of Claim for
the full amount thereof and the Seller Indemnifiable Damages set forth in the
Seller Notice of Claim shall be paid to the Indemnitees, on demand, in cash.
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11.3 Participation in Defense of Third Party Claims. If any third
party shall assert any claim against the Indemnitees which, if successful, might
result in an obligation of the Buyer to pay Seller Indemnifiable Damages, and
which can be remedied to the reasonable satisfaction of the Seller by the
payment of money damages without further adverse consequences to the Seller, the
Buyer, at the sole expense of the Buyer, may assume the primary defense thereof
with counsel reasonably acceptable to the Indemnitees, but only if and so long
as: (a) the Buyer diligently pursues the defense of such claim; and (b) the
Buyer acknowledges to the Indemnitees in writing that the claim, if resolved or
settled with an acknowledgement that the Buyer has an indemnification claim
hereunder, is one for which the Buyer is obligated to indemnify the Indemnitees
hereunder. Except with the prior written consent of the Indemnitees, which shall
not be unreasonably withheld, the Buyer shall not consent to entry of any
judgment, or enter into any settlement, that provides for injunctive or other
nonmonetary relief affecting the Indemnitees or that does not include as an
unconditional term thereof the giving by each claimant or plaintiff to the
Indemnitees of a release from all liability with respect to such claim or
litigation. If the Buyer fails or refuses so to elect to assume the primary
defense of any such claim, the Indemnitees may (but need not) do so, in which
event the Indemnitees may defend, settle or compromise the claim in any such
manner as the Indemnitees reasonably deem appropriate; provided, that except
with the prior written consent of the Buyer, which shall not be unreasonably
withheld, the Indemnitees shall not consent to entry of any judgment, or enter
into any settlement, that provides for injunctive or other nonmonetary relief
affecting the Buyer or that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to the Buyer of a release from all
liability with respect to such claim or litigation.
11.4 Survival of Indemnification. The Buyer's obligation to pay
Seller Indemnifiable Damages arising out of claims described in Section 11.1(b),
(c), (d) and (e) shall survive the Closing of this transaction indefinitely. The
representations and warranties contained in Article V and the Buyer's
obligations to pay Indemnifiable Damages arising out of Section 11.1(a) shall
survive the Closing Date, as follows:
(a) Fraudulent Breach of Representations; Certain Representations.
In the case of a claim based upon the inaccuracy or breach of a representation
or warranty which was made fraudulently or with respect to any representation or
warranty contained in Sections 5.1, 5.2, 5.3, 5.4(a) and 5.6, indefinitely; and
(b) All Other Claims. In the case of all other claims based upon the
inaccuracy or breach of a representation or warranty contained in Article V, for
a period commencing on the date hereof and ending three (3) years after the
Closing Date.
No claim for recovery of Indemnifiable Damages arising out of Section 11.1(a)
hereof may be asserted by the Indemnitee after the expiration of the applicable
time period described in this Section 11.4; provided, however, that any claim
first asserted by the giving of a Seller Notice of Claim within the applicable
survival period shall neither be abated nor barred.
11.5 Limitations on Indemnifiable Damages. Notwithstanding the
foregoing, other than Seller Indemnifiable Damages (a) due to fraud or
intentional misrepresentation on behalf of the Buyer or Promega or (b) arising
out of an inaccuracy or breach of any representation or warranty contained in
Sections 5.1, 5.2, 5.3, 5.4(a) or 5.6, for which there shall be no limitation,
(x) the
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maximum amount of Seller Indemnifiable Damages on the Buyer's or Promega's
breach payable by the Buyer arising under Section 11.1(a) shall not exceed the
Purchase Price and (y) the Seller shall not be entitled to recover Seller
Indemnifiable Damages for any matter described in Section 11.1(a) unless and
until the aggregate of all claims for Indemnifiable Damages asserted pursuant to
Section 11.1(a) exceeds $25,000.
11.6 Offset. The Seller and the Shareholder shall be entitled to
offset against any obligations owed by the Seller or the Shareholder to the
Buyer or Promega the sum of all Seller Indemnifiable Damages that the Seller or
the Shareholder is entitled to pursuant to Article XI and all other obligations
owed by the Seller or the Shareholder to the Buyer or Promega under any other
agreement, contract or other arrangement. No offset made by the Seller or the
Shareholder pursuant to this Section 11.6 shall constitute a default under any
of the Seller's or the Shareholder's payment obligations or, even if it is
subsequently determined that no Seller Indemnifiable Damages or other
obligations were due the Seller or the Shareholder, give rise to any right of
acceleration under any other agreement, contract or understanding on the part of
the Seller or the Shareholder by reason of such offset.
11.7 Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy the Seller may have with respect to the Buyer or
the transactions contemplated by this Agreement. Notwithstanding the foregoing,
each of the Seller and the Shareholder hereby agrees that it will not make any
claim for indemnification against any Person who is or was a director, officer,
employee, or agent of any of the Buyer, Promega and their Affiliates or was
serving at the request of any such entity as a partner, trustee, director,
officer, employee, or agent of another entity (each such Person, a "Protected
Promega Person") (whether such claim is for judgments, damages, penalties,
fines, costs, amounts paid in settlement, losses, expenses, or otherwise and
whether such claim is pursuant to any statute, charter document, bylaw,
agreement, or otherwise) with respect to any action, suit, proceeding,
complaint, claim, or demand brought by the Seller against the Buyer or Promega.
ARTICLE XII
TERMINATION
12.1 Rights to Terminate. This Agreement may be terminated at any
time prior to the Closing only as follows:
(a) by mutual written consent of the Seller, the Shareholder
and the Buyer;
(b) by the Buyer by giving written notice to the Seller and the
Shareholder on or before March 22, 1999, if the Buyer is
not satisfied with the results of its continuing business,
legal and accounting due diligence of the Seller.
(c) by the Seller and the Shareholder by giving written notice
to the Buyer if the Buyer is in breach of any
representation, warranty or covenant under this Agreement
(and
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neither the Seller nor the Shareholder are then in breach
of any representation, warranty or covenant);
(d) by the Buyer by giving written notice to the Seller and the
Shareholder if the Seller or the Shareholder are in breach
of any representation, warranty or covenant under this
Agreement (and the Buyer is not then in breach of any
representation, warranty or covenant); or
(e) by either the Buyer or the Seller and the Shareholder by
giving written notice to the other parties if the Closing
shall not have occurred on or before May 15, 1999.
Each party's right to termination hereunder is in addition to any of
the rights it may have hereunder or otherwise.
12.2 Effects of Termination. Notwithstanding any other provision of
this Agreement, no termination of this Agreement shall release any party of any
Liabilities arising hereunder for any pre-termination breaches hereof or
intentional misrepresentations made herein.
ARTICLE XIII
GUARANTEE
13.1 Guarantee by the Shareholder. The Shareholder hereby
irrevocably, absolutely and unconditionally guarantees to the Buyer and Promega
(a) the payment of all amounts due and payable by the Seller under this
Agreement and each other agreement, document and instrument executed and
delivered by the Seller in connection with the transactions contemplated by this
Agreement and (b) the performance of all agreements and undertakings of the
Seller under this Agreement and each other agreement, document and instrument
executed and delivered by the Seller in connection with the transactions
contemplated by this Agreement, in each case strictly in accordance with the
terms hereof or thereof.
13.2 Guarantee by Promega. Promega hereby irrevocably, absolutely
and unconditionally guarantees to the Seller and the Shareholder the payment of
the Purchase Price, including the payment of obligations under the Note, the
performance of the Buyer's obligations under Article VII, the Buyer's obligation
to consummate the transactions contemplated by this Agreement if the provisions
of Article VIII of this Agreement are satisfied, the Buyer's obligations under
the Lease and the Buyer's obligations under the Quality Assurance Agreement.
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ARTICLE XIV
DEFINITIONS
14.1 Certain Defined Terms. As used in this Agreement, the following
terms shall have the meanings specified in this Section 14.1 unless the context
otherwise requires.
"Adjustment Amount" has the meaning set forth in Section 2.1(a)(ii).
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"Agreement" means this Asset Purchase Agreement, together with all
Exhibits and Schedules hereto, as amended, restated, supplemented or otherwise
modified from time to time in accordance with the terms hereof.
"Applicable Rate" means 7% per annum.
"Assignment, Bill of Sale and Assumption Agreement" means that
Assignment, Bill of Sale and Assumption Agreement, dated as of the Closing Date,
between the Seller and the Buyer, in substantially the form of Exhibit B
attached hereto.
"Assumed Liabilities" has the meaning set forth in Section 3.1.
"Benefit Plans" has the meaning set forth in Section 4.25(a).
"Biogenex License Agreement" means that certain license agreement
dated as of January 20, 1999, between the Seller and Biogenex, Inc.
"Business" has the meaning set forth in the recitals to this
Agreement.
"Business Combination" has the meaning set forth in Section 6.15.
"Buyer" has the meaning set forth in the first paragraph to this
Agreement.
"Buyer's Accountants" has the meaning set forth in Section 2.2(c).
"Buyer's Group Health Plan" has the meaning set forth in Section
7.13.
"Buyer's Welfare Plans" has the meaning set forth for in Section
7.13.
"Closing" has the meaning set forth in Section 1.4.
"Closing Balance Sheet" has the meaning set forth in Section 2.2(c).
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"Closing Date" has the meaning set forth in Section 1.4.
"COBRA" has the meaning set forth in Section 4.25(d).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the United States Securities and Exchange
Commission.
"Commission Filings" has the meaning set forth in Section 4.35.
"Contracts" has the meaning set forth in Section 1.2(h).
"Dispute Accountants" has the meaning set forth in Section 2.2(d).
"Environmental Claim" means any and all claims, demands, suits,
actions, orders, directives, notices of noncompliance or violation, liens,
investigations or administrative, regulatory or judicial proceedings by any
Person alleging potential liability or responsibility for enforcement,
penalties, fines, forfeitures, damages, losses, costs, costs for Remedial Action
taken, governmental response costs, natural resource damages, property damages,
personal injury or bodily injury arising out of, based on or resulting from: (A)
the presence, use, manufacture, processing, distribution, production,
generation, handling, transport, storage, disposal, labeling, discharge,
release, threatened release, treatment, control or cleanup of any Environmental
Material at any location; or (B) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law; or (C) any and all
claims by any person or Governmental Authority seeking damages, contribution,
indemnification, costs, compensation or injunctive relief resulting from the
presence or Environmental Release of any Environmental Material.
"Environmental Law" means any Legal Requirement which relates to or
otherwise imposes liability, obligations, responsibility, or standards with
respect to zoning, land use, pollution, or the restoration, repair, remediation
or protection of natural resources, human health or the environment (including
ambient air, surface water, groundwater, land surface, subsurface soil strata),
including without limitation, any Legal Requirement relating to the presence,
use, manufacture, processing, distribution, production, generation, handling,
transport, storage, disposal, labeling, discharge, release, threatened release,
treatment, control or cleanup of any Environmental Material.
"Environmental Material" means: (A) any petroleum substance,
petroleum product, underground storage tank, underground cistern, radioactive
material, asbestos in any form that is or could become friable, urea
formaldehyde foam insulation, PCB-containing Material; (B) any Hazardous
Substance, Hazardous Material, Hazardous Waste or any other material, substance,
chemical, waste, contaminant or pollutant which is now or hereafter defined as
or determined to be hazardous, extremely hazardous, toxic, dangerous,
restricted, or a nuisance, or words of similar import, under any Environmental
Law; (C) any other material, substance, chemical, waste, contaminant, pollutant
or exposure to which is now prohibited, limited or regulated by any Governmental
Authority or pursuant to any Environmental Law.
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"Environmental Permits" means all permits, licenses, authorizations,
certifications, notices, approvals or authorizations under any Environmental
Law.
"Environmental Release" shall mean any release, spill, emission,
leaking, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the atmosphere, soil, surface water, groundwater or soil.
"Equipment" has the meaning set forth in Section 1.2(f).
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Estimated Net Book Value" has the meaning set forth in Section
2.2(a).
"Excluded Assets" has the meaning set forth in Section 1.3.
"Excluded Liabilities" has the meaning set forth in Section 3.2.
"Final Net Book Value" has the meaning set forth in Section 2.2(a).
"Financial Statements" has the meaning set forth in Section 4.9.
"First Day" has the meaning set forth in Section 7.13.
"GAAP" means United States generally accepted accounting principles
as in effect from time to time.
"Granada Leases" means, collectively, that certain Lease dated as of
February 27, 1990 between the Seller and Sueldo Associates, a California general
partnership, as amended, and that certain Revised and Restated Lease dated as of
March 1, 1990 between the Seller and Granada Associates, LLC, a California
limited liability company, as amended.
"Governmental Authority" means the government of the United States
of America and any other country, and any state, province, municipality or other
governmental unit, or any court, agency, board, bureau, instrumentality,
department or commission (including any court or other tribunal) of any of the
foregoing.
"Hazardous Material" means hazardous materials as defined under the
regulations adopted pursuant to the Hazardous Materials Transportation Act. Such
regulations appear at 49 C.F.R. Part 171, et seq.
"Hazardous Substance" means hazardous substances as defined under
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. ss.9601, et seq. and under comparable state laws.
"Hazardous Waste" means hazardous waste as defined under the
Resource Conservation and Recovery Act, 42 U.S.C.ss.6901, et seq.ss.144.60, et
seq. and other comparable state laws.
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"Hired Employees" has the meaning set forth in Section 7.8.
"Indemnifiable Damages" has the meaning set forth in Section 10.1.
"Indemnitees" has the meaning set forth in Section 11.1.
"Indemnitors" has the meaning set forth in Section 10.1.
"Insurance" has the meaning set forth in Section 4.16(a).
"Intellectual Property" means, with respect to any Person, any and
all United States and foreign intellectual property owned or licensed by that
Person, including, without limitation, (i) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications (including international applications), and
patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (ii)
all trademarks, service marks, trade dress, logos, trade names, brand names and
corporate names (including, without limitation, in the case of the Seller, the
name "JBL Scientific" and all derivatives thereof), together with all
translations, adaptations, derivations, and combinations thereof and including
all goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith, (iii) all copyrightable works, all copyrights,
and all applications, registrations, and renewals in connection therewith, (iv)
all mask works and all applications, registrations, and renewals in connection
therewith, (v) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (vi) all computer
software owned or licensed by the Seller specifically including, but not limited
to, software developed by or for the Seller (including data and related
documentation), (vii) all other proprietary rights, (viii) all copies and
tangible embodiments thereof (in whatever form or medium). Intellectual Property
to be assigned includes, without limitation, the Intellectual Property set forth
in the Intellectual Property Assignments.
"Intellectual Property Assignments" means those certain Intellectual
Property Assignments dated as of the Closing Date, between the Buyer and (i) the
Seller and (ii) the Shareholder, in substantially the forms of Exhibits C-1 and
C-2 respectively, as the same may be amended, restated, supplemented or
otherwise modified from time to time.
"Inventories" has the meaning set forth in Section 1.2(b).
"IRS" means the Internal Revenue Service.
"Knowledge" means, with respect to the Seller and the Shareholder,
the actual knowledge of Kenneth G. Kasses, Thomas G. Burger, Robert E. Klem and
Lauren R. Brown after due inquiry.
"Latest Balance Sheet" means the unaudited balance sheet for the
Business dated as of the Latest Balance Sheet Date and attached in Schedule 4.9.
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"Latest Balance Sheet Date" has the meaning set forth in Section
4.9.
"Latest Fiscal Year End" has the meaning set forth in Section 4.9.
"Lease" means that certain Lease Agreement to be entered into as of
the Closing Date, between the Buyer and Granada Associates, LLC, containing
terms substantially similar to the terms set forth on Exhibit D hereto, as the
same may be amended, restated, supplemented or otherwise modified from time to
time in accordance with its terms.
"Leased Property" shall mean the Real Estate, as well as any other
real estate heretofore owned or used by Seller in the conduct of the Business.
"Legal Requirement" means any and all statutes, laws, codes,
ordinances, regulations, rules, directives, policy, orders, judgments, writs,
injunctions, rulings, decrees, bylaws or common law (whether presently in effect
or hereinafter enacted, adopted, promulgated or issued) of any Governmental
Authority.
"Liability" means any liability or obligation (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and whether due or to
become due), including, without limitation, any liability for Taxes.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or
other security interest of any kind.
"Lipid License Agreement" means that certain Lipid License Agreement
dated as of the Closing Date, between the Shareholder and the Buyer, in
substantially the form of Exhibit E attached hereto, as the same may be amended,
restated, supplemented or otherwise modified from time to time in accordance
with its terms, pursuant to which the Buyer grants to the Seller an exclusive,
royalty free license to use technology pertaining to cationic lipids described
in Attachment E-1 to the Lipid License Agreement.
"Losses" has the meaning set forth in Section 10.1(a).
"Material Adverse Effect" means a material adverse effect on the
Purchased Assets, operations, prospects or condition (financial or otherwise) of
the Business.
"Net Book Value" has the meaning set forth in Section 2.2(b).
"Nondisclosure and Noncompetition Agreement" means that certain
Consulting and Noncompetition Agreement, dated as of the Closing Date, among the
Buyer, the Seller and the Shareholder, in substantially the form of Exhibit F
attached hereto, as the same may be amended, restated, supplemented or otherwise
modified from time to time.
"Note" means that certain $1,200,000 promissory note dated as of the
Closing Date made by the Buyer in favor of the Seller in substantially the form
of Exhibit G hereto, as the same may be amended, restated, supplemented or
otherwise modified from time to time.
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"Notice of Claim" has the meaning set forth in Section 10.2.
"Notice of Objection" has the meaning set forth in Section 10.2.
"On-Site Contamination" has the meaning set forth in Section 6.23.
"Operating Accruals" means the Assumed Liabilities specified in
Section 3.1(a).
"Ordinary Course of Business" means the ordinary course of business
consistent with past practice (including with respect to quantity and
frequency).
"Owner" has the meaning set forth in the definition of "Subsidiary"
set forth in Section 15.1.
"PCB-containing Material" means polychlorinated biphenyls, including
PCB-laden lubricating or hydraulic oils or transformers or other equipment which
contain dielectric fluid containing polychlorinated biphenyls.
"Pension Plan" has the meaning set forth in Section 4.25(a).
"Permits" has the meaning set forth in Section 1.2(i).
"Permitted Liens" means (a) any Lien for taxes that are not yet due,
(b) any carrier's, warehouseman's, mechanic's, materialman's, repairman's,
landlord's, lessor's or similar statutory lien incidental to the ordinary
conduct of the Business or (c) any municipal and zoning ordinance, recorded
easement, covenant or restriction that does not prohibit or materially interfere
with the present use, or materially affect the present value, of the Business or
the Purchased Assets.
"Person" means an individual, partnership, corporation, limited
liability company, firm, enterprise, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or other
entity of whatever nature.
"Preliminary Purchase Price" has the meaning set forth in Section
2.1(a).
"Products Liability" has the meaning set forth in Section 4.26.
"Promega" has the meaning set forth in the fifth paragraph of the
recitals to this Agreement.
"Promega 401(k) Plan" has the meaning set forth in Section 7.12.
"Protected Promega Person" has the meaning set forth in Section
11.7.
"Protected Shareholder Person" has the meaning set forth in Section
10.7.
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"Purchase Price" has the meaning set forth in Section 2.2(a).
"Purchased Assets" has the meaning set forth in Section 1.2.
"Quality Assurance Agreement" means that certain Quality Assurance
and Quality Control Agreement, between the Buyer and the Shareholder, in
substantially the form of Exhibit H attached hereto, as the same may be amended,
restated, supplemented or otherwise modified from time to time.
"Real Estate" has the meaning set forth in Section 1.2(e).
"Receivables" has the meaning set forth in Section 1.2(c).
"Records" means books of account, ledgers, forms, records,
documents, files, invoices, lab notebooks, archived batch records, chemical
waste disposal records, vendor or supplier lists, plans and other data which are
necessary to or desirable for the ownership, use, maintenance or operation of
the Business and which are owned or used by any Seller, including, without
limitation, all blueprints and specifications, all Tax, personnel, payroll,
payroll tax and labor relations records, all environmental control records,
environmental impact reports, statements, studies and related documents,
handbooks, technical manuals and data, engineering specifications and work
papers, all pricing and cost information, all sales records, all accounting and
financial records, all sales and use Tax returns, reports, files and records,
asset history records and files, all data entry and accounting systems used to
conduct the day-to-day operations of the Business, all maintenance and repair
records, all correspondence, notices, citations and all other documents received
from, sent to or in the Seller's possession in connection with any Governmental
Authority (including, without limitation, federal, state, county or regional
environmental protection, air or water quality control, occupational health and
safety, land use, planning or zoning and any alcohol, beverage or fire
prevention authorities), all plans, maps and surveys of the Real Estate, and all
plans and designs of buildings, structures, fixtures and equipment.
"Remedial Action" means any action taken or required to be taken as
a result of Environmental Law or by demand of Governmental Authority in response
to a known or suspected condition in the environment (including ambient air,
surface water, groundwater, land surface or subsurface soil strata), including,
without limitation, sampling, investigation, monitoring, remedial action,
remediation, removal, response, restoration, repair, replacement, treatment,
clean-up and corrective action.
"Restricted Interests" has the meaning set forth in Section 1.5(a).
"Securities Act" means the Securities Act of 1993, as amended,
including any rules and regulations promulgated thereunder.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended, including any rules and regulations promulgated thereunder.
"Seller" has the meaning set forth in the first paragraph to this
Agreement.
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"Seller Indemnifiable Damages" has the meaning set forth in Section
11.1.
"Seller Notice of Claim" has the meaning set forth in Section 11.2.
"Seller Notice of Objection" has the meaning set forth in Section
11.2.
"Seller Purchased Assets" has the meaning set forth in Section 1.2.
"Seller's Accountants" has the meaning set forth in Section 2.2(d).
"Seller's 401(k) Plan" has the meaning set forth in Section 6.25 .
"Seller's Group Health Plan" has the meaning set forth in Section
6.24.
"Seller's Welfare Plans" has the meaning set forth in Section 6.24.
"Shareholder" has the meaning set forth in the first paragraph to
this Agreement.
"Shareholder Purchased Assets" has the meaning set forth in Section
1.2.
"Subsidiary" means, with respect to any Person (the "Owner") any
corporation or other Person of which securities or other interests having the
power to elect a majority of that Person's board of directors of similar
governing body, or otherwise having the power to direct the business and
policies of that Person 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 Seller.
"Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security, unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated or other tax of any kind whatsoever,
including any interest, penalty or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Vehicles" has the meaning set forth in Section 1.2(g).
14.2 Interpretation. Unless otherwise expressly provided or unless
the context requires otherwise, (a) all references in this Agreement to
Articles, Sections, Schedules and Exhibits shall mean and refer to Articles,
Sections, Schedules and Exhibits of this Agreement; (b) all references to
statutes and related regulations shall include all amendments of the same and
any successor or replacement statutes and regulations; (c) words using the
singular or plural number also shall include the plural and singular number,
respectively; (d) references to "hereof," "herein," "hereby"
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and similar terms shall refer to this entire Agreement (including the Schedules
and Exhibits hereto); and (e) references to any Person shall be deemed to mean
and include the successors and permitted assigns of such Person (or, in the case
of a Governmental Authority, Persons succeeding to the relevant functions of
such Person).
14.3 Other Terms. Except as otherwise specifically provided, each
accounting term used herein shall have the meaning given to it under GAAP.
ARTICLE XV
MISCELLANEOUS
15.1 Survival of Representations and Warranties. All of the
representations and warranties of the parties contained in this Agreement shall
survive the Closing hereunder to the extent provided in Sections 10.4 and 11.4.
15.2 Benefit and Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto, their heirs, successors,
assignees, and beneficiaries in interest; provided, however, that this Agreement
may not be assigned by the Seller or the Shareholder without the prior written
consent of the Buyer.
15.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
(regardless of such State's conflict of laws principles), and without reference
to any rules of construction regarding the party responsible for the drafting
hereof.
15.4 Expenses. Except as otherwise herein provided, all expenses
incurred in connection with this Agreement or the transactions herein provided
for shall be paid by the party incurring such expenses and costs.
15.5 Notices. Every notice or other communication required or
contemplated by this Agreement must be in writing and sent by one of the
following methods: (i) personal delivery, in which case delivery is deemed to
occur the day of delivery; (ii) certified or registered mail, postage prepaid,
return receipt requested, in which case delivery is deemed to occur the day it
is officially recorded by the U.S. Postal Service as delivered to the intended
recipient; or (iii) next-day delivery to a U.S. address by recognized overnight
delivery service such as Federal Express, in which case delivery is deemed to
occur one business day after being sent. In each case, a notice or other
communication sent to a party must be directed to the address for that party set
forth below, or to another address designated by that party by written notice:
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(a) If to the Buyer or Promega,
or both: Promega Corporation
2800 Woods Hollow Road
Madison, WI 53711-5399
Attn: General Counsel
With a copy to: Tod B. Linstroth, Esq.
Michael Best & Friedrich LLP
One South Pinckney Street
Suite 700
Madison, WI 53703
(b) If to the Seller or the
Shareholder, or both: c/o Genta Incorporated
One Ledgemont Center
99 Hayden Avenue, Suite 200
Lexington, MA 02421
Attn: Kenneth G. Kasses, Ph.D.
With a copy to: Monica Lord, Esq.
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
15.6 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument, provided that all
such counterparts, in the aggregate, shall contain the signatures of all parties
hereto.
15.7 Headings. All Section headings herein are inserted for
convenience only and shall not modify or affect the construction or
interpretation of any provision of this Agreement.
15.8 Amendment, Modification and Waiver. This Agreement may not be
modified, amended or supplemented except by mutual written agreement of all the
parties hereto. Any party may waive in writing any term or condition contained
in this Agreement and intended to be for its benefit; provided, however, that no
waiver by any party, whether by conduct or otherwise, in any one or more
instances, shall be deemed or construed as a further or continuing waiver of any
such term or condition. Each amendment, modification, supplement or waiver shall
be in writing signed by the party or the parties to be charged.
15.9 Entire Agreement. This Agreement and the Exhibits and Schedules
attached hereto represent the full and complete agreement of the parties with
respect to the subject matter hereof and supersede and replace any prior
understandings and agreements among the parties with respect to the subject
matter hereof and no provision or document of any kind shall be included in or
form a part of such agreement unless signed and delivered to the other party by
the parties to be charged.
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15.10 Third-Party Beneficiaries. No third parties are intended to
benefit from this Agreement, and no third-party beneficiary rights shall be
implied from anything contained in this Agreement, except that each Protected
Shareholder Person and each Protected Promega Person is a third-party
beneficiary under Sections 10.7 and 11.7, respectively.
15.11 Publicity. The Buyer and the Seller agree that no publicity
announcements or disclosures of any kind concerning the terms of this Agreement
or concerning the transactions contemplated hereby shall be made without the
mutual consent of the Buyer and the Seller, except to the extent that disclosure
is required by law or to accountants, counsel, other professionals and to
lenders on a "need to know" basis who similarly agree to maintain the
confidentiality of the existence of and terms of the Agreement and the
transactions contemplated thereby.
15.12 Specific Performance. Each of the Buyer, Promega, the Seller
and the Shareholder 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 otherwise are breached.
Accordingly, each of the Buyer, Promega, the Seller and the Shareholder agrees
that the other parties shall be entitled to an injunction or injunctions to
prevent breaches of the provisions of this Agreement and all agreements and
transactions contemplated hereby, and to enforce specifically this Agreement and
all agreements and transactions contemplated hereby, and the terms and
provisions hereof or thereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the parties and the matter,
in addition to any other remedy to which it may be entitled, at law or in
equity.
[SIGNATURE PAGE FOLLOWS]
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[Signature Page to Asset Purchase Agreement]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date and year first above written.
JBL ACQUISITION CORP.
By:_______________________________
Its:______________________________
JBL SCIENTIFIC INCORPORATED
By:_______________________________
Its:______________________________
GENTA INCORPORATED
By:_______________________________
Its:______________________________
Promega Corporation hereby executes this Agreement to confirm its
obligations under Section 13.2 of this Agreement.
PROMEGA CORPORATION
By:_______________________________
Its:______________________________
<PAGE>
EXHIBIT A-1
[Form of Legal Opinion of Kramer Levin Naftalis & Frankel LLP]
A-1-1
<PAGE>
EXHIBIT A-2
[Form of Legal Opinion of Sinsheimer, Schiebelhut & Baggett]
A-2-1
<PAGE>
EXHIBIT A-3
[Form of Legal Opinion of Michael Best & Friedrich LLP]
A-3-1
<PAGE>
EXHIBIT B
[Form of Assignment, Bill of Sale and Assumption Agreement]
B-1
<PAGE>
EXHIBIT C-1
[Form of Seller Intellectual Property Assignment]
C-1-1
<PAGE>
EXHIBIT C-2
[Form of Shareholder Intellectual Property Assignment]
C-2-1
<PAGE>
EXHIBIT D
[Summary of Lease Terms]
D-1
<PAGE>
EXHIBIT E
[Form of Lipid License Agreement]
E-1
<PAGE>
EXHIBIT F
[Form of Nondisclosure and Noncompetition Agreement]
F-1
<PAGE>
EXHIBIT G
[Form of Note]
G-1
<PAGE>
EXHIBIT H
[Form of Quality Assurance Agreement]
H-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations contained
in the Company's Quarterly Report on Form 10-Q for the period ended March 31,
1999 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> MAR-31-1998 MAR-31-1999
<CASH> 1,566,288 638,990
<SECURITIES> 892,372 0
<RECEIVABLES> 0 261,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,937,364 4,051,843
<PP&E> 148,245 27,799
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 7,551,293 5,446,967
<CURRENT-LIABILITIES> 2,308,256 2,486,862
<BONDS> 0 0
0 0
634 574
<COMMON> 10,426 15,030
<OTHER-SE> 5,231,977 2,944,501
<TOTAL-LIABILITY-AND-EQUITY> 7,551,293 5,446,967
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 1,792,018 2,202,378
<OTHER-EXPENSES> 0 149,114
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (82,337) (51,691)
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,865,425) (15,783)
<DISCONTINUED> 103,060 (189,407)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,762,365) (547,599)
<EPS-PRIMARY> (0.31) (0.04)
<EPS-DILUTED> (0.31) (0.04)
</TABLE>
